Internationalization Effects in a Global Knowledge-Based Industry: A Study of Multinational Pharmaceutical Companies

Abstract

In this chapter, we analyzed the effects of internationalization on innovation, productivity, and firm performance among multinational pharmaceutical companies as representatives of a global knowledge-based industry. The empirical analysis used multiple stepwise regressions based on a sample of 149 firms headquartered in Europe and the US. The results indicate that innovation outcomes are positively correlated to the number of foreign subsidiaries (scope internationalization), whereas surprisingly, formal research and development (R&D) does not seem to directly influence innovation. This suggests that the firms benefit from local overseas subsidiaries to create and implement new innovative offerings. The number of foreign subsidiaries has a U-shaped relationship to patent productivity suggesting that firms can gain advantages by locating cost-intensive activities in low-cost countries and critical tasks in advanced market locations. Firm performance has a U-shaped relationship to sales abroad (scale internationalization) and the relationship is further enhanced by a high focus on R&D. This suggests that sales abroad enable scale economies, where R&D improves quality and relevance of products and thereby boosts performance. Finally, to validate the findings we conducted two semi-structured interviews with representative industry experts and gained further insights for an extended interpretation of results.

Citation

Bennedsen, S.K.B. and Lund-Sørensen, L.L. (2017), "Internationalization Effects in a Global Knowledge-Based Industry: A Study of Multinational Pharmaceutical Companies", Andersen, T.J. (Ed.) The Responsive Global Organization (Emerald Studies in Global Strategic Responsiveness), Emerald Publishing Limited, Leeds, pp. 87-124. https://doi.org/10.1108/978-1-78714-831-420171004