The changing geography of innovation

Abstract

The Asian century is at our doorstep. Emerging economies like China and India present a major source of not only supply-, but also demand for Western MNCs. Recent evidence suggests that subsidiaries located in emerging economies in Asia increasingly engage in the development of affordable innovation for the large, diverse and highly competitive lower income segments in these countries. To expand to these new market segments, it is argued that Western MNCs should localise R&D, and innovate not only on the product side, but create new business models. Yet, why, when and how changes in the external environment influence the development of affordable innovations by Western MNCs in and for emerging economies, and how MNCs reconfigure their entire corporate value chain to design a low-cost offering for the mass-market in the middle, remains little understood. Therefore, this thesis combines ideas from evolutionary economic geography and international business to explain why and how MNCs adapt their value chains in response to dynamic changes in the external environment. The results highlight the role of large domestic demand as a core factor shaping the changing geography of innovation. Western MNCs respond by operating multiple value chain configurations that target different market segments within emerging economies, leading to more localisation and demand-side diversification. The results suggest that subsidiaries of Western MNCs take on a new role in the MNC’s innovation network in which they serve as a ‘strategic leader for the domestic market’. This thesis builds on in-depth interviews conducted in China, India and Vietnam with managers of three Western MNCs, and presents a compilation of three empirical studies and one systematic literature review. The overarching framework, methods, and findings are discussed in the introductory chapter, the so-called ‘Kappa’.