Chapter 7: Avoid Putting Knowledge at Stake: Selective Sino-Foreign R&D Linkages of MNEs

Whereas MNEs extensively deploy in-house cross-border R&D linkages to facilitate knowledge transfer and protection in host countries rich in advanced technologies, these linkages incur such high management costs that MNEs tend to use them only to create and transfer high-value knowledge. Competitors’ misappropriation of this knowledge could be particularly damaging. In addition, the costly strategy involves high organizational commitment in the host country, which puts MNEs at risk in a world with dynamic geopolitical tensions. In this research, we develop a conceptual framework that incorporates business rivalry between firms and political rivalry between countries to predict MNEs’ deployment of internal R&D linkages in a host country. Our empirical analysis of 145,642 Sino-foreign co-patents applied by 769 MNEs between 2008 and 2022 finds that MNEs used fewer, rather than more, internal R&D linkages connecting to China in the technological areas where China has a relative higher technological competence than the MNEs. This negative relationship is exacerbated by the IP litigation risk in such technological areas in China, and by the bilateral political tensions between China and the home countries of MNEs. These findings contribute to the extant literature on MNEs’ global R&D strategy and the emerging trends towards a new globalization logic.