The innovation performance of foreign affiliates : evidence from Dutch manufacturing firms

Although multinational companies (MNCs) have increasingly become active in diversifying their technological activities internationally, these activities have rarely been examined with respect to the innovation performance of their affiliates. As foreign affiliates seem to foster innovative activities in host countries, the kind of innovation produced in these firms has hardly been studied. In this context, the paper examines the innovation performance of foreign affiliates with respect to the introduction of ‘real’ innovations, i.e. products that are new to the market (in contrast to ‘imitative’ innovations, those products that are new to the firm). It employs firm-level panel data consisting of a data set of 10,664 firms from the Community Innovation Survey (CIS-2) data in the Netherlands for the years 1994 to 1996. The estimation results support the hypothesis that foreign affiliates positively effect innovative activities in host countries. Our results suggest furthermore that the innovative activities of foreign affiliates are oriented towards producing imitative innovations.