The Handbook of Global Science, Technology, and Innovation

Chapter 6 Innovation, Internationalization, and the Transnational Corporation

Grazia Ietto-Gillies

Introduction ¹

Innovation and internationalization are closely linked. Causality between them can go in either and, indeed, in both directions in a dynamic sequence. There are strong theoretical arguments why causation could go either way: from innovation to internationalization and/or from internationalization to innovation. It is, in fact, very likely that the two phenomena are linked by a cumulative causation mechanism. At the micro level, more innovative firms can better compete and thus become more internationalized. At the macro level, countries with a high innovation base will have a better performance on their international business activities compared to less innovative countries.

Conversely, internationalization can impact positively on innovation by setting in train a variety of behavior and learning mechanisms. At the ex-ante level, firms that plan to become involved in foreign markets, be it via exports or foreign direct investment (FDI), are likely to try and improve their innovation performance (Wagner 2007). Moreover, internationalized firms and countries are exposed to diverse cultures, knowledge, and innovation environments from which they can learn. The ex-ante strategic behavior as well as the possible ex-post learning from international activities, lead to improved innovation performance. Through time these processes are likely to cumulate, leading ...