Operational Localization and R&D Expenditure: Evidence from Investment in China by Taiwanese Firms

Chia-Ching Lin () and Yuh-Jiun Lin
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Chia-Ching Lin: Department of International Business, National Taichung University of Science and Technology, Taiwan
Yuh-Jiun Lin: Chung-Hua Institution for Economic Research, Taiwan

Journal of Economics and Management, 2014, vol. 10, issue 1, 69-90

Abstract: The existing literature contains very few studies of the impact of operational localization by the China-based subsidiaries of Taiwanese business enterprises on the R&D activities of the Taiwan-based parent company. In an attempt to fill this gap in the literature, the present study uses four indicators that can be employed to gauge the degree of operational localization of China-based subsidiaries, focusing on the subsidiaries of Taiwanese companies that are listed on the stock market in Taiwan. The empirical results obtained in the study show that the degree of operational localization existing in the China-based subsidiary has a major impact on R&D-related decision-making in the parent company in Taiwan. Broadly speaking, higher levels of localization in China are associated with reduced R&D expenditure in the Taiwan parent company. This relationship is particularly marked with respect to the localization of sales operations in China.

Keywords: FDI; operational localization; R&D; Taiwanese companies (search for similar items in EconPapers)
JEL-codes: F21 F23 (search for similar items in EconPapers)
Date: 2014
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