6.3. Internationalization

The extent to which a country’s businesses, institutions and industries are linked with resources and capabilities located outside the country is likely to positively impact on the innovation performance of that country. Conversely, innovation-intensive firms and countries are more likely to be able to compete successfully in international locations. These propositions are rooted in theoretical analysis and are supported by empirical evidence for various countries. The thematic report “Is the innovation performance of countries related to their internationalization?” [1] looks at the association between innovation and internationalization.

The research identifies three possible levels of internationalization relevant for innovation: the full aggregate level (A) in which internationalization variables are considered for the whole country and all industries; the level of technology-intensive industries (B) where internationalization of countries is considered with respect to these industries; and level (C) reported activities of firms in each country on the basis of data derived from two surveys – the Innobarometer survey and the Community Innovation Survey (CIS). Level A includes inward and outward FDI, imports and exports, mobility of employees and of students. Level B includes inward and outward FDI for technology-intensive manufacturing sectors and for knowledge-intensive services, imports and exports of technology-intensive products, balance of payments debits and credits for knowledge-intensive services, and mobility of research students. Level C includes variables from the Innobarometer (proportions of companies that operated in international markets, outsourced activities to companies located abroad, invested into companies located abroad, cooperated with partners which were located abroad, recruited employees from other countries, carried out market-testing in foreign countries, considered international markets to be the lead markets) and from the CIS (proportions of enterprises that operated in international markets, foreign-owned enterprises, enterprises reporting cooperation with partners abroad).

For each variable normalised indicators of countries’ scores are calculated applying a methodology similar to the one used in the EIS. Summary Globalization Indices (SGI) are then calculated for each of the three levels. The association between innovation and internationalization is tested by calculating correlation coefficients between the Summary Innovation Index (SII) and various SGIs. The results show a clear association between internationalization and innovation at all levels of analysis. The internationalization variables that show association throughout the four levels are those related to outward foreign direct investment, foreign students and foreign employees. The latter show the relevance of cross-border movements of skilled human resources for a positive, virtuous relationship between innovation and internationalization.

The study was exploratory and time series or causality analyses were beyond the scope of research. Nonetheless the results are robust enough to (a) warrant further deepening research; and (b) support the following conclusion. From the analysis of all the results together and from the underlying theoretical background it follows that there is causal interaction between internationalization and innovation and that this leads to a cumulative process in which the innovation and internationalization elements affect each other in a virtuous or vicious circle.

In policy terms, the relationship between innovation and internationalization points to the relevance of both for the performance of countries. The interrelationship between the two suggests that public authorities should consider links between their innovation support to enterprises and support to internationalisation. The strong relationship between innovation performance and the cross-border movement of skilled people, suggests that innovation policy could usefully consider policies that support international mobility, training and secondments.