Overseas R&D subsidiaries contribute to the cross -border knowledge sourcing of MNC headquarter by providing tacit and context specific knowledge and reducing the searching cost of the headquarter

The external R&D, which includes the adoption of the external technology and knowledge in addition to the internal R&D, is one of important factors for the innovation. Especially for small and medium-sized enterprises(SMEs), the external R&D has been considered as a key factor to carry out the innovation more efficiently due to the limitations of their resources. However, most studies related to external R&D have focused on innovation outputs or outcomes. Only a few studies have explored the impact of external R&D on the innovation efficiency. This study therefore investigates whether the external R&D effects the industry’s innovation efficiency and productivity. On this study, we used Korean manufacturing industry data of SMEs from 2012 to 2014 and employed a global Malmquist productivity analysis technique, which is based on the Data Envelopment Analysis(DEA), to assess the innovation efficiency and productivity. Then, the sectoral patterns of both innovation efficiency and productivity are analyzed with respect to the technological intensity, which is introduced by OECD. We show that the gap of innovation efficiency between external and internal R&D groups has gradually decreased because of the continuous improvement of the external R&D group’s performance, while the external R&D group lag behind the internal R&D. In addition, patterns of the innovation efficiency and productivity change were different depending on the technological intensity, which means that the higher the technological intensity, the greater the effect of external R&D.