Determinants of MNE Subsidiaries Decision to Set up Own R&D Laboratories: The Choice of Region

We test for the determinants of Multinational Enterprise (MNE) headquarters decisions to augment the innovative capabilities of the MNE group by granting mandates to their subsidiaries to set-up own R&D labs in UK regions, using a unique primary data set.Our findings suggest that the best predictor for a subsidiary receiving a mandate, is the strength of its `productive opportunity (the interaction between internal competencies and external environment). We employ a measure that augments the external environment to include regional agglomeration characteristics.Our findings highlight the importance of subsidiary, industry and locational characteristics, as well asMNE strategy to leverage subsidiary skills in determining the location of R&D activity in the global economy and in enhancing MNE innovative potential.