Environment and Planning A 1999, volume 31, pages 735-751 Innovation and profitability of global food firms. Testing for differences in the influence of the home base R Rama Instituto de Economia y Geografla, Consejo Superior de Investigaciones Cientificas (CSIC), Pinar 25, 28006 Madrid, Spain; e-mail: rrama@ieg.csic.es Received 25 July 1997; in revised form 3 February 1998 Abstract. In previous research it has been assumed that the performance of enterprises in global markets, especially companies in high-tech sectors, is often associated with the amount of effort devoted to innovation by the home country. In this article I test empirically such assumptions in a low-tech sector, the food and beverage processing industry, with evidence provided by a sample of 4572 foreign patents granted to nationals from major OECD countries over 1969-88 and data on 96 major multinationals. In contrast with most previous research, this study investigates within-industry differences in the impact of the home base. My findings show that the theory is applicable to low-tech sectors. However, the impact of the home country is not homogeneous within industries, and depends on size and international experience of firms. Smaller multinational enterprises and newcomers achieving high profitability tend to be based in countries where the food and beverage national industry is technologically intensive, whereas geography is less crucial to explaining the international performance of very large companies. 1 Introduction Nation-based mechanisms of production and diffusion of technology seem particularly important to the food and beverage (F&B) processing industries of advanced countries. Geography plays a relevant role in innovation processes, given the need of these industries to integrate a broader than ever range of techniques in conjunction with suppliers, the influential role played by national systems of innovation in agriculture as well as food manufacturing, and the incremental nature of technological change in this industry. In this paper I explore whether food and drink multinational enterprises'(MNEs) achieving high profitability in global markets tend to come from countries which provide positive technological externalities, and test for differences among firms. To study externalities, I shall focus on a body of knowledge which includes both F&B innovation and the application to food of other technologies, such as those of packaging materials, equipment, instrumentation, and biotechnology. Some studies analysing why rates of profit differ across industrial countries observe that countrywide factors are often more discriminating than ones specific to company or industry (see Geroski and Jacquemin, 1988). In their analysis of the comparative growth and profit rates of the largest European and Japanese firms, Jacquemin and Saez (1976, page 271) conclude that "the differences between economies are reflected in the leading firms that control a dominant share of them". More relevant to my purpose are the studies investigating why firms based in particular countries are able to obtain higher rates of profit (or growth) in world industries, and the findings of these studies which claim that international performance is shaped largely by the firm's proximate technological 'environment' in the home base. In 'technology-trade' theories, the level of innovation in the home base is one of the most important factors in explaining the competitiveness of nationally controlled firms in world markets (see Soete, 1987). (1) (1) A related set of issues has been addressed by the literature on the MNE. The eclectic theory of international production includes the distribution of 'created resources', such as technology, among the location-specific variables favouring home or host countries (Dunning, 1993, page 99).