Introduction We shall show that the activities generating the skills and know-how that give firms competitive advantage are less internationalised than all other dimensions of corporate activity. Even very large corporations in most cases perform most of their R&D at home. As a consequence, companies' innovative activities are significantly influenced by their home country's national system of innovation: the quality of basic research, workforce skills, systems of corporate governance, the degree of competitive rivalry, and local inducement mechanisms, such as abundant raw materials, the price of labour and energy, and persistent patterns of private investment or public procurement. We do not foresee any fundamental changes in future. The efficiency gains from the geographical concentration of innovative activities will remain, even if firms increasingly seek out unique skills in foreign countries. The State will continue to provide infrastructure, incentives and institutions that strongly influence the rate and direction of innovative activities in locally based corporations. There are no mechanisms to ensure that national systems of innovation converge in either their characteristics or their performance. Nor are there any signs of the emergence of a European system of innovation: the dominant system is likely to remain the German one. Other authors have come to similar conclusions, most notably Porter (1990), based mainly on in-depth case studies, and Hu (1992) based on an analysis of the nature and the behaviour of multinational firms. Our research is based on systematic information on the world's largest firms that were technologically active in patenting in the USA in the 1980s. It consists of 587 firms, of which 249 were US owned, 17 from Canada, 143 from Japan and 178 from Europe (Patel and Pavitt, 1991).
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