This project is a contribution to the European Commission's Report on European Competitiveness 2010. It aims to analyse the role of foreign-owned firms for R&D and innovation in the European Union. A special focus will be laid on the EU as a host country for innovation activities of firms from outside Europe. Another topic deals with R&D and innovation activities for European firms in other EU countries outside their home country. The study investigates the innovation behaviour of foreign-owned firms, whether and in what respect this behaviour differs from that of domestic firms, and to which extent foreign-owned firms are embedded in the national innovation system and the European Research Area (ERA).The project tackles the following research questions:• What is the share of foreign-owned firms in total innovation activities of EU countries? How do these activities evolve over time?• Can we find differences in the innovation activities of foreign-owned firms in Europe with respect to sector, technology, country of origin or host country? Do foreign-owned firms behave differently from domestic firms?• What is the current status of innovation activities of EU firms outside Europe? What is the extent of the internationalisation of innovation activities in Europe compared to other parts of the world, in particular the US, Japan and other Asian economies? • What is the impact of foreign-controlled innovation activity on the technological capabilities and economic performance of the EU countries?• What challenges and opportunities emerge from the ongoing internationalisation of innovation activities for EU countries? How can Europe maximise the benefits from internationalisation, while minimising potential costs?Empirical analyses mainly rest on firm-level data from the Community Innovation Surveys (CIS) as well as on patent application data. A key contribution of ZEW to this project is panel analysis of foreign-owned firms located in Germany. Particularly, we look whether innovation strategies of foreign-owned firms adapt to the local environment over time or whether these are persistently different.The project results have become established in the Competitiveness Report 2010 of the European Union.