A review of the existing evidence on the degree of internationalization of the innovative activities of multinational enterprises (mnes) reveals three main trends. These are the continuing reliance of firms on the home country as a base for innovation, structural changes in mnes toward more affiliate autonomy, and a small but growing presence of cross-border innovative activities in a group of nontraditional host countries. We argue that these trends pose two interrelated policy challenges for home countries. First, governments need to ensure that the national innovation system enables domestic mnes to engage in global knowledge sourcing in a way that is complementary to their activities in the home base. Second, the continued importance of publicly funded r&d to corporate innovation implies that home countries, along with mnes, need to be actively engaged in the standard setting processes in global markets in order to shape an appropriability regime that allows for the effective capture of economic gains from innovation.