The Internationalization of R&D

In the past decade, policymakers and others in a number of developed countries have expressed concern that firms in their countries appear to be increasingly locating their R&D facilities outside the home country. For example, in Foray and van Ark (2007), we read: “There are concerns expressed at different levels in Europe about the increasing numbers of European companies which are basing their R&D operations outside Europe, at the same time as the number of overseas companies carrying out their R&D in Europe is falling.” The introduction of a recent study from the United States National Academies had this to say: “….the committee is deeply concerned that the scientific and technological building blocks critical to our economic leadership are eroding at a time when many other nations are gathering strength.” There is no doubt about the facts: in just ten years between 1995 and 2004, the share of R&D spent outside the home country by Western European multinationals increased from 26 per cent to 44 per cent, by Japanese multinationals from 5 per cent to 11 percent, and in North American multinationals from 23 per cent to 32 per cent (OECD, 2005). Since then has come the growth of investments by these same multinationals in developing economies, especially Brazil, India, and China. We lack very precise data on the extent of this trend, but recent anecdotal evidence is quite persuasive. The Economist reports that companies in the Fortune 500 have 98 R&D facilities in China and 63 in India (Economist 2010). A recent report by Goldman Sachs identifies new and planned R&D facilities in China, India, and Brazil by such companies as Pfizer, Ford, Microsoft, IBM, Boeing, Intel, and Cisco (Goldman Sachs Group 2010)