Multiple Factors Driving R&D Offshore
ATLANTA-First it was cheap labor. Now it's research and development. However, contrary to popular belief, low cost alone isn't the reason more and more companies are outsourcing their R&D operations to countries like China and India.
Instead, according to a recent study sponsored by the Ewing Marion Kauffman Foundation (Kansas City, MO), U.S. and Western European companies are sending their R&D work offshore for a number of different reasons. These include market growth potential, quality of R&D talent, university collaboration and intellectual property (IP) protection.
On the plus side, the study, which included a survey of more than 200 multinational companies in over a dozen different industries, showed that U.S. companies still prefer to keep their truly cutting-edge work at home.
But, survey results also showed that in the years to come, China and India will continue expanding their R&D sectors as multinationals seek new market opportunities, access to top scientists and engineers, and collaborative research relationships with foreign universities. Ultimately, the United States could lose the edge that it now enjoys if it doesn't take steps to cultivate its intellectual and scientific resources.
According to the study's authors, Marie Thursby, professor of strategic management at Georgia Tech's College of Management, and Jerry Thursby, professor and chair of economics at Emory University, one of the study's most surprising findings was the role university collaboration plays in the corporate decision-making process. Collaboration was a particularly important factor in the decision to expand R&D into emerging countries, even though they offer less IP protection, the survey shows.
"The study underscores the critical role universities play in a country's national innovation system, not just in the training of new scientists and access to the best talent, but in the ease of developing and licensing technology," says Kauffman Foundation president, Carl Schramm, summing up the report's findings.
According to Marie Thursby, to remain competitive, the United States must maintain the quality of its R&D personnel by providing more basic-research support and removing obstacles to immigration for highly skilled workers. "We are educating the world's best and brightest, but make it difficult for them to stay in America," Thursby says.
In their study, the Thursbys identified and ranked the importance of different factors influencing the location of R&D facilities. They also tracked the R&D work coming into and going out of the United States, identified favored countries for locating R&D work, and outlined trends for future R&D expansion.
More than half of the U.S.-based companies surveyed, said they have either recently expanded or planned to open R&D facilities in China and India. Of the 63 Western European companies responding, 13 said they plan on expanding or locating new R&D facilities in the United States.
The issue of collaborative research between universities and corporations has been a growing concern within the United States. Some observers are saying legal wrangling over intellectual property rights is not only slowing the pace of innovation, but also prompting companies to seek university research partners in other countries.
Although only 22 percent of the surveyed companies' R&D efforts in emerging countries are for new science, Lesa Mitchell, vice president of Advancing Innovation at the Kauffman Foundation, warns that the United States could lose this advantage if it isn't careful.
"The United States would seem to have a comparative advantage in maintaining its innovative leadership through the high caliber of its scientists and its strong protection of IP," Mitchell says. "[But] industry and universities must be alert to removing obstacles to joint research, or emerging countries will overtake us in innovation breakthroughs, and the burst of discovery that has been driving our economy for the past half-century will be over."
Along these same lines, the study's authors say another public policy implication of their findings is that the United States need to encourage immigration of highly skilled workers.
"We are educating the best and the brightest, but make it impossible for them to stay in America and immigrate. We need major immigration reform that welcomes, instead of pushes out, highly skilled workers," says Marie Thursby.
For more information on the study, visit the Ewing Marion Kauffman Foundation at www.kauffman.org.