Globalization of R&D

The National Science Board (part of the National Science Foundation) has released its Science and Engineering Indicators 2011. As the press release states:

The United States remains the global leader in supporting science and technology (S&T) research and development, but only by a slim margin that could soon be overtaken by rapidly increasing Asian investments in knowledge-intensive economies.

The overview section of the report highlights, the trend is not just an increase in R&D expenditures by Asian countries. A large part of the trend is the movement of company R&D activities to these nations.

As more effective communication and management tools have been developed, multinational corporations (MNCs) seeking to access these new markets have evolved global corporate structures that draw on far-flung, specialized, global supplier networks. In turn, host governments have often attached conditions to market access that, along with technology spillovers, have aided in the development of indigenous S&T capabilities.

A story in the Wall Street Journal on Caterpillar and GE illustrates the trend – with both companies recently announcing expansion of their overseas research facilities.

This is a trend that may of us have noted for some time (see earlier postings). Countering and/or adapting to this trend will not be straightforward. It is not a simply matter of just increasing government R&D funding, increasing STEM education or expanding infrastructure investments. All of that will help, but it is not enough. As the report notes, there are strong reasons why companies would like to have research operations in many parts of the world. The U.S. does not have a monopoly on smart people. Being able to tap into the brain power of those smart people is helpful both to the companies as well as to the United States. A stronger world-wide research network benefits everyone in the network. The trick for America is to develop a positive economic role within that network. That will take the creation of a broad economic competitiveness plan (see yesterday’s posting) — a plan that understands the new network and can adapt to it.

One side note. The Indicators study seems to have adopted and included my measure of trade in intangibles. Page O-19 of the Overview notes that:

U.S. trade in commercial knowledge-intensive services and intangible assets–business, financial, and communications services, and payments of royalties and fees–has produced a consistent and growing surplus (figure O-38). It reached a record $108 billion in 2008, sufficient to counterbalance the high-technology goods deficit, and has been flat since then, reflecting the recession’s effect. The EU’s surplus was sharply off, and that of the Asia-8 fell as well–reflections of the continuing effects of the global recession.

I would also note that while the surplus may be continuing to grow, other nations are rapidly moving into this area. Data in the report (Figure 6-11) shows that the U.S.’s share of global value added in Commercial Knowledge Intensive Services (business, financial, and communications services) peaked at almost 45% in 2001 and has steadily declined over the past decade to about 33% by 2010.

Read more at The Intangible economy