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Globalization of R&D
Saturday, 27 December 2008 08:58

Since Motorola established the first foreign-owned R&D lab in China in 1993, the number of foreign R&D units in that country has reached some 700.  This is part of the new trend of globalization of R&D involving emerging economies, not just other developed countries.  Today, MNEs in industries like automobiles, electronics, biotechnology and pharmaceuticals are establishing R&D facilities in emerging economies.  MNEs account for the bulk of global expenditures on R&D. 


Between 1993 and 2002, total R&D expenditure of foreign affiliates (MNEs' overseas operations) worldwide climbed from $30 billion to $67 billion (or from 10% to 16% of global business R&D).  Within this, the share of expenditure in emerging economies rose from 2% to 16% over the same period. R&D activities in Asian economies like China, India, Korea and Taiwan are becoming increasingly important within the global R&D networks of MNEs -- such as the Toyota Technical Centre Asia Pacific in Thailand, Motorola's R&D network in China and Microsoft's sixth global research centre in Bangalore, India.   

In the past, there were two main drivers of foreign direct investment.  First, there was investment in services and manufacturing industries to supply local markets in the host country (which were often protected by import barriers).  Second, there were investments, often in natural resources like oil, which were extracted to be sold on third markets.  Then global production systems developed with different stages of the supply chain being located in different countries.  China for example has been substantially invested with the labour-intensive assembly stage of the East Asian supply chain.

China is not only at the bottom end of the supply chain, it is now increasingly a location for the R&D phase.  This is a very dramatic change because R&D was traditionally concentrated at home in the handful of countries that are R&D leaders (the US and Japan account for 2/3 of the world's largest R&D spending firms).  Moreover, R&D was thought to be the least fragmentable of economic activities because it involves knowledge that is strategic to firms, and because it often requires dense knowledge exchange between users and producers within localised clusters.  Indeed, one of the reasons why developing countries promote inward FDI is to link up to the global technology and innovation networks led by MNEs

Why are leading Western enterprises establishing R&D facilities in Asia ?  (There is very little offshoring of R&D to Africa and Latin America.)  MNEs now relocate segments of R&D so as to access foreign pools of research talent, reduce R&D costs and speed up the process of technology development.  In 2000-2001 China, India and Russia together accounted for almost one-third of all tertiary technical stdents in the world.  In addition, more scientists and engineers are staying in, or returning to, China and India to perform R&D work for foreign affiliates or local firms or to start their own businesses.   

What do the Asian host countries need to make the most of these R&D investments?  In short, they need to have strong national innovation systems with effective absorptive capacities.  This in turn is dependent on policies, the quality of institutions, the quality of human resources and the production and innovative capabilities of enterprises.  Some emerging economy MNEs are themselves establishing R&D units abroad, to access advanced technologies and to adapt products to major export markets.   

Where is the globalisation of R&D leading us?  Once again, it looks like a potential fracturing of the world.  Those developing economies that fail to build the necessary capabilities to participate in the evolving global networks of knowledge creation risk falling further behind in terms of competitivenes as well as economic and social development.


World Investment Report 2005: Transnational Corporations ane the Internationalisation of R&D.  UNCTAD

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