Recent Research: Booz Allen Hamilton Examines Global R&D Networks

Much of the U.S. policy debate regarding the impact of globalization has focused on workforce preparedness and the need for American industry to sustain innovation. Bills before Congress urge increased spending on R&D, especially in the physical sciences and engineering. Much of the data that has helped fuel the competitiveness discussion has focused on indices and statistical reports presenting the U.S. in comparison to other nations. 



A new report, however, sheds new light on the issue by considering the very essence and practice of multinational corporations, which are in large part the fundamental drivers of the global economy.



Talk to executives at 186 companies in 19 nations that together account for 20 percent of global corporate R&D expenditures, and you may discover - as Booz Allen Hamilton and INSEAD did - that, between 1975 and 2005, the share of R&D sites located outside the markets of their corporate headquarters rose from 45 percent to 66 percent. Just as manufacturing becomes more distributed across the planet, so too is research and innovation.



More telling, perhaps, is the survey found 77 percent of the new R&D sites planned over the next three years will be located in either China or India.



Published May 15, the survey conducted by Booz Allen Hamilton and INSEAD suggests cluster-based divisions of capabilities are likely to grow in all research-intensive sectors and be increasingly global in its design. Thomas Goldbrunner, Yves Doz, Keeley Wilson and Steven Veldhoen write in The Well Designed Global R&D Network the interviewed companies "named what they view as the primary R&D challenges: assessing the value of new knowledge, encouraging cross-site and cross-functional collaboration, managing the complexity of global projects, and optimizing innovation footprints." They also emphasized that having a well managed R&D network is becoming particularly advantageous as companies expand R&D beyond their home turf.



The article continues: "Several factors have contributed to the dispersion of corporate R&D sites. Rising costs in the West, rapid growth of markets in developing nations, advanced information technology, a scarcity of engineers and scientists, and the opening of markets in China and India have each encouraged companies to globalize their R&D efforts. Our survey suggests that future R&D sites in Western Europe, the United States, and Japan will be selected primarily because they offer value such as proximity to technology or research clusters, to markets or customers, or to qualified workers commensurate with their higher cost. Locations in the developing world will be chosen primarily to gain access to local markets, to decrease costs, and, particularly in India and Eastern Europe, to tap into a pool of highly qualified workers."



The full report for the survey, Innovation: Is Global the Way Forward?, reveals less than half of the North American-based firms included in the survey had R&D facilities outside of the states. However, the percentage with R&D based within the U.S. dropped over the last decade from 59 percent to 52 percent. During the same time, growth of R&D facilities based in China rose from 4 percent to 11 percent. India experienced an increase from 4 percent to 7 percent.



"Combined, China and India are on the brink of overtaking Western Europe as the most important locations for foreign R&D for U.S. companies," the authors report. Survey respondents state staffing levels for R&D sites within Western Europe and the U.S. will remain constant from 2004 to 2007, perhaps causing a false sense that everything is static for global innovation. China and India, on the other hand, "will account for 31 percent of global R&D staff" by the end of 2007, up from only 19 percent in 2004.



An argument can be made that the shift is logical and necessary as R&D will be needed to customize existing products and services as the Chinese market opens up and the Indian economy grows. The survey found that local customization, however, only accounted for 25 percent of the foreign R&D investment. "The most cited reason for establishing a new foreign site was access to qualified staff" with specific expertise, the report states.



Innovation: Is Global the Way Forward? is available at: http://www.boozallen.com/media/file/Innovation_Is_Global_The_Way_Forward_v2.pdf



Links to this paper and 4,000 additional TBED-related research reports, strategic plans and other papers can be found at the Tech-based Economic Development (TBED) Resource Center, jointly developed by the Technology Administration and SSTI, at: http://www.tbedresourcecenter.org/.