In the May 22, 2006 Issue:

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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/.

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South Carolina Program Strives to Make Start-ups Successful
Marketing tech-based economic development (TBED) programs can be challenging, particularly with the diverse nature of its target audiences of entrepreneurs, existing companies, financial sources, university researchers and, oftentimes, legislators. Sometimes, even the name of the program can cause misconceptions, particularly when a new initiative is outside the traditional services or roles offered by the TBED organization. A recent example of this comes from South Carolina.

Striving to change the public's perception of a program designed to invest in and support start-up companies, the South Carolina Research Alliance (SCRA) renamed its Innovation Centers program to SC Launch! last winter.

The concept of Innovation Centers give the impression of bricks and mortar, said Jim Stritzinger, executive vice president and general manager of SCRA's Public Interest Research department. "The intent of the program is not to build buildings, but to make companies successful," Stritzinger said. "The buildings will come later."

The legislature passed the South Carolina Innovation and Research Centers Act last year, mandating that SCRA invest $12 million in operating costs and direct investments through innovation centers at the state's three research universities. According to Stritzinger, SCRA is trying to take the legislative intent and wrap it around the best resources the state can provide in order to make start-up companies in the state successful.

For example, SCRA is utilizing intellectual property attorneys, financial institutions, and building partner networks to align with Launch! clients. SCRA currently has 42 existing and potential Launch! clients in the areas of advanced energy, automotive, advanced materials and nanotechnology, and health sciences and biotechnology. They also are in the process of collecting new proposals, Stritzinger said.

The mandate has enabled SCRA to do something they were not able to in the past - make direct equity investments in companies. To help start-up companies bridge between "friends and family" investments to angel and venture capital, the program provides investments of up to $200,000 in each company as loans or equity investments.

The state is divided into three zones, with each zone housing one of the state's three research universities. The upper zone houses Clemson University, the midlands zone houses the University of South Carolina, and the coastal zone houses the Medical University of South Carolina.

According to an article in the Post and Courier, the South Carolina Innovation and Research Centers Act is one of several efforts underway to create better jobs and expand the tax base by matching publicly funded research with private-sector needs. Other related measures include the creation of endowed professorships. More information on SC Launch! is available through SCRA at: http://launch.scra.org/

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Iowa Students Head to West Lake Okoboji for Summer Entrepreneurship Studies
Summer classes, camps and special programs to stimulate and sustain K-12 students' interests in science and math will be found all across the country during the next few months. A less frequently occurring phenomenon will be taking place in the Great Lakes Region of Iowa, helping a select group of college students to combine entrepreneurship, rural economic development, and recreation.

Twenty-four students from three Iowa state universities will participate in a week-long program at the Iowa Lakeside Laboratory on West Lake Okoboji designed to enhance their understanding of rural entrepreneurship opportunities within the state. The facility traditionally offers undergraduate and graduate experiential science courses in a natural setting.

In the new program, students will participate in entrepreneurial simulation and seminars with successful entrepreneurs and business and community leaders. Activities include working in teams on a computer-based simulation that incorporates the creation and operation of a new business and a fundraising round where teams present their plans to community volunteer venture capitalists.

Gov. Tom Vilsack made the announcement of the first Okoboji Entrepreneurial Institute earlier this month. The college credit institute is a joint effort of the State Board of Regents, the Iowa Department of Economic Development, the Pappajohn Entrepreneurial Centers, and the Iowa Lakes Corridor Development Corporation.

“We see the Okoboji Institute as a test of economic gardening strategies for entrepreneurial development throughout the state,” said Gov. Vilsack. “Plant the seeds, cultivate gardens of opportunity and raise a new crop of businesses. The strategy is to develop nurturing places for entrepreneurs within regional business communities, introduce students to the quality of life throughout Iowa and help them succeed with new business ideas as they emerge from the state’s entrepreneurial training centers.”

Funding for the program, anticipated to cost as much as $50,000 with full scholarships, is being raised through donations by private sources, businesses and organizations. Housing for the students is provided by local residents of the Iowa Great Lakes area. More information is available at: http://www.governor.state.ia.us/news/2006/may/may0206_2.html

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Recent Research
The Geographic Evolution of the U.S. Auto Industry
The U.S. automotive industry is one of the nation's oldest modern manufacturing sectors, and, similar to many other older populations, is increasingly making its home in the South. Despite this fact, the sector remains heavily centered in the Midwest, according to a new article from the Federal Reserve Bank of Chicago. The Geographic Evolution of the U.S. Auto Industry reveals 47 percent of the nation's motor vehicle employment still resides in three states: Michigan, Indiana and Ohio.

The last 25 years have not been easy for the Midwest and Northeast regions, however, as the automotive sector - including assembly plants and suppliers; domestic and foreign automakers; cars; light trucks; and SUVs - continues to restructure to reflect changes in production, cost structure, consumer tastes, and demographics. Michigan, for example, still holds 35 percent of the nation's manufacturing employment in the auto sector, even after losing one-third of the auto-related jobs that were located within the state in 1979. The industry virtually disappeared from New England, while Kentucky, Tennessee, Alabama, and the Carolinas saw employment in the automotive sector triple over the same quarter century.

The Fed article, written by Thomas Klier and Daniel McMillen, includes several maps that provide graphic demonstration and county-level documentation of the shift in assembly line and supplier plant employment over the past 25 years. Figure 4, which includes county-level assembly line density by ownership as of 2003, demonstrates the southern shift in new plant development resulting from the location choices of foreign auto manufacturers since 1979. Detroit remains the overall center of the auto industry based on size and concentration of employment, R&D and power. It also more or less represents the geographic center of the domestic industry, with assembly plants radiating from it in directions east, south and west. For foreign assembly plants, however, Detroit is just one of 10 clusters, which are concentrated along an imaginary north-south axis virtually centered near Nashville.

Presenting supplier plant density in 1980 and 2003, the county-level maps in figures 5-9 provide compelling documentation of both the southern shift of employment and the concentration of activity increasingly into the center of the Eastern U.S. Using a regression analysis, Klier and McMillen found supplier plants followed the movement of assembly plants, located near Interstate highways, sought counties with increased shares of the local workforce being high school graduates and already based in manufacturing. Supplier plants also tend to cluster with other suppliers.

The Geographic Evolution of the U.S. Auto Industry is available at: http://www.chicagofed.org/economic_research_and_data/economic_perspectives.cfm

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/.

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Useful Stats
Science & Engineering State Profiles, 2003-2004
The National Science Foundation (NSF) has published its online statistical resource center for state-level statistics on various science and engineering (S&E) indicators. Drawing data from the most recent updates to seven annual NSF surveys and U.S. Census statistics, the profiles includes downloadable Excel or PDF versions of state statistics for:

Science & Engineering State Profiles, 2003-2004, is available at: http://www.nsf.gov/statistics/nsf06314/

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