BEA: Educated Workers Keep U.S. Competitive in Corporate R&D

In recent years, much has been said about the migration of corporate research from R&D centers in the U.S. to new sites in developing countries where many multinational companies have found large pools of skilled labor and access to the world’s fastest-growing markets. A report from Booz Allen Hamilton last year found that India and China were the fastest-growing sites for foreign-based research at U.S. multinationals and that 77 percent of all new R&D centers planned for the next three years were slated for sites in those countries (see the May 22, 2006 issue of the Digest).

 

A new benchmark survey from the U.S. Bureau of Economic Analysis (BEA) finds that while India and China remain the fastest-growing hosts of multinational research, many companies have elected to increase their domestic research presence. BEA’s Daniel Yorgason reports that, as of 2004, 85 percent of all R&D spending by U.S. multinational companies funded domestic research. This represents a 2 percent drop since 1999; however, domestic R&D expenditures have still grown substantially in recent years. At multinational parents in the U.S., R&D spending rose by more than $26 million between 1999 and 2004, while spending on majority-owned foreign affiliates rose by $9 million.

 

Yorgason posits that the “relative abundance of U.S. scientific and technical workers, including highly educated workers” has contributed to the continued vibrancy of domestic research. Also, new U.S. R&D centers can often be established with little additional investment in collaboration. Information generated at one site may then be shared with other sites at little cost.

 

Total R&D spending at U.S. multinationals appears to be rebounding from its slump earlier this decade. Multinational R&D spending had peaked in 2001 at $142 billion before declining slightly after the worldwide recession. In 2004, however, R&D spending jumped by more than $19 billion, reminiscent of the rapid growth that occurred in the late 1990s. The majority of this increased spending was directed toward domestic research.

 

The study confirms that multinational R&D is becoming more broadly dispersed. Multinational firms are spending less on overseas R&D in the top host countries, and the number of countries hosting U.S. R&D rose from 66 to 77. The United Kingdom, Germany, Canada, France, Japan, and Sweden now host 65 percent of U.S. foreign-affiliate research, down from 72 percent in 1999. More than half of the growth in U.S. foreign R&D expenditures between 1999 and 2004 was invested in Europe. Overall, however, Europe’s share of U.S. R&D declined slightly during that period.

 

India and China both experienced significant gains in U.S. R&D investment, but still receive much less than many European countries. Between 1999 and 2004, R&D expenditure in India jumped from $20 million to $163 million and China’s almost doubled from $319 million to $622 million. Asian and Pacific countries overall, however, remained relatively stabile in their role in U.S. research, receiving about 18 percent of investment throughout that period.

 

Canada also became more vital to U.S. corporate research over the early part of this decade. Between 1999 and 2004, R&D employment at Canadian affiliates more than doubled. Canada is the only host within the top six countries for U.S. foreign research that saw an increase in its share of U.S. foreign R&D. The country now receives more than 10 percent of U.S. overseas R&D expenditure.

 

So while the next few years may bring a flurry of new research activity in China and India, Europe and Canada remain key partners in U.S. innovation. Though research has become more dispersed, the U.S., Europe and Canada continue to hold an edge in hosting R&D by providing educated workers and low-cost collaboration.

 

Download the BEA article “Research and Development Activities of U.S. Multinational Companies” from the March 2007 issues of the Survey of Current Business at: http://www.bea.gov/scb/toc/0307cont.htm