Three years later, some aspects of the internationalization of R&D are better understood, but many questions remain and new ones have arisen. This part analyzes trends in the internationalization of business research, examines its drivers and motivations and identifies implications for innovation policy. It examines the internationalization of R&D through foreign direct investment (FDI) by multinational corporations (MNEs), which account for the bulk of business R&D in the OECD area.
It builds on information in the background report for the Forum on the Internationalization of R&D and a chapter on the internationalization of R&D in the OECD Science, Technology and Industry Outlook 2006. While the internationalization of R&D is not entirely new, it it is now taking place at a much faster rate. Internationalization of R&D and reallocation of R&D capabilities are in many cases part of firms' broader strategic decisions about production, marketing and M&A.
The first one analyzes the internationalization of research and development of multinational companies, which are considered the main drivers of this process. The focus on business must not diminish the complementary aspects of this process, such as the internationalization of science, the increasing importance of international technological cooperation and the increasing international mobility of researchers.
THE ACTIVITIES OF MULTINATIONALS ABROAD
In the past, the rapid fall in transport costs enabled the separation of production and consumption and led to the growth of commodity exchange ("the first separation"). Until recently, production generally took place in one location, in accordance with the comparative advantages of countries, but the sharp decline in communication and coordination costs has facilitated the spatial distribution of production ("second decoupling"). FDI plays an important role in the internationalization of research and development, and multinational companies are the main actors.
The European Union invested USD 19.1 billion in the United States and USD 3.9 billion in Japan. Japan invested only 1.1 billion. USD in the USA and 0.7 billion USD in the EU. Japanese R&D investment in the US is concentrated in services (69%), particularly in wholesale trade and professional/scientific services, rather than in manufacturing (31%).
Although the United States' share has declined between 1995 and 2005, it still attracts 37.9% of R&D spending by foreign affiliates in the OECD area. Patent documents report the inventors and applicants—the owners of the patent at the time of filing—along with their addresses and countries of residence. For Chinese MNCs, principles of efficiency – exploiting multiple time zones, R&D critical mass or local cost advantages – generally do not play a role (Gassmann and von Zedtwitz, 1999).
Similarly, in the Lenovo-IBM deal, Lenovo took ownership of IBM's research and development centers in Japan and the United States (North Carolina).
THE INTERNATIONALISATION OF INNOVATION
The changing environment for global R&D can also be seen in the growing importance of R&D sources abroad (private companies, public institutions or international organizations). More than half of the financing from abroad refers to financing within the company (for countries for which data are available); in 2005 it represented more than 80% in the Netherlands and Denmark and 50% in Sweden and Norway. R&D partnerships between companies based in the EU and Asia (Japan, China and Korea) account for more than a tenth of cross-border cooperation.
Almost 84% of the 699,000 science and engineering (S&E) scientific articles published in 2003 were published in the OECD area, with almost two-thirds coming from the G7 countries. Domestic and international co-authorship have increased equally over the last decade; in 2005, more than 20% of scientific papers were co-authored internationally, three times more than in 1985. The more a country spends on research and development (e.g., the United States, Japan, Germany, and France), the greater its propensity to patent ( OECD, 2007c).
An indicator of a country's degree of international co-invention is the number of patents invented by that country with at least one foreign inventor in the total number of patents invented domestically. In 2005, workers in professional and technical occupations represented more than 30% of total employment in the United States and in the EU-25 (i.e. nearly 57 million and 59 million individuals, respectively). In the vast majority of OECD countries, the number of researchers has grown faster than the total number of R&D personnel (Figure 2.8).
The number of graduates in Russia and Japan will decrease due to demographic trends, and the United States and China could overtake Europe in the near future if participation in higher education in the EU does not increase (UNCTAD, 2005). Former emigration countries such as Ireland and Portugal also attract highly educated foreigners (Figure 2.9a). The internationalization of HRST can be further observed through the international mobility of students. Non-OECD countries are also participating more in the international mobility of highly educated people.
But the number of returnees also increased to nearly 35,000 in 2005, corresponding to 30% of the number of Chinese students going abroad in the same year. The internationalization of R&D is also reflected in the technology balance of payments, as technology payments and receipts reflect to some extent cross-border trade in R&D outputs. From 1996 to 2005, pharmaceuticals had the highest rate of growth in the value of international trade in manufacturing in the OECD area.
Due to the increasing importance of global value chains, exports can be highly dependent on imports in the same industry. The assembled final products and intermediate products are then exported from China to these economies, as Asian firms reimport a growing share of the production they relocate to the mainland, but also to other developed countries/regions such as Europe and the United States.
POLICY IMPLICATIONS
Most less developed countries, as well as some OECD countries, fear that they will be marginalized by the globalization of research and development. Until recently, OECD countries have not addressed the task of developing an integrated strategy to take advantage of R&D globalization, while the internationalization of R&D has been central to the catch-up strategy of most emerging economies (OECD, 2006a). New forms of internationalization of research and development, based on global sourcing and integration of complex knowledge bases, challenge national approaches.
In order to gain insight into how OECD countries tackle the increasing internationalization of R&D, in 2005 the OECD conducted a policy survey of relevant practices in OECD countries. The next section highlights existing policy views and reflects on policy from a broader innovation perspective and considers three main areas through which the internationalization of S&T takes place: the internationalization of research through technological collaboration; international mobility of researchers; and international exploitation of research. Attracting FDI in general and FDI in R&D in particular has traditionally been high on the policy agenda of many countries, as inward flows of R&D are believed to provide net benefits to the host country (Table 3.1).
According to a recent report on the internationalization of R&D by the Dutch Advisory Council for Science and Technology (2007), efforts to attract foreign direct investment should be targeted at key areas on the basis of a package of R&D-related policies. All this has become more important following the trend of asset augmentation and technology-sourcing internationalization of R&D. For their part, countries that are net sources of foreign R&D investment worry that the internationalization of R&D may erode (“erode”) the domestic knowledge base because foreign subsidiaries may export domestically developed technology and because fewer R&D activities may be performed . at home.
The main policy issue is how to improve the international mobility of researchers in order to maximize the benefits of R&D internationalization and minimize the disadvantages for both home and host countries. Policy recommendations to address the challenges and opportunities brought by the internationalization of research and development must take into account national policy objectives and the specific characteristics of science and innovation systems. The final requirement is a re-examination of national innovation policy instruments in the light of the different impact that the internationalization of research and development has on their relative effectiveness.
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