Research and development. Where is the new science in corporate R&D?

1547 POLICYFORUM T he idea that the United States dominates cutting edge science and technology is challenged by the decline in the U.S. share of patents and the growth of corporate spending on research and development (R&D) in emerging countries like China and India (1–3). Because scientific discovery is critical to economic growth, these trends have sparked concerns as to what is driving companies to conduct R&D in these countries and the implications for future competitiveness, particularly given problems with the U.S. patent system and improving protection of intellectual property (IP) in emerging economies (4–9). Similar concerns pervade European innovation policy initiatives (10). The popular press has fueled these concerns with reports of R&D moving to emerging countries in search of low costs (11). A survey we conducted of 249 R&D-intensive companies headquartered primarily in the United States and Western Europe revealed that respondents expect their R&D to grow in emerging economies and to decline in developed economies for complex reasons (12, 13). Lower R&D cost in emerging economies was not the main reason; market factors, collaboration with university scientists , and quality of R&D personnel were all at least as important as cost (12, 14). Here we focus on the type of R&D conducted in different countries and argue that appropriate policies in the face of globalization should focus not only on the factors affecting location but also on the type of R&D conducted. We categorize R&D according to a taxonomy suggested by R&D executives as one they use in tracking internal R&D. This allows us to focus on the extent to which companies use cutting-edge science and show that the type of industrial R&D differs substantially in developed versus emerging country sites. An econometric model is used to relate the type of R&D at various sites to country characteristics. In the survey, respondents were asked to identify a recently established or currently planned R&D facility both outside and inside the home country. Respondents identified 145 facilities in developed economies (primarily the United States and Western Europe) and 90 in emerging economies (primarily China and India). They were asked to characterize the technological and market focus of R&D at the site. The technological focus was defined as either (i) a novel application of science as an output of the R&D (it could be patentable or not) or (ii) an application of science currently used by the firm and/or its …