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Chapter 4. R&D: National Trends and International Comparisons

R&D by Multinational Companies

This section covers statistics on R&D performed by majority-owned affiliates of foreign multinational corporations (MNCs) located in the United States, and R&D performed by U.S. MNCs and their majority-owned foreign affiliates, collected by the Bureau of Economic Analysis (BEA). See sidebar, "Foreign Direct Investment in R&D."

R&D arising from foreign direct investment (FDI) activities is quantitatively important since MNCs are the largest performers of business R&D in the United States (discussed below) and in other economies (Dunning and Lundan 2009). Both home country and international opportunities and policies affect R&D and other innovation-related activities by MNCs (Breznitz 2009; Athukorala and Kohpaiboon 2010). In turn, MNC activities influence the ultimate impacts of national and international R&D on national economic growth and productivity.

The majority of R&D by U.S. MNCs continues to be performed in the United States. Outside the United States, R&D by U.S.-owned foreign affiliates is performed mostly in Western Europe, Canada, and Japan, followed more recently by other locations in the Asia-Pacific region. Information on character of work for MNCs' R&D is presented in the sidebar, "Linking MNC Data from International Investment and Business R&D Surveys."

U.S. Affiliates of Foreign Companies

Majority-owned affiliates of foreign MNCs located in the United States (U.S. affiliates) performed $40.5 billion of R&D or 13.9% of the $290.7 in U.S. business R&D performed in 2008 (preliminary BEA estimate).[17] Since 1999, the share of these companies in U.S.-located business R&D, as collected in NSF R&D surveys, has fluctuated narrowly between 13% and 15%. About 90% of R&D by U.S. affiliates of foreign MNCs is performed by firms owned by European, Japanese, and Canadian parent companies (appendix table 4-18).

The share of U.S. affiliates' R&D performed by manufacturing companies has decreased from over 80% in the late 1990s to 74.7% in 2007 and 69.6% in 2008. Country ownership patterns and industry focus have remained relatively unchanged, with Swiss- and British-owned companies, for example, performing close to two-thirds of R&D by U.S. affiliates classified in chemicals (which includes pharmaceuticals) and German-owned companies performing close to one-quarter of R&D by U.S. affiliates classified in transportation equipment in 2008 (table 4-12). Among the largest nonmanufacturing R&D-performing industries for U.S. affiliates in 2008 were wholesale trade in electrical goods ($2.4 billion); professional, scientific, and technical services ($2.3 billion); and information services ($2.1 billion) (see appendix tables 4-19, 4-20, and 4-21).

U.S. MNCs Parent Companies and Their Foreign Affiliates

In 2008, parent companies of U.S. MNCs performed $199.1 billion of the $290.7 billion of R&D performed by businesses in the United States. Their majority-owned foreign affiliates performed $37.0 billion according to preliminary BEA data (see table 4-13 and appendix tables 4-22 through 4-26).[18] Since 1999, U.S. MNCs have performed, on average, about 86% of their annual global R&D in the United States. In turn, U.S. MNC parents accounted, on average, for about 72% of annual U.S. business R&D performed over the same period.

R&D by foreign affiliates of U.S. MNCs has gradually shifted from traditional host countries, including Japan, towards other Asian venues. The combined share of Europe, Canada, and Japan as hosts of R&D by U.S.-owned foreign affiliates declined from about 90% in the mid- and late 1990s to around 80% since 2006. European-located affiliates have performed about two-thirds of R&D by affiliates of U.S. MNCs since 2003, after declining in the late 1990s and early 2000s (figure 4-9 and appendix table 4-22).

On the other hand, the share of R&D performed by Asia-located affiliates (other than in Japan) increased from about 5% to 14% from 1997 to 2008. In particular, the share of U.S.-owned affiliates' R&D performed in China, South Korea, Singapore, and India rose from a half percentage point or less in 1997 to 4% for China, just under 3% for South Korea, and just under 2% each for Singapore and India in 2008.

Manufacturing affiliates accounted for 80% of foreign affiliates' R&D in 2008, including two-thirds performed in three industries: transportation equipment (25%), chemicals (including pharmaceuticals) (24%), and computer and electronic products (17%) (table 4-14). Professional, technical, and scientific services accounted for another 11% and information services for 5% (see appendix tables 4-23 and 4-24).

The country and industry distribution of U.S. MNCs' foreign R&D is related, among other factors, to historical S&T strengths in the host countries. United Kingdom and Germany, for example, hosted 20.4% and 12.0% of U.S.-owned overseas R&D in chemicals (which includes pharmaceuticals), whereas affiliates located in Germany performed almost two-fifths of R&D by transportation equipment affiliates (table 4-14).

Within the professional, technical, and scientific services industry, affiliates located in the UK performed 22.3% of foreign affiliates' R&D total, followed by Canada (12.5%) and India (6.3%), according to available country detail. Lastly, about four-fifths of affiliates' R&D in information services (which includes software and Internet publishing and telecommunications) in 2008 was performed in three areas: Ireland (30.7%), Canada (22.3%), and Asia outside Japan (25.5%).

Notes

[17] See appendix tables 4-18 through 4-21.
[18] The BEA estimate for R&D performance by majority-owned foreign affiliates of U.S. MNCs is much lower than the $61.5 billion based on BRDIS 2008. BEA, NSF, and the Census Bureau are researching measures of R&D by foreign affiliates as part of the R&D linking project, which is discussed in sidebar "Linking MNC Data from International Investment and Business R&D Surveys." This research should lead to improvements in both data sets.
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