by Brandon Shackelford and Raymond M. Wolfe[1]

U.S. companies performed $73 billion in research and development outside the United States in 2013, or 18% of their worldwide total R&D performance (table 1).[2] These same companies performed $323 billion in R&D in the United States. These estimates include the R&D of U.S.-owned companies and U.S. subsidiaries of foreign-owned companies, but they exclude the foreign R&D of companies not owned or controlled by the surveyed U.S.-located companies.[3] The R&D reported here includes costs paid for by the reporting company (R&D expenses) and costs paid for by customers, grant-making organizations, or partners. Data are from the Business R&D and Innovation Survey (BRDIS), cosponsored by the National Center for Science and Engineering Statistics within the National Science Foundation and by the Census Bureau.

Foreign R&D by Industry and Company Size

The four largest industries in terms of foreign R&D performance were software publishers (North American Industry Classification System [NAICS] code 5112), pharmaceuticals and medicines (NAICS 3254), semiconductor and other electronic components (NAICS 3344), and automobiles, bodies, trailers, and parts (NAICS 3361–63) (table 1). These four industries accounted for over half (52%) of all foreign R&D performance by U.S. companies. Foreign R&D performance by U.S. companies is more concentrated by industry than is domestic R&D performance, where the four largest industries accounted for 45% of the total.

The share of R&D performed by U.S. companies outside the United States (18% overall) varies from less than 10% in industries such as aerospace products and parts (NAICS 3364) to over 25% in industries such as electrical equipment, appliances, and components (NAICS 335) and automobiles, bodies, trailers, and parts (NAICS 3361–63) (table 1). Of the four largest industries in terms of foreign R&D performance, all but pharmaceuticals and medicines (NAICS 3254) are estimated to have higher than average shares of R&D performed outside the United States. The relatively low share of foreign R&D performance in the aerospace products and parts industry is partly due to the fact that the single largest customer for aerospace and defense products worldwide is the United States government. Companies in this industry are often subject to federal procurement regulations and International Traffic in Arms Regulations (ITAR) that restrict U.S. companies from performing some R&D—both federally funded and company funded—outside the United States.

Most of the foreign R&D of U.S. businesses is performed by large companies (companies with 500 or more domestic employees). Even though large companies tend to have relatively more R&D employees located outside the United States than do smaller companies, foreign R&D employment is somewhat less concentrated in large companies than is R&D performance in terms of dollars (89% versus 94% in 2013) (table 1).[4] By comparison, large companies accounted for 84% of the R&D performed by companies within the United States and 70% of the domestic R&D employment.

R&D per Foreign and Domestic Employee

On the basis of cost per R&D employee, U.S. companies spent 77% more on R&D performed domestically than on R&D performed outside the United States (table 2). On average, U.S. companies spent $216,000 on domestic R&D performance per U.S. R&D employee, compared with $122,000 on foreign R&D performance per foreign R&D employee. There are large differences in spending per R&D employee between domestic and foreign R&D performance in many industries, but they are most pronounced in the information and communications technologies (ICT) industries, such as computer and electronics products manufacturers (NAICS 334), software publishers (NAICS 5112), and computer systems design and related services (NAICS 5415). These ICT industries all have higher than average shares of foreign R&D employment.[5] There are relatively small differences in R&D performance between domestic and foreign R&D employees in the industries for automobiles, bodies, trailers, and parts (NAICS 3361–63), beverage and tobacco products (NAICS 312), and finance and insurance (NAICS 52).

Foreign R&D by Country and Region

Of the $73 billion in R&D U.S. companies performed outside the United States, $70 billion could be attributed to a specific foreign location (table 3).[6] The United Kingdom and Germany were the two largest individual locations, and Europe as a whole accounted for almost 50% of the foreign R&D performance of U.S. companies. The Asia and Pacific region accounted for 31% of the foreign R&D, with India and China being the two largest locations in the region. Outside of Europe and Asia and the Pacific, the largest locations for foreign R&D performance were Canada, Israel, and Brazil.

Of the top 10 locations for U.S. business R&D outside the United States, 9 exhibit industry concentrations that differ substantially from the average (table 4). The computer and electronic products manufacturing industries (NAICS 334) accounted for 25% of the foreign R&D performance of U.S. companies in 2013, but they were much more prominent in Singapore (58%), Israel (49%), India (45%), and China (37%). The foreign R&D of the information sector (NAICS 51) was much more concentrated than the average (19%) in the United Kingdom (31%), India (31%), Israel (29%), and Canada (27%). Combined, the computer and electronic products manufacturing (NAICS 334) and information industries (NAICS 51) accounted for over half of the foreign R&D located in India, China, Canada, Israel, and Singapore.[5] Japan and Switzerland each had a higher than average share of R&D from the pharmaceuticals and medicines industry (NAICS 3254) and Germany had a high concentration of R&D in the transportation equipment manufacturing industries (NAICS 336). The industry distribution of R&D performed in France was similar to the average for all foreign locations.

Data Sources and Limitations

The sample for BRDIS was selected to represent all for-profit, nonfarm companies that are publicly or privately held and have five or more employees in the United States. BRDIS defines a company as a business organization located in the United States, either U.S. owned or a U.S. affiliate of a foreign parent, of one or more establishments under common ownership or control. Estimates produced from the survey and presented in this InfoBrief are restricted to companies that perform or fund R&D, either domestically or abroad. Because the statistics from the survey are based on a sample, they are subject to both sampling and nonsampling errors (see technical notes in the survey's detailed statistical tables at https://www.nsf.gov/statistics/industry/).

For 2013, a total of 45,089 companies were sampled, representing 1,971,959 companies. The actual numbers of reporting units in the sample that remained within the scope of the survey between sample selection and tabulation were 41,588 for 2013. This lower count represents the number of reporting units that were determined to be within the scope of the survey after all data collected were processed. Reasons for the reduced counts include mergers, acquisitions, and instances where companies had fewer than five paid employees in the United States or had gone out of business in the interim. Of these in-scope reporting units, 73.6% met the 2013 survey response criteria (i.e., at least one R&D data item was provided or at least one sales or employment question was answered by the respondent). Industry classification was based on the dominant business activity for domestic R&D performance where available. For reporting units that did not report business activity codes for R&D, the classification used for sampling was assigned.

In 2013, 4% of U.S. business R&D paid for by the company and others and performed outside the United States could not be assigned to a specific foreign location. Therefore, foreign location R&D data provided here are lower-bound estimates. Location and industry rankings are based on point estimates and do not take into account the sampling error in the estimates from the survey sample. Consequently, the rankings may not be statistically significant.

The full set of detailed tables from this survey, including R&D estimates for each state by industry, are available in the report Business R&D and Innovation: 2013 (https://www.nsf.gov/statistics/industry/). For further information concerning BRDIS or to request tables with relative standard errors and imputation rates, please see the author endnote for contact information.

Notes

[1] Brandon Shackelford is the owner of Twin Ravens Consulting, Austin, TX. For more information on this report, contact Raymond M. Wolfe, Research and Development Statistics Program, National Center for Science and Engineering Statistics, National Science Foundation, 4201 Wilson Boulevard, Suite 965, Arlington, VA 22230 (rwolfe@nsf.gov; 703-292-7789).

[2] The terms domestic and U.S.-located refer to the companies and R&D activity within the 50 states and the District of Columbia. Data for companies and R&D activity located in Puerto Rico, as well as in other U.S. territories, are considered foreign in this InfoBrief.

[3] U.S. subsidiaries of foreign-owned companies report foreign R&D performance to BRDIS in some cases. These include former U.S. companies with a global R&D footprint that were acquired by foreign companies, as well as U.S.-located subsidiaries that oversee a larger geographic region than the United States, such as North America or the Americas as a whole.

[4] Shackelford B and Moris F. 2016. A Snapshot of Business R&D Employment in the United States. InfoBrief NSF 17-302. Arlington, VA: National Science Foundation, National Center for Science and Engineering Statistics. Available at https://www.nsf.gov/statistics/2017/nsf17302/.

[5] Additional information on ICT industries and international comparisons of ICT business R&D can be found in Shackelford B and Jankowski J. 2016. Information and Communications Technology Industries Account for $133 Billion of Business R&D Performance in the United States in 2013. InfoBrief NSF 16-309. Arlington, VA: National Science Foundation, National Center for Science and Engineering Statistics. Available at https://nsf.gov/statistics/2016/nsf16309/.

[6] Foreign R&D reported on Form BRDI-1 that is not allocated to a specific location and foreign R&D estimated from Form BRDI-1(S) are reported as undistributed in BRDIS data tables. This undistributed amount is business R&D performed outside the 50 United States and the District of Columbia, but where the specific location is not estimated by BRDIS. This InfoBrief does not include this undistributed amount when calculating location shares of total foreign R&D performance.