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  Barry Wellman         Professor of Sociology        NetLab Director
  wellman at

  Centre for Urban & Community Studies          University of Toronto
  455 Spadina Avenue    Toronto Canada M5S 2G8    fax:+1-416-978-7162

---------- Forwarded message ----------
Date: Fri, 26 May 2006 14:42:09 -0400
Subject: [industrycenters] Globalization & Innovation: New Booz
    Allen/INSEAD survey FYI

Booz Allen Hamilton Examines Global R&D Networks

Much of the U.S. policy debate regarding the impact of globalization
has focused on workforce preparedness and the need for American industry
to sustain innovation. Bills before Congress urge increased spending on
R&D, especially in the physical sciences and engineering. Much of the
data that has helped fuel the competitiveness discussion has focused on
indices and statistical reports presenting the U.S. in comparison
toother nations.

A new report, however, sheds new light on the issue by considering the
very essence and practice of multinational corporations, which are in
large part the fundamental drivers of the global economy.

Talk to executives at 186 companies in 19 nations that together account
for 20 percent of global corporate R&D expenditures, and you may
discover - as Booz Allen Hamilton and INSEAD did - that, between 1975
and 2005, the share of R&D sites located outside the markets of their
corporate headquarters rose from 45 percent to 66 percent. Just as
manufacturing becomes more distributed across the planet, so too is
research and innovation.

More telling, perhaps, is the survey found 77 percent of the new R&D
sites planned over the next three years will be located in either China
or India.

Published May 15, the survey conducted by Booz Allen Hamilton and
INSEAD suggests cluster-based divisions of capabilities are likely to
grow in all research-intensive sectors and be increasingly global in its

Thomas Goldbrunner, Yves Doz, Keeley Wilson and Steven Veldhoen write
in The Well Designed Global R&D Network
 the interviewed companies "named what they view as the primary R&D
challenges: assessing the value of new knowledge, encouraging cross-site
and cross-functional collaboration, managing the complexity of global
projects, and optimizing innovation footprints." They also emphasized
that having a well managed R&D network is becoming particularly
advantageous as companies expand R&D beyond their home turf.

The article continues: "Several factors have contributed to the
dispersion of corporate R&D sites. Rising costs in the West, rapid
growth of markets in developing nations, advanced information
technology, a scarcity of engineers and scientists, and the opening of
markets in China and India have each encouraged companies to globalize
their R&D efforts. Our survey suggests that future R&D sites in Western
Europe, the United States, and Japan will be selected primarily because
they offer value such as proximity to technology or research clusters,
to markets or customers, or to qualified workers commensurate with their
higher cost. Locations in the developing world will be chosen primarily
to gain access to local markets, to decrease costs, and, particularly in
India and Eastern Europe, to tap into a pool of highly qualified

The full report for the survey, Innovation: Is Global the Way Forward?,
reveals less than half of the North American-based firms included in the
survey had R&D facilities outside of the states. However, the percentage
with R&D based within the U.S. dropped over the last decade from 59
percent to 52 percent. During the same time, growth of R&D facilities
based in China rose from 4 percent to 11 percent. India experienced an
increase from 4 percent to 7 percent.

"Combined, China and India are on the brink of overtaking Western
Europe as the most important locations for foreign R&D for U.S.
companies," the authors report. Survey respondents state staffing levels
for R&D sites within Western Europe and the U.S. will remain constant
from 2004 to 2007, perhaps causing a false sense that everything is
static for global innovation. China and India, on the other hand, "will
account for 31 percent of global R&D staff" by the end of 2007, up from
only 19 percent in 2004.

An argument can be made that the shift is logical and necessary as R&D
will be needed to customize existing products and services as the
Chinese market opens up and the Indian economy grows. The survey found
that local customization, however, only accounted for 25 percent of the
foreign R&D investment. "The most cited reason for establishing a new
foreign site was access to qualified staff" with specific expertise, the
report states.

Innovation: Is Global the Way Forward? is available at:

Links to this paper and 4,000 additional TBED-related research reports,
strategic plans and other papers can be found at the Tech-based Economic
Development (TBED) Resource Center, jointly developed by the Technology
Administration and SSTI, at:


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