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India, China to be major R&D investment markets

Contrary to popular belief, not lower cost but R&D quality and universitiy collaborations are important attractors.

india Updated: Feb 18, 2006 15:44 IST

India and China will continue to be major beneficiaries of research and development expansion over the next few years as companies seek new market opportunities and access to top scientific and engineering talent, according to a new study.

Contrary to popular belief, lower cost is not the chief factor driving companies to locate their R and D operations in foreign countries like India, the study sponsored by the Ewing Marion Kauffman Foundation showed.

The quality of R and D personnel available and opportunities for university collaboration are often more important attractors, said Marie Thursby, professor of strategic management at Georgia Tech College of Management, and Jerry Thursby, professor and chair of economics at Emory University, in the study.

However, their survey of more than 200 multinational companies across 15 industries, mostly based in the United States and Western Europe, also revealed that despite the trend toward offshoring R and D operations in Asia, companies are keeping their most cutting-edge research in developed countries where intellectual property (IP) protection is the strongest.

According to the study, only 22 per cent of the R and D effort in emerging countries is for new science. "While costs are higher in the United States and other developed countries, these economies still have a comparative advantage in R and D because of the high calibre of their scientists, particularly given the IP environment," said Marie Thursby. "Not everything's moving to China and India."

But to remain competitive, the US must maintain the quality of its R and D personnel by providing more basic-research support and removing obstacles to immigration for highly skilled workers.

"We are educating the world's best and brightest, but make it difficult for them to stay in America," Thursby says.

The research findings were presented on Thursday at a meeting of the Government-University-Industry Research Roundtable of the National Academies in Washington.

In their study, the Thursbys identified and ranked the importance of different factors influencing the location of R and D facilities.

More than half of the US-based companies that responded to the survey report that they have either recently expanded or planned to open R and D facilities in China and India versus other developed countries. Of 63 Western European companies responding, 13 plan expanding or locating new R and D facilities in the United States.

In both developed and emerging countries, top factors influencing corporate decisions about R and D locations are market growth potential, quality of R and D talent, university collaboration, and IP protection, according to the survey.

Cost wasn't the most important consideration in either developed or emerging countries, despite what media has often reported on multinational R and D locations in recent years.

One of the study's most surprising findings, according to the researchers, was the role university collaboration plays in the corporate decision-making process. Collaboration was a particularly important factor in the decision to expand R and D into emerging countries, even though they offer less IP protection, the survey showed.

First Published: Feb 18, 2006 15:44 IST