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Offshoring About to Bite the U.S. R&D Community

By Lee Russ

Friday, February 17, 2006 at 12:39 PM

A 2-16-06 piece in the NY Times announces "Outsourcing Is Climbing Skills Ladder."

They're talking about a recently completed study funded largely by the Kaufmann Foundation.

The point?  "In a survey of more than 200 multinational corporations on their research center decisions, 38 percent said they planned to "change substantially" the worldwide distribution of their research and development work over the next three years - with the booming markets of China and India, and their world-class scientists, attracting the greatest increase in projects."

That's actually an understatement.  The summary of the study which is available while the full study undergoes peer review, indicates that of the 71 U.S.-companies which have recently expanded or plan to expand outside R&D facilities, 39 plan to do so in either China or India.

And the spin is on, of course.  The claims range from (1) Contrary to popular belief, it is intellectual capital and university collaboration, not just lower costs, that primarily attract companies to locate R&D activities in locations away from their home country to (2) statements that minimize the impact based on number of jobs affected, like "the trend..may {be} more significant than the quantity of jobs involved."

We were told much the same soothing things about the outsourcing of blue collar jobs, then the outsourcing of customer service and tech support, then the outsourcing of services like tax, accounting, and legal. And we've certainly documented the magnitude of the job osses over the last several years (see here and here).

The first claim, that offshoring R&D is motivated "not just" by lower costs is pretty funny if you have a warped sense of humor.  Is any action motivated by "just" one thing?

Take a look at the 13 "factors" that companies listed as motivating their decision to go outside their base areas:

  1. There are highly qualified R&D personnel in this country.
  2. There are university faculty with special scientific or engineering expertise in this country.
  3. We were offered tax breaks and/or direct government assistance.
  4. In this country it is easy to negotiate ownership of intellectual property from research relationships
  5. Exclusive of tax breaks and direct government assistance, the costs of R&D are low in this country.
  6. The cultural and regulatory environment in this country is conducive to spinning off or spinning in new businesses.
  7. It is easy to collaborate with universities in this country.
  8. There is good protection of intellectual property in this country.
  9. There are few regulatory and/or research restrictions in this country.
  10. The R&D facility was established to support sales to foreign customers.
  11. This country has high growth potential.
  12. The R&D facility was established to support production for export to other countries.
  13. The establishment of an R&D facility was a regulatory or legal prerequisite for access to the local market.

Take a close look at the first 5.  Numbers 3 and 5 directly concern costs.  Numbers 1 & 2 really address the feasibility of moving to a particular country more than the motivation for going there.  And number 4 could also reflect a concern for cost.

But don't worry, be happy.  It will all work out in the end.  No need for you to concern yourself.  We have many experts working night and day to ensure the future well-being of you and your country.  Just ask them.