| Foreign Direct R&D Investment in the United
States
January 1996 Richard Florida e-mail: florida@cmu.edu Acknowledgements: Research funding was provided by grants from the Alfred P. Sloan Foundation, Carnegie Bosch Institute, and Japan Science and Technology Management Program. The Center for Survey Research at the University of Massachusetts-Boston administered the survey research. Michael Massagli oversaw the collection and initial analysis of the survey data. Lewis Branscomb and Harvey Brooks provided helpful comments. Florida was a visiting professor in the Science, Technology and Public Policy Program at Harvard University's Kennedy School of Government in 1995-1996. Foreign direct investment in research and development has increased substantially over the past decade. Foreign corporations spent nearly $15 billion on research and development (R&D) in the United States in 1994, accounting for more than 15 percent of total U.S. industrial R&D expenditures. A number of studies have examined foreign direct R&D investment (Mansfield, Teece and Romeo 1979; Ronstadt 1977, 1978; Howells 1990; Cantwell 1989; Casson 1991; Westney 1992; Mowery and Teece 1992; 1993; Dalton and Serapio 1993; 1995; Florida and Kenney 1994; Dunning and Narula 1995). Generally speaking, the literature suggests that foreign direct R&D investment is a relatively small component of overall scientific and technical activities, and that it tends to follow and support manufacturing investments. Several recent studies, however, suggest that the rapid growth of foreign direct R&D investment, particularly in the United States, reflects corporate efforts to take advantage of external scientific and technological capabilities and generate new technological assets (see Dunning and Narula 1995). Despite the rapid growth of foreign direct R&D investment, little is known about the actual activities, organization, and performance of foreign R&D in the United States. Several studies have examined the motivations of foreign-affiliated research facilities in the United States, mainly through interviews and case studies of small samples of firms (see Dalton and Serapio 1993, 1995; Herbert 1990; Florida and Kenney 1994; Angel and Savage 1994). However, existing studies rely heavily on government statistics which provide useful data on foreign R&D spending but do not cover other aspects of foreign-affiliated laboratories, or on case studies of small numbers of foreign-owned laboratories from which it is hard to generalize. This paper examines the scope, activities, and performance of foreign-affiliated R&D laboratories in the United States, reporting the findings of a national survey. The survey identified more than 200 foreign-affiliated R&D laboratories, and achieved a response rate of 90 percent . This paper seeks to make four key contributions. First, it distinguishes between two principal types of foreign direct R&D investment - market support and technology driven - and suggests that the latter is increasing in importance. The foreign direct investment literature emphasizes market support activities (Vernon 1966, 1977; Abernathy and Utterback 1978; Utterback 1989). Market support FDI essentially acts on the demand side and seeks to tailor products for foreign markets and provide technical support to off-shore manufacturing operations. Several studies note called global localization strategies for manufacturing and product development multinational corporations (Porter 1986, 1990). Technology driven FDI acts on the Supply side and consists of two types: technology rnonitoring/acquisition and technology development. Several studies note that foreign R&D investment represents a strategy to maintain competitive advantage by generating new technological assets and capabilities (see particularly Dunning and Narula 1995; Cantwell 1989; Casson 1991; Howells and Wood 1993). Second, foreign direct R&D investment is viewed as a heterogeneous phenomenon, with considerable variation in the nature and activities of foreign-affiliated R&D laboratories across fields of science and technology. While the foreign direct investment literature treats foreign direct investment in R&D as more or less homogeneous, the literature on technical change suggests considerable variation in innovative activity by industry and technology. The technical change literature notes that the sources of innovation differ substantially by industry and technical field, with some sectors drawing heavily from basic science and others linked more closely to applied actitives (Nelson 1986; 1993; Rosenberg 1982; Rosenberg and Nelson 1994). Third, this paper submits that a key task of international R&D management involves balancing central corporate coordination with the autonomy required for innovation and creativity. Studies of international R&D management note the difficulties associated with coordinating off-shore R&D subsidiaries (see Bartlett and Ghoshal 1989; Howells and Wood 1993; Kenney and Florida 1993; Florida and Kenney 1994). While foreign R&D subsidiaries require linkages to other corporate units to coordinate their activities, complex reporting requirements and the perception of external control can have negative impacts on innovative performance. Fourth, foreign-affiliated R&D laboratories are seen to possess little incentive to transfer the management and organizational systems associated with R&D laboratories in their home country. In this respect, the management strategies associated with foreign R&D subsidiaries differ frorn manufacturing where studies note transfer and replication of key organizational practices to off-shore locations. This reflects underlying differences between manufacturing, a relatively standardized activity, and R&D which involves non-routine activities such as knowledge generation (see Nonaka and Takeuchi 1995). STUDY DESIGN This study is based on a national survey of foreign-affiliated R&D laboratories in the United States. The sample was limited to independent or stand-alone foreign-affiliated laboratories in the United States engaged principally in research, development, and designactivities, and, as such, does not include research, development, and design activities conducted by other organizational units such as corporate divisions or manufacturing plants. An initial sample of 393 foreign-affiliated R&D laboratories was compiled from government sources, including a 1993 study by the Department of Commerce, (Dalton and Serapio 1993) and directories of R&D facilities such as the Directory of American Research and Technology. The sample was checked against other available lists of foreign-affiliated R&D laboratories available at the time it was developed, and appeared to be the most comprehensive listing available: Compare, for example, the 393 listings in the sample to the 255 listings in a 1993 U.S. Department of Commerce study (Dalton and Serapio 1993).(1) Screening interviews eliminated 153 establishments from the survey: 88 were not involved in any research, development or design activities; another 33 were duplicate listings; and 32 could not be located. The screening phase resulted in an overall response rate of 91.9 percent, including establishments that could not be located. Only 1 of the 361 contacted units refused to participate in the screening phase for an adjusted response rate of 99.7 percent, for establishments that could be located. The survey was administered by telephone by the Center for Survey Research
at the University of Massachusetts-Boston. The survey produced a total of
186 completed interviews. The survey identified 33 additional establishments
which were ineligible either because they were duplicates (n = 4), not foreign-owned
SCOPE, MAGNITUDE AND ACTIVITIES The key characteristics of foreign R&D affiliates in the U.S. are outlined in Table 1. Foreign-affiliated R&D laboratories (n = 207) spent $5.14 billion on R&D in 1994.(3) This is equivalent to roughly 7 percent of U.S. company-financed industrial R&D ($76.9 billion as of 1993, National Science Board 1993: 371), and more than a third (35.2 percent) of the of $14.6 billion in total R&D by foreign corporations in the United States (Dalton and Serapio 1995: 7). (4) Foreign-affiliated R&D laboratories in the United States employed an estimated 65,800 workers, 25,000 scientists and engineers, and 7,400 doctoral level researchers in 1994, equivalent to roughly two-thirds of all R&D workers (105,200) employed by foreign companies in the United States (Dalton and Serapio 1995: 8).(5) The respondents averaged $26.6 million in total R&D spending, and roughly $100,000 ($102,946) in R&D spending per employee, and employed an average of 286 people, including 181 scientists and engineers, and 33 doctoral researchers. Foreign-affiliated R&D laboratories devoted $396 million (8 percent) to basic research, $1.8 billion (36 percent) to applied research, and $3 billion (58 percent) to product development. Thus, foreign-affiliated R&D laboratories appear to be slightly more research intensive than U.S. industrial R&D as a whole which devoted 4.2 percent of total R&D effort to basic research, 23.5 percent to applied research, and 72.2 percent to product development in 1993 (National Science Board 1993: 33-336). This is not surprising since the U.S. figure includes the R&D resources of manufacturing plants and corporate administrative units, while the foreign-affiliated figure is limited to stand-alone R&D laboratories. Number of Laboratories 207 R&D Spending (millions) $5,140 Basic Research (millions) $396 Applied Research (millions) $1,830 Product Development (millions) $2,976 Total Employment 65,800 Scientists and Engineers 25,000 Doctoral Level Researchers 7,400 ________________________________________________ Source: Richard Florida, Survey of Foreign-Affiliated R&D Laboratories in the United States, (Center for Economic Development, Carnegie Mellon University, 1995). A handful of technologically advanced nations account for the overwhelming bulk of foreign R&D spending in the United States (Dalton and Serapio 1995: 11-12). More than half of respondents (53.8 percent, n = 100) had European parents, while 45.2 percent (n = 84) were affiliated with Asian parents. The only respondents outside these two regions were 2 Canadian affiliates. R&D laboratories affiliated with European parent companies accounted for more than three-quarters of R&D spending and two-thirds of employees.(6) R&D laboratories with British parents ranked first in R&D spending ($1.03 billion), followed by Japan ($737 million), France ($708 million), Germany ($699 million and Switzerland ($656 million). Foreign-affiliated R&D laboratories are concentrated in four broad fields of science and technology (biotechnology and pharmaceuticals, chemicals and materials, electronics, and automotive technology) and 13 sub-fields. The biotechnology and pharmaceutical sector is the largest of the four broad fields, with more than 60 percent of reported R&D spending ($2.5 billion) as Table 2 shows. Pharmaceuticals is the largest of the 13 sub-fields ($1.44 billion) followed by biotechnology ($851 million), tele-communications ($420 million), chemicals ($399 million), audio-video equipment ($257 million), and biomedical technology ($193 million). Table 2 - R&D Spending and Employment by Technology
N-186 Source: Richard Florida, Survey of Foreign-Affiliated R&D Laboratories in the United States, (Center for Economic Development, Carnegie Mellon University, 1995). TYPES OF FOREIGN DIRECT R&D INVESTMENT There are two principal types of foreign direct investment in R&D: market support and technology driven. Several studies note the increasing dependence of firms on external sources of technology (Roberts 1994) and the development of global networks for both technology acquisition and monitoring (Bartlett and Ghoshal 1989; Cantwell 1989; Casson 1991; Howells and Wood 1993). Graham (1992) further distinguishes between two types of technology driven strategies: listeningpost whose primary function is to monitor the scientific and technical capabilities of U.S. firms and universities and generating station which generate new scientific and technical knowledge. Some, however, continue to argue that off-shore R&D investment accounts for a small share of total industrial innovation and that multinational corporations tend to retain advanced research and development capabilities in the home country (see Porter 1986, 1990; Patel and Pavitt 1991). As noted earlier, although the foreign direct investment literature treats foreign direct investment in R&D as more or less homogeneous, the literature on technical change suggests that there is likely to be variation in the nature and activities of foreign R&D investment across fields of technology. Several studies have examined the motivations of foreign-affiliated research facilities in the United States, mainly through interviews and case studies of small samples of firms (see Dalton and Serapio 1993, 1995; Herbert 1990; Florida and Kenney 1994; Angel and Savage 1994). Although they are based on either highly aggregate data or on case studies, these studies provide some evidence to suggest that investment motivations for foreign R&D investment differ by technology. Respondents were asked to rate the importance of various activities on a
3 point scale where 1 is not important and 3 is very important (see Table
3). Generally speaking, the findings indicate that both technology driven
and market support activities are important, but, that technology driven activities
are on balance more important.
N=186 Source Richard Florida, Survey of Foreign-Affiliated R&D Laboratories in the United States, (Center for Economic Development, Carnegie Mellon University, 1995). The three highest ranked activities revolve around technology development.
The Two technology driven activities ranked somewhat lower: "developing links to the scientific and technological community in the United States" (2.48) and "developing new science and technology" (2.36). It should be noted, however, that more than 90 percent of respondents listed the latter as somewhat important. These results suggest that foreign-affiliated R&D laboratories are involved in both technology monitoring and technology development. Furthermore, technology development activities appear to revolve more around commercial technology rather than contributing to scientific and technical knowledge. Market support activities were somewhat less important to the overall activities of foreign-affiliated R&D laboratories. "Customizing products for the U.S. market" ranked fourth (2.56 score, 67.6 percent very important). In addition, nearly 12 percent of respondents listed this as not important. Furthermore, respondents rated working with U.S. manufacturing facilities of the parent company quite low, with nearly one-fifth of respondents reporting not important. This is so even though 8 in 10 respondents report that their parent companies have manufacturing plants in the United States. The survey data thus provide only limited support for the notion that firms seek to link off-shore R&D and manufacturing in accordance with a global localization strategy. As noted earlier, the literature on the innovation process suggests that the activities and orientations of R&D facilities vary according to the specific technological fields in which they work. The importance of R&D activities across the four technology sectors is summarized in Table 4. While developing new product ideas is clearly important to all sectors, a number of interesting patterns emerge for other activities. First, survey respondents in the biotechnology and pharmaceuticals sector rated technology driven activities, including developing new science and technology, obtaining information on U.S. science and technology, and establishing links to the U.S. science and technology communities, considerably higher than the other sectors. -This is not surprising given the close dependence of commercial biotechnology on advances in basic science, particularly university science (Blumenthal et al 1986a, 1986b; Kenney 1986; Levin et al 1987; Kievorick et al 1993). Table 4 - R&D Activities by Technology Sector
Source: Richard Florida, Survey of Foreign-Affiliated R&D Laboratories in the United States, (Center for Economic Development, Carnegie Mellon University, 1995). Second, the automotive and chemical and materials sectors placed considerably more importance on market support activities, such as supporting U.S. manufacturing operations and customizing products for the U.S. market. There are two reasons for this. First, these sectors are characterized by a relatively high level of foreign manufacturing investment. More than 90 percent of the respondents in these two sectors report that their parent company has manufacturing facilities in the United States. Second, and related to this, these sectors also tend to have large consumer markets in the United States. These patterns are reinforced by the findings for the 13 specific technology fields. On the one hand, a majority of respondents in the high-technology industries of pharmaceuticals (71.4 percent), software (63.6 percent), instruments (66.7 percent), and biotechnology (56.7 percent) ranked developing new science and technology as very important. On the other hand, large shares of respondents in audio-video equipment (88.9 percent) telecommunications (85.7 percent), and automotive technology (83.3 percent) ranked customizing products for the U.S. market as very important; and, large shares of respondents from the chemical and automotive industries ranked support for manufacturing plants as very important. These findings reinforce the point that market support activities are associated with industries with high levels of foreign manufacturing investment and large consumer markets. The findings here shed light on two interrelated aspects of the process of foreign direct R&D investment. First, they indicate the importance of technology activities. Foreign direct R&D investment in the United States is significantly oriented to developing new products, obtaining information on U.S. science and technology, and gaining access to scientific and technical talent. Second, and related to this, there is considerable heterogeneity in the activities and investment motivations of foreign-affiliated R&D laboratories. Simply put, high-technology and science-intensive sectors - particularly biotechnology - tend to emphasize technology development, while sectors with high levels of manufacturing investment and large consumer markets emphasize market support. This suggests that the process of foreign direct R&D investment is considerably more heterogeneous than the foreign direct investment literature suggests, though it is in line with the technical change literature which emphasizes industry- and technology-level differences. Innovative Output and Performance The technology development activities of foreign direct R&D investment can be probed more directly by exploring innovative outputs. Economists and other experts note the difficulties associated with measuring innovation outputs, including difficulties in constructing reliable and consistent outcome measures, lags in the innovation process, and the complexity of the process of technological change (see Cohen, Florida and Goe 1994). It is particularly difficult to measure the more intangible aspects of innovation such as new ideas and techniques which lead to improvements in products and processes. Still, there are a number of useful measures of the more direct and tangible outputs of the innovation process, such as patents and published articles, which can be measured. The survey collected data on four such classes of direct innovation outputs: patent applications, patents, copyrights, and articles published in the open scientific and technical literature.(7) The findings indicate that foreign-affiliated laboratories in the United States are reasonably innovative, producing 2,469 patent applications, 1,068 patents, 669 copyrights, and 1,812 published articles in 1994. The 1,068 patents reported by foreign- affiliated R&D laboratories in the United States is but a small fraction of the more than 30,000 U.S. patents granted to foreign corporations (National Science Board 1993). It is important, however, to control for differences in size when analyzing innovation outputs. This can be done by using performance measures which normalize output by the level of spending and/or mployment.(8) When this is done, foreign-affiliated R&D laboratories appear to be slightly more innovative than U.S. industrial R&D. Foreign- affiliated R&D laboratories in the United States generated 7.3 patents per $10 million in R&D spending compared to 4.7 patents per $10 million of company-financed industrial R&D for the U.S. as a whole.(9) Foreign-affiliated R&D laboratories produced 12.8 patents per I00 scientists and engineers - more than double the rate of 4.9 patents per 100 scientists and engineers for U.S. industrial R&D.(10) The production of scientific and technical articles is an indicator of the generation of new scientific and technical knowledge. Foreign-affiliated laboratories produced an average of 16 articles in the open scientific literature per $10 million in R&D expenditures. This is nearly ten times the rate of 1.65 articles per $10 million of company-financed industrial R&D for the U.S. as a whole.(11) The rate of article production was 10.3 articles per 100 employees, 25.7 articles per 100 scientists and engineers, and 95.5 articles per 100 employees, 25.7 articles per 100 scientists and engineers, and 95.5 articles per 100 doctoral-level researchers, nearly 1 article per doctoral-level researcher per year. The rate of 10.1 articles per 100 scientists and engineers for foreign-affiliated R&D laboratories is significantly higher than the rate of 1.65 articles per 100 scientists and engineers for U.S. industrial R&D.(12) This is understandable, however, given that the U.S. industrial total is not limited to scientists and engineers working in R&D laboratories but includes those working in manufacturing units and other corporate activities as well as those working in R&D laboratories. The technical change literature would expect considerable differences in innovative performance by technology, and this is indeed the case both in terms of the production of patents and published articles. The survey data on innovative performance by technology field are summarized in Table 5. Chemicals ranked first in patent performance (14.2 patents per $10 million in R&D spending) followed by instruments (10.5 patents), computer software (10. 1 patents), audio-video equipment (7.8 patents), automotive manufacturing (7.6 patents), semiconductors (6-2 patents), and biotechnology (6-2 patents). Many of the same fields led in patent performance per employee, although their order was somewhat changed. Materials led in the production of published articles with 45.6 articles per $10 million in R&D spending, followed by instruments (38.8 articles), pharmaceuticals (30.5 articles), computer software (23.6 articles), biotechnology (19.7 articles), and semiconductors (18.6 articles). There was some change in these rankings in terms of articles produced per 100 scientists and engineers with computer software leading (63.3 articles), followed by biotechnology (38.7 articles), pharmaceuticals (33.8 articles), materials (33.4 articles), and semiconductors (26.6 articles). (13)
Source: Richard Florida, Survey of Foreign-Affiliated R&D Laboratories in the United States, (Center for Economic Development, Carnegie Mellon University, 1995) The findings here indicate that foreign-affiliated R&D laboratories in the United States produce a reasonable rate of innovative output. In fact, innovative outputs are produced even in fields such as automotive technology, audio-video equipment, and chemicals which tend to emphasize market support. These findings thus support the conjecture that foreign-affiliated R&D laboratories emphasize technology development activities at least to some degree. Furthermore, the variation in innovative output by technology further reinforces the notion of heterogeneity in foreign direct R&D investment. SOURCES OF INNOVATION In addition to considering innovative output and performance, it is important
to The leading source of project ideas is in-house research staff (score = 2.72), with nearly three-quarters of respondents rating this as very important. Respondents ranked customers as the second most important source of project ideas (2.54 score, 64.5 very important). Three additional groups were rated as "somewhat important:" other R&D laboratories of the parent company (2.1 2), competitors (2.08), and joint venture partners (2.01). However, less than a third of espondents rated each of these sources as very important. Other sources ranked considerably lower as sources of new project ideas.
Note: Number of respondents in parentheses. Source: Richard Florida, Survey of Foreign-Affiliated R&D Laboratories in the United States, (Center for Economic Development, Carnegie Mellon, 1995). The findings further indicate that both manufacturing plants and suppliers
are relatively unimportant sources of innovation. Survey respondents ranked
manufacturing plants of the parent company as the third least important source
of new project ideas (1.66 score, 15 percent very important). Respondents
rated suppliers even lower, with an overall score of 1.61. Nearly 50 percent
(48.4 The findings also suggest that universities are a relatively unimportant source of project ideas (score = 1.81). More than a third of respondents reported that universities were "not important" as a source of new project ideas, and conversely just 16 percent of respondents listed universities as very important. This is so even though more than two- thirds of respondents (67.6 percent, ( n = 125) report that they engage in cooperative research with U.S. universities, and roughly half of respondents report that they recruit senior technical staff from U.S. universities frequently (22 percent) or sometime (26 percent). As noted earlier, the literature on technical change notes that the sources
of innovation differ substantially by industry and technical field, with some
sectors drawing heavily from basic science and others linked quite closely
to more applied activities (Nelson 1986; 1993; Rosenberg 1982; Rosenberg and
Nelson 1994). Nelson (1986) notes that the process of technological change
is distinguished by a division of innovative labor wherein the relationships
among innovating institutions (e.g. universities, R&D laboratories and
manufacturing plants) varies across technological fields. A study of industrial
R&D laboratories (Levin et al. 1987; Kievorick et al. 1993), for example,
found considerable variation in the role and importance of university research
and academic science across a large number of technology fields. There is
considerable variation in the sources of new project ideas by technology field
as Table 7 shows. On the one hand, respondents in the biotechnology sector
were more than three times as likely to rate universities as
MANAGEMENT AND ORGANIZATION Studies of international R&D management document the difficulties associated
Reporting Requirements and External Control The survey explored the reporting requirements of foreign-affiliated R&D laboratories with regard to sister R&D facilities and corporate headquarters. More than three-quarters (77.8 percent, n = 144) of respondents report to a sister R&D facility and nearly two-thirds (63.2 percent, n = 117) report to a corporate headquarters. Furthermore, more than 40 percent of respondents indicated that they report to a sister R&D facility on a daily basis and 30 percent do so on a weekly basis. Roughly 35 percent of respondents indicated that they report to corporate headquarters on a daily basis and 30 percent do so weekly. Close links to and regular communication with sister R&D facilities provide additional indication of the technology driven nature of foreign R&D investment in the United States. There are numerous dimensions to reporting and external communication such
as financial reporting, corporate coordination, general technical direction,
and providing information on technological or market trends. These have different
implications for the management of off-shore R&D subsidiaries. There is
considerable difference, for example, between providing regular financial
reports and requiring external approval for new research projects. The largest
percentage The frequency with which R&D subsidiaries are required to obtain spending
authorization from their corporate parents is an indicator of the level and
extent of external corporate control. Respondents were asked to indicate how
frequently their facility is required to obtain spending authorization from
The ability to initiate new projects and hire new scientific and technical
staff are indicators of the autonomy of foreign R&D subsidiaries. Respondents
were asked
Source Richard Florida, Survey of Foreign-Affiliated R&D
Laboratories in the United States, Center for Economic Development, Carnegie
Mellon University, 1995). In short, the findings indicate that foreign-affiliated R&D laboratories
possess considerable autonomy in proposing projects, setting technical agendas,
and hiring new staff with these functions being the primary responsibility
of in-house technical staff. While foreign-affiliated R&D laboratories
regularly report both to sister facilities and to corporate headquarters in
the home country, such communication is principally concerned with administrative
and coordination functions. While this Use of Teams Numerous studies note a shift in the nature of innovation management from individual work to team-based approaches (Clark and Fujimoto 1991; Nonaka and Takeuchi 1995). The literature further distinguishes between two types of teams: project teams composed of researchers and cross-functional teams where representatives of manufacturing, marketing, research, and other corporate functions work together. Respondents were asked to indicate how frequently scientists and engineers
work in project teams, cross-functional teams, and on an individual basis
on a I to 4 point scale where 1 is never and 4 is often. A large percentage
of respondents made use of each of these organizational approaches as Table
9 shows. Eight in ten respondents reported that they make frequent use of
project teams, 58.6 percent reported frequent use of cross- functional teams,
and 48.6 percent reported that researchers frequently work on an independent
basis. The findings thus indicate that foreign-affiliated R&D facilities
tend to mix management methods rather than relying exclusively on any one.
Source Richard Florida, Survey of Foreign-Affiliated R&D Laboratories in the United States, (Center for Economic Development, Carnegie Mellon University, 1995). A number of studies highlight country-level differences in R&D management
and organization (see for example Clark and Fujimoto 1991). It is widely assumed
that Japanese corporations lead in the use of team-based approaches to R&D
management (Westney and Sakakibara 1985; Aoki and Rosenberg Research on the adoption of innovative management practices in manufacturing
industries notes considerable variation in the adoption and use of teams by
industrial sector (Florida and Jenkins 1995). Overall, the biotechnology sector
reported the highest shares of respondents which make frequent use Transplants versus Americanization The literature on multinational management notes that corporations at times
seek to transfer certain manufacturing-management practices abroad. Studies
of Japanese manufacturing in the United States provide evidence of the ability
of Japanese automotive producers to transplant key aspects of their work and
production organization (see Kenney and Florida 1993.) There is interest among
The survey collected information on whether foreign-affiliated R&D
laboratories seek to transfer management systems and practices associated
with parent company R&D laboratories in the home country, or, conversely,
whether they aim to emulate the innovation management systems of U.S. R&D
laboratories, firms, and universities. The findings indicated that foreign-affiliated
R&D laboratories primarily seek to emulate and learn from prevailing U.S.
practices. Nearly 40 percent of respondents (39.5 percent, n -73) reported
that their management system is "American-style." More than half (52.4 percent,
n = 97) of respondents reported their management system as "hybrid" combining
elements of the management system used by their corporate parent and American-style
There is very little evidence to support the notion that foreign-affiliated
R&D laboratories aim to transfer and replicate the management practices
of their corporate parent. Just 1.6 percent of respondents reported that they
actively seek to replicate a research management system which is similar to
that used by R&D facilities at home. There is little variation in this
pattern either by technology field or country of ownership. The one exception,
however, is the automotive sector. SUMMARY AND CONCLUSIONS Foreign direct R&D investment has grown rapidly over the past decade.
The United States has attracted a large amount of foreign R&D spending
and a considerable number of R&D laboratories affiliated with foreign
companies. This study has examined the scope, nature, activities, and performance
of foreign-affiliated laboratories in the United States, leading to the following
First, foreign direct R&D investment involves technology development
as well as market support, with technology development being on balance more
important. This stands in some contrast to the extant literature which places
emphasis on market support. The three highest ranked R&D activities of
foreign-affiliated laboratories revolve around technology development: developing
new product The findings further indicate that foreign-affiliated R&D laboratories
are reasonably innovative, exhibiting rates of patenting and article production
which exceed those of U.S. industrial R&D. This reinforces the conjecture
that foreign R&D investment increasingly reflects technology development
as opposed to more traditional market support. The most important source of
innovation for foreign-affiliated R&D laboratories is their own in-house
research staff. Customers are second, followed by sister R&D facilities,
competitors, and joint venture partners. Universities, manufacturing plants,
and suppliers are rated as relatively unimportant sources of innovation for
foreign-affiliated R&D laboratories. Second, foreign direct R&D investment
is a heterogeneous process. The R&D activities of foreign-affiliated laboratories
vary considerably by technological field. Not surprisingly, technology development
is associated with high-technology fields such as biotechnology and computer
software, while market support is associated with industries which have high
levels of foreign manufacturing investment and large U.S. consumer markets.
There is also considerable variation in both innovative performance and the
sources of innovation across technologies. Universities are considerably more
important sources of innovation in the biotechnology industry, while manufacturing
plants and suppliers are more important to the automotive sector. This is
in line with the literature on technical change which suggests that the
Third, management of foreign R&D subsidiaries essentially involves balancing
corporate coordination and autonomy. Generally speaking, foreign-affiliated
R&D laboratories possess considerable autonomy in developing and managing
their technical agendas, with in-house staff being principally responsible
for initiating new projects and hiring new scientists and engineers. While
foreign-affiliated laboratories regularly report to hiring new scientists
and engineers. While Fourth, foreign-affiliated R&D laboratories make little apparent effort
to transfer styles of management and organization associated with R&D
laboratories in their home country. Nearly 40 percent of laboratories prefer
"American-style" innovation management, and more than half characterized themselves
as hybrids. Less than two percent of respondents seek to replicate the management
style of R&D laboratories at home. This stands in contrast to the pattern
in manufacturing to some degree, where studies note transfer and replication
of home-country ENDNOTES 1) A revised and updated version of the Commerce Department study lists 645 foreign-affiliated R&D establishments (Dalton and Serapio 1 995). However, there are reasons to believe this may be an over-statement. It is likely that a substantial fraction of these establishments are not actually involved in research and development, particularly since the sample for this study and the Commerce Department list are drawn from largely the same sources. 2) This grouping system is similar, though not identical, to the standard industrial classification system and is based on the specific technology fields reported by respondents. 3) This estimate is an extrapolation which takes into account non-respondents to this question. The 186 foreign-affiliated R&D establishments that responded to the survey spent $4.1 billion on R&D in 1994. 4) The latter includes R&D spending by all corporate units, including manufacturing divisions and plants, and spending by foreign companies at U.S. universities, and other third party providers. 5) Survey respondents employed a total of 52,395 workers, including
19,904 scientists and 6) These data represent reported spending by respondents only and are not estimated to account for the total sample population. 7) It is worth noting that the survey data can directly link innovation output to particular facilities. These data thus allow more systematic comparison than the available government statistics which do not allow for comparison or analysis at the establishment level. 8) The performance measures used here are modelled after those in Cohen, Florida and Gore (1994; also see, Cohen and Florida 1996; Randazzese 1996). 9) The U.S. average is based upon 36,074 patents and $76.9 billion in company-financed R&D (National Science Board 1993: 455, 371). 10) The U.S. figure is for 1989 the latest date for which data can be obtained - 35,734 industry patents and 726,000 scientists and engineers (National Science Board 1 993: 455, 309). 11) The U.S. data are for 1991 - 12,660 articles, $76.9 billion in company-financed industrial R&D (National Science Board 1993: 428, 371). 12) The U.S. figure is for 1989 - 11,963 papers, 726,000 scientists and engineers (National Science Board 1993: 428, 309). 13) There was also variation in innovative performance by country of ownership. R&D laboratories affiliated with French parents led in patent performance per R&D spending, while laboratories affiliated with Japanese parents led in patent performance per employee and in the production of scientific articles. Japanese affiliates produced nearly three times as many published articles (147.9 articles) per 100 doctoral-level researchers as European affiliates (58.2 articles per 100 doctoral-level researchers), (see Florida 1996) 14) There is some variation in reporting by technology area.
Foreign-affiliated R&D laboratories in the automotive sector were more
likely to be linked both to sister R&D facilities and corporate headquarters.
Nine in ten automotive laboratories were linked to sister R&D facilities
compared to an average of 7 or 8 in ten for the other sectors. More than eighty
percent of automotive laboratories were linked to corporate headquarters compared
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