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THE INTERNATIONALISATION OF R&D

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GENEVA, Mar 1 2006 (IPS) - Global Foreign Direct Investment (FDI) flows increased in 2004, following three years of decline, as reported in the World Investment Report 2005, writes Supachai Panitchpakdi, Secretary-General of the United Nations Conference onTrade and Development (UNCTAD). In this article the author writes of a new trend in the global economy that could be considered one such \”new form\” of Foreign Direct Investment — namely, the internationalisation of research and development (R&D). Some developing countries in Asia and transition economies are now attracting highly-advanced R&D activities. And this trend appears to be on the upswing. More than half of the world\’s top R&D spenders already conduct R&D activities in China, India, and Singapore. And what do developing countries in particular stand to gain from this sort of investment? It opens the door to the transfer of the actual process of technology creation and enables them to engage in important technological learning. In addition, it creates new job opportunities for local engineers and scientists, helping to mitigate the risk of \”brain drain\”.

Global Foreign Direct Investment (FDI) flows increased in 2004, following three years of decline, as reported in the World Investment Report 2005. Inflows to developing countries in particular were up by some 40 percent and accounted for 36 percent of world FDI inflows in 2004. Inward FDI to developed countries, by contrast, fell.

Meanwhile, there is a new trend in the global economy that could be considered one such “new form” of Foreign Direct Investment — namely, the internationalisation of research and development (R&D). Some developing countries in Asia and transition economies are now attracting highly-advanced R&D activities. In many cases, these activities are being integrated into the core innovation networks of transnational corporations (TNCs), which now represent something like 70 percent of all R&D spending in the private sector. And this trend appears to be on the upswing. More than half of the world’s top R&D spenders already conduct R&D activities in China, India, and Singapore.

I believe it is worth looking closely at some of the broader questions raised by this trend. Let me raise two fundamental questions. Why is R&D considered so important? Why should a country seek to attract transnational investment in R&D?

It is through research and development that we extend the frontiers of knowledge, generate new products, and upgrade existing technology. R&D investment allows firms and countries to better assimilate knowledge and technology developed elsewhere, and to remain competitive in today’s knowledge-based economy. It stimulates a culture of innovation, generates knowledge spillovers, and adds to the skill level of the local population.

And what do developing countries in particular stand to gain from this sort of investment? It opens the door to the transfer of the actual process of technology creation and enables them to engage in important technological learning. In addition, it creates new job opportunities for local engineers and scientists, helping to mitigate the risk of “brain drain”.

Investment in R&D can also pave the way for the attraction of other high value-added, high-quality FDI. This helps countries move up the value chain and strengthen their innovation systems, thereby fostering competitive enterprise. In short, this kind of FDI is a major contributor to economic development.

Small wonder, then, that in the past, TNCs tried to keep many of their R&D activities close to home. But more and more of those activities are now being located abroad. Why? Our research identifies a number of push-and-pull factors driving this trend. Among the push factors are competitive pressure to innovate, cost implications, and skills shortages in the home country. The pull factors include growing markets, an expanding pool of talent, cost advantages of locating abroad, and a favourable policy environment.

It is important to note, however, that only a handful of developing countries have benefited from this new internationalisation of R&D, many of them in Asia. Countries that have succeeded in attracting R&D investment have tailored education to the needs of industry. They have encouraged collaboration between public and private R&D. They have innovation systems and targeted incentives in place that encourage R&D activities, such as the creation of science parks and a conducive intellectual property regime. To attract investment in R&D, cooperation with the key stakeholders who shape research, technology and innovation policies is essential. (END/COPYRIGHT IPS)

 
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