How Much R&D is Being Offshored? NSF Releases New Numbers

My view is that we suffer from an “information deficit” rather than an “information overload.” We know far too little about the important things, and far too much about the unimportant.

One of the notable gaps in our knowledge has been reliable statistics about R&D spending. The economy is driven by innovation, but we knew very little about who was doing the innovating and where. In particular, we had absolutely no idea how much R&D was being offshored by U.S.-based companies.

In order to answer this question and many others, the National Science Foundation got funding a few years ago for a new survey on business R&D and innovation. I wrote about it in a September 2008 BusinessWeek cover story, Can America Invent Its Way Back?: “Innovation economics” shows how smart ideas can turn into jobs and growth—and keep the U.S. competitive. (This story is also the answer to a trivia question: What BusinessWeek cover was being delivered to the homes of subscribers when Lehman failed?).

Now the NSF has released the initial results from the new Business R&D and Innovation Survey. For the first time, we have a good read on how much U.S. businesses are offshoring their R&D—setting up research facilities in other countries.

It turns out that in 2008, manufacturers did about 20% of their R&D overseas. That’s actually a bit less than I would have expected. Here’s how it breaks down by some industries.

Surprisingly, the industry which has done the most to offshore its R&D is the auto industry, with 39% of its spending done overseas. Other industries with a high rate of R&D offshoring include electrical equipment—that’s lighting, generators, and the like—and info tech hardware. Pharma had less offshoring than I would have expected.

The survey was incredibly detailed, and there’s a lot more data releases coming in the future that will enable us to figure out the effectiveness of this spending for innovation, and the employment generated. It’s great stuff…take a look.

[Note: The survey counts R&D done by U.S.-owned businesses, both home and abroad and R&D done by U.S. affiliates of foreign parents I’m pretty sure that in future data releases, we’ll get numbers that allow us to separate out the two.]

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About Michael Mandel 126 Articles

Michael Mandel was BusinessWeek's chief economist from 1989-2009, where he helped direct the magazine's coverage of the domestic and global economies.

Since joining BusinessWeek in 1989, he has received multiple awards for his work, including being honored as one of the 100 top U.S. business journalists of the 20th century for his coverage of the New Economy. In 2006 Mandel was named "Best Economic Journalist" by the World Leadership Forum.

Mandel is the author of several books, including Rational Exuberance, The Coming Internet Depression, and The High Risk Society.

Mandel holds a Ph.D. in economics from Harvard University.

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