The Internationalization of Corporate R&D

THE INTERNATIONALIZATION OF CORPORATE R&DFigure 8-2 California’s outward direct investment by country, 2001.CaliforniaRank Country Share (percent)12345678910United KingdomCanadaFranceGermanyNetherlandsJapanAustraliaHong KongSingaporeItaly10.4Source: MI 2004, based on data from the U.S. Bureau of Economic Analysis.8.3.2 Internationalization of Corporate Activities7.06.25.65.24.54.13.43.02.9High-technology companies value Silicon Valley because its proximity to financing,research, and a skilled labor force provides an excellent environment for startups todevelop innovative ideas. However, when those companies become mature and moveinto mass production and provision of routine services, their concerns turn to reducingoperating costs and creating sustainable business models. At that point, many successfulSilicon Valley companies have set up branches of operation elsewhere.The most common form of all kinds of outsourcing by companies in California stillseems to be domestic outsourcing, mainly in production. According to Junfu Zhang,more high-technology companies are moving out of Silicon Valley than are moving in.For example, the yearly net effect on the labor market between 1990 and 2001 due tocompany migration was less than 0.2 percent of the total employment in the state.High-technology companies are more likely to move than non-technology companiesand some high-technology companies are more likely to migrate than nanotechnologycompanies for example. Those moving out tend to be older companies, while thosemoving in tend to be younger. When companies do move out of Silicon Valley, theoften settle in nearby California cities (BAEF 2005, Zang 2003).Earlier, companies used to first outsource domestically, and perhaps later consideringthe foreign option. More recently, companies have shown tendencies to offshore businessactivities directly, bypassing the domestic option (Bardhan & Jaffee 2005). Accordingto an interview-study, 94 percent of semiconductor and software companies inthe Bay Area have used some offshore resources. While these high-technology sectorsappear to be the most affected, biotechnology companies, financial institutions andother companies have used similar strategies (BJSA 2004).189