The Internationalization of Corporate R&D

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THE INTERNATIONALIZATION OF CORPORATE R&DCompanies have begun capitalizing on the increasing desires of foreign-born, U.S.-trainedworkers to return home. A BusinessWeek article stated that hundreds of Indians have returnedto India from Silicon Valley since 2000 to start their own businesses or help expandR&D laboratories for Cisco Systems, Oracle, Intel and other companies. Major companieslike Microsoft and Intel have even organized job fairs in Silicon Valley for foreign-born,U.S.-trained high-technology workers willing to return to their homeland (Hof 2003). Thisphenomenon is sometimes characterized as “the new B2B – Back to Bangalore” movement,and is considered a relatively new and important trend in Silicon Valley. Some experts alsoconsider this trend to be one of the drivers for offshoring of different business segmentsfrom Silicon Valley to India and China.According to several of the interviews made for this study, as well as AnnaLee Saxenian’sresearch, this connection between Silicon Valley and emerging Asian markets of India andChina is considered to be an important benefit for the region in terms of global competition(Saxenian 1999, Saxenian 2005, interviews).8.4 Impact and EffectsThere are many different views on how Silicon Valley has been, or will be, impacted by theinternationalization of corporate R&D.Most scholars studying Silicon Valley and the Bay Area believe that the internationalizationof R&D is not a threat to the regional economy. Instead, they argue, given Silicon Valley’sdemonstrated adaptability, this trend provides opportunities to create a stronger economyfor the future.However, there are also concerns among some analysts that offshoring R&D will causeheavy job losses, leading to high unemployment in the region and a hollowed-out economy.More investments abroad might mean fewer investments at home or even the closing ofexisting R&D facilities. Another concern is that certain occupations will disappear, causingthe region to lose its leadership in many areas.Some studies show that offshoring is only one factor behind the job creation and job lossesin the Bay Area and appears to be less important than other factors such as technologicalchange and outsourcing of jobs within the U.S. (BJSA 2004). However, as this sectiondiscusses, it is clear that Silicon Valley and the Bay Area have has been affected by offshoringof corporate R&D.8.4.1 Small, Innovative Companies StayWhile more R&D jobs are being sent offshore, there are also R&D gains to the region.Results from a survey of 48 technology companies in California show that it is mostly largecompanies that establish or relocate R&D abroad (Bardhan & Jaffee 2005).192
THE INTERNATIONALIZATION OF CORPORATE R&DAccording to some studies, there is clear evidence that smaller and more innovativecompanies also internationalize some of their business activities. These smaller companiestend to keep their more advanced R&D in the region.Some findings also show that new, small businesses will keep most of their jobs in theBay Area until their business processes and products mature. To a greater extent than inthe past, these companies create most of the innovation and new jobs in the region.When Bay Area companies expand, they will start creating more jobs and relocateexisting jobs outside the region (BJSA 2004).The fact that venture capital firms encourage the companies they invest in to considerinternationalization of certain business segments is affecting the Bay Area job market.According to experts, R&D connected to product customization and development willcontinue to go elsewhere, including to other parts of the U.S.8.4.2 The Importance of Capitalizing on Regional StrengthsThe rapid growth of markets outside the U.S. is driving Bay Area and SiliconValley companies to locate some of their activities closer to their customers. Companiestoday must identify which functions to move closer to important marketsand which to keep in the region. The companies also need to find new ways tocollaborate, complement and compete with companies abroad.The Bay Area’s regional strengths will play a larger role than before. Business segmentsthat are aligned to the region’s strengths are more likely to create new jobsand growth, such as research, marketing and headquarter functions. Design anddevelopment segments are likely to be increasingly distributed as companies movethem closer to manufacturing facilities and customers (BJSA 2004). Examples ofinitiatives targeted toward improving state and regional competitive strengths arementioned in Section 8.5.2.One likely result of these trends is that ideas and funding will come from the U.S.,while more of the R&D work needed to bring products to markets will be done abroad.8.4.3 Change in Employee StructuresSome of the experts interviewed for this study mentioned that one impact of offshoringfrom Silicon Valley is that the R&D skill level in the region is moving upthe value chain and the mid-range skill level shows tendencies of being “hollowedout.” The Bay Area has shown tendencies to lose out to other regions in engineeringjobs associated with cost-reduction, fine-tuning processes and expanding productfeatures. These engineering jobs are expected to decline further.193
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The Swedish Institute for Growth Po
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