The Internationalization of Corporate R&D

THE INTERNATIONALIZATION OF CORPORATE R&DHistorically, one can identify a period when foreign direct investment (FDI) flows weredirected to exploit natural resources (often referred to as the “primary sector” of a country’seconomy). However, the share of FDI into natural resources started to decline in the1970s, whereas FDI in manufacturing (the “secondary sector”) became more dominant.Currently, in certain industrialized countries, FDI in service production (the “tertiarysector”) is rapidly increasing, while FDI in natural resources and manufacturing has declined.This latter change also includes investments in R&D activities abroad.As Figure 3-1 shows, FDI in both the primary and secondary sectors declined for a setof European countries and the U.S. between 1990 and 2001. However, the remarkablechange between 1990 and 2001 is a clear shift to FDI in the tertiary sector that includessales offices, after-sales services and research laboratories. While information aboutSweden is only available for 1990 and 1995, it shows a reduction of incoming FDI inthe tertiary sector between 1990 and 1995.Figure 3-1 Percentage composition of incoming FDI stocks into sectoral shares.Primary1990Primary2001Secondary1990Secondary2001Tertiary1990Tertiary2001France 6.4 0.2 37.5 19.7 56.1 80.2Germany 0.1 0.2 36.4 11.5 63.4 88.4Italy 3.5 2.9 38.2 39.8 58.3 57.2Netherlands 0.2 1.3 55.5 33.2 44.3 65.5Norway 49.0 29.1 10.6 20.3 40.4 50.6United Kingdom 23.1 11.6 36.1 25.1 57.6 63.3United States 13.5 2.2 39.0 35.7 40.8 62.1Source: Johnson (2006) based on OECD data.Figure 3-2 shows the amount of R&D investment in selected OECD countries by foreigncompanies. In Canada, 34 percent of all R&D investment came from foreign-controlledmultinational companies. The other countries with a very high proportion of foreign R&Dexpenditures are Spain (33 percent) and the U.K. (31 percent). In contrast, only 15 percentof the R&D expenditures in Finland and the U.S. were associated with foreign-controlledcompanies. The corresponding figures for Sweden were 20 percent in 1995, and40 percent in 2001.90