Ireland scores low as
R&D location

30 Sep 2005

Only a small percentage of multinational companies see Ireland as an attractive location for investment in research and development (R&D) over the next five years, a survey suggests.

According to the United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2005: Transnational Corporations and the Internationalisation of R&D, when it comes to R&D investment Ireland is viewed in a much less favourable light than many developed and developing countries.

Of the most attractive prospective R&D locations in the UNCTAD survey 2005-2009, Ireland attracted just 1.5pc of responses, compared with China (61.8pc), US (41.2pc), India (29.4pc), Japan (14.7pc) and the UK (13.2pc). This despite the fact that the survey also found Ireland topped the poll of R&D spending by foreign affiliates of multinationals between 1995-2003, with 72.1pc share.

The main conclusion of the report is that an increasing share of global R&D is going to developing countries at the expense of developed economies, especially smaller ones.

While the R&D expenditures of the foreign affiliates of multinationals climbed from an estimated US$30b in 1993 to US$67bn in 2002, a growing share of this is being invested in developing countries.

Developing Asia is the preferred destination. Firms based in the US, for example, carried out 10pc of their overseas R&D in such countries in 2002, up from 3pc in 1994, and more than half the world’s top R&D spenders are already conducting R&D in China, India or Singapore.

Unsurprisingly, the report finds that multinationals are dominant players in R&D, accounting in 2002 for roughly half of the US$677bn spent on R&D worldwide and for more than two-thirds of business investment in R&D.

In the past, major corporations used R&D in developing countries largely as a way of adapting products and processes to local markets. But now the trend is increasingly towards technology development for regional or global markets, and towards applied research. For example, from practically nothing in the mid-Nineties, the share of South-East and East Asia in global semiconductor design reached almost 30pc in 2002.

Secretary-General Kofi Annan, remarked on the significance of this trend in his preface to the report. “Firms now view parts of the developing world as key sources not only of cheap labour, but also of growth, skills and even new technologies.”

The expansion of R&D into selected developing countries, says UNCTAD, is a reaction to increased competition, which forces firms to innovate more at lower cost. Multinationals are especially attracted to host countries that have the appealing combination of low wages and large pools of skilled workers. The historical near-monopoly of developed countries on scientists and engineers is diminishing. In 2000/01, for example, China, India and Russia together accounted for a third of all tertiary technical students in the world.

“Transnational corporations are seeking to improve their competitiveness by expanding in the fast-growing markets of emerging economies and by seeking new ways to reduce costs,” said Anne Miroux, head of the team that produced the UNCTAD report. “This is affecting the location of even highly knowledge-intensive activities, such as R&D.”

The growing trend towards R&D internationalisation is likely continue, the UNCTAD report predicts. As local enterprises and institutions in developing countries engage in R&D, they will progressively enhance their abilities and be in a better position to attract more business.
The report concludes that policy lessons can be learned from those developing countries now emerging as important nodes for R&D work.

According to the report, active and coherent government involvement, especially in the fields of innovation, education and investment policy, is particularly important. As part of a long-term strategy, these particular countries have sought to attract technology, skills and capital from abroad; have invested strategically in human resources; and have established science parks, public R&D labs and incubators. They have also used targeted foreign direct investment policies and set up systems to protect intellectual property.

By Brian Skelly