A partnership with academia

Building knowledge for trade and development

Vi Digital Library - Text Preview

The globalisation of R&D by TNCs and implications for developing countries

Presentation by Anne Miroux, UNCTAD, 2005

Download original document (English)

What: The presentation outlines the main actors of the process of R&D outsourcing. TNCs play a key role but public sector research institutions, universities and domestic enterprises should not be neglected. It provides the rationale for the increase in R&D-related FDI activities in developing countries. The impact as well as the benefits, costs and risks and the enabling policies are reviewed. Finally, it offers a few issues for discussion. Who: Can be used by a lecturer on a course on R&D outsourcing to developing countries. How: For a course on R&D and the role of TNCs.

Expert Meeting on Impact of FDI on Development
“The globalisation of R&D by TNCs and implications for developing countries”

Geneva, 24-26 January 2005

Presented by Anne Miroux, UNCTAD

1. Introduction

2. FDI in R&D: an emerging trend

3. Development impact

4. Policy Implications

The importance of innovation and R&D for

• Technological progress, driven by innovation, is
one of the main drivers of economic growth.

• The ability to use technology efficiently requires
formal R&D after a certain stage of development.

Globalization of R&D

• TNCs play a dominant role in R&D.
• R&D is one of the TNCs’ activities that are less

prone to internationalization.


• There are signs that TNCs are globalizing their
R&D operations and locating even advanced R&D

activities (not just adaptative R&D) in developing

Putting global R&D by TNCs in perspective

• TNCs play a dominant role in many industries but
there are other key actors:

– public sector research institutions
– universities
– domestic private enterprises.

• Currently, only a handful of developing countries
are significant recipients of R&D-related FDI.

Emerging patterns of global R&D by TNCs
• The phenomenon is not completely new; the trend

towards the internationalization of R&D became
apparent as early as in the 1970s.

• What is new: developing countries have emerged
as destinations of R&D-related FDI:

– Between 1989 and 1999, R&D performed by foreign
affiliates of United States TNCs in developing countries
increased nine times;

– R&D expenditures by Japanese foreign affiliates in
developing countries rose ten times;

– In 2004, more than 10% of 2,500 foreign affiliates
engaged in R&D activities are located in developing

Emerging patterns of global R&D by TNCs

• The emergence of FDI in R&D is part of the
broader phenomenon of offshoring services.

• A growing number of TNCs from developing
countries are establishing R&D facilities abroad.

Drivers of R&D globalization

• Global economic environment: a combination of

– Increased technology intensity of products and services
– Intensified competition and shorter product cycles
– Increased R&D costs

• Technological change
– Advent of “modular” technology → specialization and

fragmentation of R&D
– Emergence of new technologies

Drivers of R&D globalisation (continued)

• Improved host country environment
– Improved skill base, infrastructure
– Linkages between the academic institutions in

the North and the South
– Liberalization of trade and investment regimes

Issues for discussion

• What is the potential size of offshoring R&D to
developing countries?

• Is offshoring of R&D likely to spread to new
developing locations?

• In what industries/activities do developing
countries have opportunities to attract R&D-

related FDI?

• Controversy on the impact on TNCs’ R&D

activities on local technological capacity
– Views on positive impact on economic growth,

technological efficiency and technological

– Opposed views on limited or negative impact
on host economy

• Debate on to what degree the scope for host
countries to access technology through contractual
forms is reduced

Direct and indirect benefits of FDI in R&D
• Direct benefits:

– Improving technological efficiency and inducing
technological change

– Direct benefits depend on the mandate and role of the
given R&D unit

– Benefits from linkages: through subcontracting and

– Employment creation for trained people
• Indirect benefits (spillover effects):

– Encouragement of commercial culture among scientists
and engineers

– Implantation of an R&D and innovation culture among
local companies

– Employee spin-offs of R&D companies

Costs and risks of FDI in R&D

• Risks and costs in countries attracting FDI in

– Too few or no local linkages
– Fragmentation of R&D reduces the scope for

technology transfer
– Ending up in the lower end of value added within

– If FDI takes the form of an M&A, it may result in a

scaling down of R&D activities acquired
– Diversion of scarce local R&D resources from

local firms and research institutions
• Concerns about marginalization of many

developing countries not receiving corporate R&D

Issues for discussion

• To what extent can developing countries rely on imported
technologies to develop their own capacity to innovate?

• What types of R&D units are most desirable for
developing countries

• To what extent can FDI in R&D help reduce the
innovation gap?

• Do increased specialization and fragmentation of R&D
activities lead to reduced technology transfer to developing

• Double aim of policies:

– promote R&D-related FDI; and
– maximize its benefits.

• Levels of policies affecting FDI in R&D:
– Host country
– Home country
– International

• Focus on host-country policies

Host-country Policies affecting the pre-

• Macroeconomic and political stability
• Consistent and transparent investment, trade and

industrial policies
• Infrastructure
• Effective national system of innovation

– strengthening of academic sector
– encouraging university-industry collaboration
– establishing science parks and business


Host-country Policy measures affecting FDI
in R&D

• Performance requirements:
– mandatory R&D requirements (rare)
– Linked to the receipt of of incentives (frequent)

• Incentives
– fiscal incentives
– Financial incentives (directed credits)

• Protection of intellectual property rights:
controversial area

Issues for discussion

• What are the policies that would facilitate local
diffusion of technologies from TNCs’ R&D

• Do performance requirement and incentives play a
role in promoting R&D-related FDI?

• How do IPR regimes help attract R&D-related

Issues for discussion (continued)

• What role can investment promotion agencies play
in attracting R&D related FDI?

• What is the impact of IIAs on the ability of
developing countries to create their domestic R&D

• What measures can home countries adopt to
promote R&D-related FDI to developing

Thank you for your attention
World Investment Report