Opinion - Editorials

Globalisation of research

The World Investment Report, an annual publication of UNCTAD, has always focussed on a range of topical issues related to the flows of foreign direct investment (FDI), transfer of technology, and development. This year's report, WIR05, records the turnaround in the quantum of FDI flows last year after a three-year decline. Aggregate flows have been of the order of $648 billion, 2 per cent higher than in the previous period. The Asian region attracted 70 per cent more FDI in 2004 than in 2003. China and India have been the principal beneficiaries and quite significantly a large proportion of such investments have been in greenfield ventures. In contrast, mergers and acquisitions have been the principal vehicles for FDI in the U.S. and Europe. These are useful findings, entirely to be expected from the world body. What makes WIRO5 noteworthy is its elaborate discussion, in an initial chapter authored by Secretary General Supachai Panitchpakdi, on one aspect of FDI, the globalisation of research and development (R&D). That phenomenon, led by the transnational companies (TNCs), is making its presence in developing countries such as India too. In the initial phase, globalisation of R&D was driven by the necessity of the firms to customise their activities to suit local conditions. The thrust of such efforts however was confined to the home country of the TNC. What is new now is that R&D facilities are being set up outside the developed world, not merely for local adaptation. Increasingly, they are targeting the global markets and are being integrated into the core innovation efforts of the TNCs.

The realisation that Research and Development can, like many services, be outsourced to centres where the capabilities exist is one of the main reasons for its rapid globalisation. For the host country there are two advantages: transfer of technology (created elsewhere) becomes easier and there is a chance that new ones can be created. Local technological skills and innovation capabilities will improve. Also, stable and efficient legal and governance systems, and a commitment to matters such as intellectual property rights are absolutely necessary. WIRO5 notes that although global R&D expenditure has grown rapidly to reach $677 billion in 2002, its distribution is highly skewed in favour of the U.S. and nine other countries. From the developing world, only China and the Republic of Korea figure in the list of the top ten. But, the share of the developed world is falling steadily, and select developing countries including India are emerging as major players. Most of the R&D spending is by a few industries, notably IT hardware, automobile, pharmaceuticals, and biotechnology. Some of these industries are already flourishing in India. Substantial foreign investment has gone into automobile and pharmaceuticals. R&D is a logical extension of these developments, and, for much the same reasons the country became a major force in software, it should be able to attract investments in research as well.

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