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Study: Strategic Matters Key Component

Study: Strategic Matters Key Component
Of Corporate Outsourcing Decisions

Intellectual capital and university collaboration, rather than just reduced costs, represent the key factors determining why U.S. and European companies locate research and development activities in overseas locations, according to a new study sponsored by the Missouri-based Ewing Marion Kauffman Foundation.

The study of more than 200 multinational companies across 15 industries, mostly headquartered in Western Europe and the United States, reports that emerging countries such as China and India will continue to be the most significant beneficiaries of R&D expansion over the next three years.

Unveiled in February at a meeting of the Government-University-Industry Research Roundtable (GUIRR) of the National Academies in Washington, D.C., the study was conducted by the husband and wife team of Dr. Jerry Thursby, chair of the economics department at Emory University, and Dr. Marie C. Thursby, a professor of strategic management at the Georgia Tech College of Management.

The Thursby’s study serves to help dispel the theory, forwarded by the media and much of the American public, that American corporations are outsourcing highly-skilled jobs in science and engineering overseas solely to take advantage of cheaper labor costs. The new study paints a more complex picture of why American and European investment is increasingly flowing to overseas R&D locations.

“The United States would seem to have a comparative advantage in maintaining its innovative leadership through the high caliber of its scientists and its strong protection of [intellectual property],” says Lesa Mitchell, vice president of advancing innovation at the Kauffman Foundation. “Industry and universities must be alert to removing obstacles to joint research, or emerging countries will overtake us in innovation breakthroughs, and the burst of discovery that has been driving our economy for the past half-century will be over.”

According to the study, among the top factors going into new R&D location decisions in both developed and emerging countries are market growth potential, quality of R&D talent, collaboration with universities and intellectual property protection. How these factors influence the decision, however, depends on whether the site is in a developed or emerging country. In neither emerging nor developed countries was cost consideration the most important factor, the study says.

The study also reports that while the trend toward R&D offshoring to China and India will continue despite concerns over intellectual property protection, American and European companies are keeping their most cutting-edge research in developed countries, where IP protection is the strongest.

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