Corporations shift R & D to low-cost countries

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From Economy in Crisis:

In the latter half of the 20th Century and thus far into the 21st Century, America has witnessed millions of blue and white-collar jobs outsourced to low-wage Third World Countries. As jobs are outsourced America loses billions in revenues and tax dollars while wages are transferred elsewhere. The remedy to the problem has always been innovation. However, now it appears that much of this innovation is being offshored as well.

According to Ron Hira and Philip E. Ross research and development spending is rapidly being transferred to China, India and other low-wage nations.

“Now even innovation appears to be fleeing to low-cost countries, as they seemingly leapfrog the traditional stages of development,” they write. “Clearly, we are at the beginning of a fundamental shift in where Research and Development (R&D) is performed.”

This shift is hardly recognized by industry experts because multinational companies based in developed nations are increasingly offloading R&D work to subsidiaries in China and India. However, the spending still shows up on the parent companies books, making it appear as though the R&D spending occurred in the home country of the multinationals.

There are a myriad of reasons behind this growing trend. First, “free trade” has opened up markets all over the world. The two biggest markets, thus holding the most earning potential, are China and India. Both nations have populations that exceed one billion. To better market products to these populations companies are increasingly “localizing” R&D, allowing the companies to better adapt and sell products.

In addition, “free trade” has provided multinational companies the opportunity to invest in markets they hope to gain access in. Think foreign automakers in the U.S.

“Free trade” has also proven to provide multinational companies with the means to greatly increase profits by outsourcing R&D work. For instance, at Google’s Bangalore, India R&D center the average employee makes $30,000 annually. That is a fraction of the salary a similar worker would make in Silicon Valley.

Finally, China and India have used their huge trade surpluses, mainly generated through trade with America, to make enormous investments in the infrastructure and human capital needed to attract R&D work. In 1999, China had just 30 R&D centers. Last year, they had a total of 116. Over the past decade, China has had an average annual increase in spending on R&D infrastructure. In addition, China is graduating two to three times the engineers that the U.S. is.

Source IEEE Spectrum:

Now even innovation appears to be fleeing to low-cost countries, as they seemingly leapfrog the traditional stages of development. Clearly, we are at the beginning of a fundamental shift in where R&D is performed.

China is indeed graduating huge numbers of engineers—two to three times as many as the United States produces.

http://economyincrisis.org/articles/show/2653