Chapter: 4 Science & Engineering Indicators 93
Foreign R& D in the United States.
(Click here for footnote 75.) Since 1981, the percentage of industry R& D expenditures financed from foreign sources has risen considerably in each of the seven largest R& D-performing countries except Japan. Foreign R& D accounts for more than 10 percent of industry's 1990 total in the United States, Canada, the United Kingdom, and France, and for more than 3 percent of industry funds in Italy and Germany. Indeed, according to OECD data (1993a) on the 12 nations that comprise the European community, (click here for footnote 76) the combined share of their industries' R& D performance that is "foreign controlled" has risen from less than 5 percent in 1981 to 8 percent in 1990. The foreign component of Japan's industrial R& D performance has held level during the 1981-91 period at about 0.1 percent of total. (See figure 4-29, appendix table 4-40 and "R& D Funding by Source and Performer.")

Like U.S. firms' overseas R& D funding trends, R& D activity by foreign-owned companies in the United States has increased significantly since the early eighties. From 1980 to 1990, inflation-adjusted R& D growth from foreign firms (U.S. affiliates in which the foreign parent owns 10 percent or more of the voting equity) averaged 14 percent per year, or more than three times the rate of growth in domestic R& D activities by U.S. companies (4.4-percent). (Click here for footnote 77.)

Much of this foreign R& D growth was undertaken during the last half of the decade, just as U.S. firms' domestic R& D investments were falling off. As a result, foreign R& D was equivalent to 11 percent of the total industrial R& D performance in the United States in 1990--almost double that of its equivalent 6-percent share in 1985. Alternatively, as a percentage of total foreign and U.S. firms' industrial R& D funding, foreign companies accounted for 15 percent in 1990 (majority owned affiliates accounted for 11 percent) compared to a 9-percent share in 1985. Although the R& D flows from other European countries also increased steadily over the past decade, 80 percent of this foreign funding came from 5 countries--Canada, Germany, the United Kingdom, Switzerland and Japan. Japanese firms increased their R& D investment in the United States more rapidly than did companies from the other nations.

Foreign-funded research in 1990 was concentrated in three industries--industrial chemicals (funded predominantly by German and Canadian firms), drugs and medicines (mostly from Swiss and British firms), and electrical equipment (one-fourth of which came from German affiliates). These three industries accounted for three-fifths of total 1990 foreign R& D investment--$11.3 billion. (See text table 4-7 and appendix tables 4-43 and 4-44.)

Concurrent with the rapid growth in foreign R& D expenditures in the United States, the establishment of R& D facilities in the U.S. by foreign companies has recently accelerated. According to a recent survey (Dalton and Serapio 1993), there were 255 foreign-owned free-standing R& D facilities in the United States in 1992. About half of these had been established during the previous six years. (Click here for footnote 78.) Other significant findings of this study follow.

Footnote 75:
For countries other than the U.S., the data in this section are taken from OECD 1993a). The foreign sourced R& D data for the U.S. come from an annual survey of Foreign Direct Investment in the United States conducted by BEA. BEA reports that the foreign R& D totals are comparable to the U.S. R& D business data published by NSF. Industry-specific comparisons, however, are limited due to differences in the industry classifications used by the two surveys. (See Quijano 1990)

Footnote 76:
 These countries are Belgium, Denmark, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, and the United Kingdom. See also OECD (1992) for a discussion of international R& D investment trends.

Footnote 77:
 BEA considers all of an investment (including R& D) to be "foreign" if 10 percent or more of the investing U.S.-incorporated firm is foreign-owned. These R& D expenditures are reported in appendix table 4-43. Special tabulations were prepared by BEA to reveal R& D expenditures in the United States of those firms in which there is majority foreign ownership--i.e., 50 percent or more. For 1990, the 10-percent foreign ownership threshold results in an estimated $11.3 foreign R& D investment total. R& D expenditures of majority-owned U.S. affiliates of foreign companies were $8.4 billion.

Funding trends of these two groupings are quite similar. From 1980 to 1990, inflation-adjusted R& D spending of majority-owned foreign firms was up 350 percent, whereas that of firms with 10 percent or more foreign ownership (including majority-owned) rose slightly more, 370 percent. See appendix table 4-45.

Footnote 78:
 These counts are for only those facilities (R& D center, R& D company, or R& D laboratory) that are 50 percent or more owned by a foreign parent company. An R& D facility typically operates under its own budget, and is located in a free-standing structure outside of and separate from the other U.S. facilities (e.g., sales and manufacturing facilities) of the parent. This definition of an R& D facility consequently excluded R& D departments or sections within the U.S. affiliates of foreign-owned companies.

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