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Chapter 4. Research and Development: National Trends and International Comparisons

R&D by Multinational Companies

The spread of R&D by MNCs reflects a number of trends in international production and innovation. Among these are the need to strengthen or complement internal technological capabilities, increased complexity of global supply-chains in R&D-intensive sectors, and improved scientific and technological resources across the globe (Moncada-Paternὸ-Castello, Vivarelli, and Voigt 2011; OECD 2008). R&D associated with FDI, the ownership or control of a business (affiliate) in another country, represents another dimension of the international character of knowledge creation and exploitation. Direct investment is defined as ownership or control of 10% or more of the voting securities of a business (affiliate) in another country. This section covers statistics collected by BEA on R&D performed by majority-owned affiliates (those owned more than 50% by their parent companies) of foreign MNCs located in the United States and on R&D performed by U.S. MNCs and their majority-owned foreign affiliates.[13]

Between 2000 and 2010, U.S. R&D performed by members of MNCs grew faster than R&D in the U.S. business sector as a whole. Over this period, R&D performed by all U.S.-located businesses grew at an average annual rate of 1.1% in constant dollars. R&D performed in the United States by affiliates of foreign MNCs grew at an average annual rate of 2.3% in constant dollars. R&D performed in the United States by parents of U.S. MNCs also grew at an average annual rate of 2.3% in constant dollars over the same 2000–10 period.[14]

In 2010, parent companies performed $212.5 billion ($191.5 billion in constant dollars) or 76% of U.S. business R&D—higher than their 68% share in 2000. U.S. affiliates of foreign MNCs performed about 15% of U.S. business R&D in 2010, compared with 11% in 2000.[15] The rest of this section looks at changes in recent years (in current dollars) See appendix tables 4-234-30.

U.S. Affiliates of Foreign Companies

Affiliates of foreign MNCs located in the United States (U.S. affiliates) performed $41.3 billion of R&D in 2010, up 2.1% after little change in 2009 and 2008 (appendix table 4-23). R&D by these companies has accounted for 14%–15% of U.S. business R&D performance since 2007, according to BEA and NSF statistics. Year-to-year movements in U.S. affiliates’ R&D activity reflect a combination of changes in foreign ownership of existing U.S.-located firms, the establishment of new R&D-performing companies by foreign investors, and variations in R&D strategies and resources by firms that are foreign owned in consecutive years.

In 2010, three-fourths of R&D by U.S. affiliates of foreign MNCs was performed by firms owned by parent companies based in five countries: Switzerland (22.0%), the United Kingdom (14.5%), Germany (13.8%), France (12.7%), and Japan (12.4%) (table 4-9; appendix table 4-23).

Manufacturing U.S. affiliates performed 70% or more of U.S. affiliates R&D since 2006 (appendix table 4-24 and appendix table 4-25). The R&D intensity (R&D divided by value added) of manufacturing U.S. affiliates was 6.4% in 2010—little changed since 2007.[16] R&D by affiliates classified in pharmaceuticals increased by 4% to $15.1 billion in 2010. This industry has accounted for at least a third of U.S. affiliates R&D since 2006 and has the highest R&D intensity (32.2% in 2010) among the largest R&D-performing industries within U.S. affiliates. Other manufacturing industries posting increases in R&D performance include computers and electronic products (8.7%) and electrical equipment, appliances, and components (8.9%). On the other hand, transportation equipment R&D was flat in 2010 after double-digit declines in 2009 and 2008, in part associated with changes in foreign ownership within the industry. Within nonmanufacturing industries, affiliates in information services increased R&D performance by 11.2% in 2010, whereas PST services R&D declined by 6.8%.

U.S. MNCs’ Parent Companies and Their Foreign Affiliates

Parent companies of U.S. MNCs performed $212.5 billion of R&D in the United States, based on preliminary 2010 data from BEA (appendix table 4-30).[17] Their majority-owned foreign affiliates (MOFAs) performed $39.5 billion (appendix table 4-26). (The latter was essentially flat after declining 6.0% in 2009, the first such decline since 2001). Thus, U.S. MNCs (U.S. parent companies and their MOFAs) performed $252.0 billion in R&D globally in 2010. From 2000 to 2010, global R&D by U.S. MNCs grew at an average annual rate of 2.6% in constant dollars. R&D performed overseas by MOFAs grew at a 4.4% annual rate in constant dollars, compared with a 2.3% annual rate by U.S. parents on the same basis. However, parent companies still perform over 80% of U.S. MNCs R&D in the United States (84% in 2010 compared with 88% in 2000). The rest of this section focuses on recent trends in geographic and industrial focus of MOFA R&D in current dollars (see appendix tables 4-264-28).

European host countries accounted for 62% of U.S. MOFA R&D in 2010, down from 66% in 2007 (table 4-10; appendix table 4-26). At the same time, Germany and the United Kingdom remain by far the largest hosts of U.S.-owned R&D with at least $6 billion each. Another 5 of the 13 countries with at least $1 billion in U.S. MOFA R&D in 2010 are in Europe (table 4-11). The shares of R&D performed by U.S. MOFAs in Canada and Japan—traditional locations for U.S. FDI and R&D along with Europe—have declined from 7.9% to 7.0% and from 5.6% to 4.8%, respectively, from 2007 to 2010.

On the other hand, the shares of R&D activities by affiliates in other regions are increasing. The region of Asia-Pacific, excluding Japan, accounted for a record 16.3% of U.S. MOFA R&D in 2010. The Middle East and Latin America each accounted for about 5% in 2010, up from 3.0% and 3.4%, respectively, in 2007. Within these emerging regions for U.S.-owned R&D, China, India, Brazil, and Israel accounted for the largest shares.

U.S. MOFA R&D performance in China more than doubled in current dollars from 2005 to 2008, with year-to-year double-digit increases to a record $1.7 billion in 2008. This is consistent with increases in total R&D performed in China in recent years and its emergence as the second-largest R&D-performing country (see section, “International Comparisons of R&D Performance”). Single-digit declines in 2009 and 2010 put R&D performed by U.S. MOFAs in China at $1.5 billion in 2010 (appendix table 4-26).

Reported R&D activity by U.S. MOFAs tripled in India and more than doubled in Brazil from 2007 to 2010 in current dollars, growing much faster than U.S. MOFA production activity in those countries measured as value added (thus increasing their R&D intensity measured as the ratio to value added). U.S. MOFA R&D expenditures in Brazil and India are now on par with affiliates in China. Among countries with at least $1 billion in R&D performed by U.S. MOFAs in 2010, U.S. MOFAs located in Israel have the largest R&D intensity (table 4-11).

Three manufacturing industries, chemicals (which includes pharmaceuticals), transportation equipment, and computer and electronic products accounted for 56% of U.S. MOFA R&D in 2010. Overall, affiliates classified in manufacturing accounted for 70%. The largest R&D-performing nonmanufacturing industries were information services and PST services (table 4-10; appendix table 4-28).

In spite of the relative decline in the share of traditional locations such as Europe as a whole and Japan, they remain the top R&D hosts for U.S. MNCs in major industries, reflecting both strengths of host countries in certain technologies and the large R&D stocks by U.S. MNCs in these locations.

Germany is by far the largest location of U.S. MOFA R&D in transportation equipment ($3.2 billion of $7.6 billion in this industry by U.S. MOFAs globally) and in computers and electronic products manufacturing ($1.0 billion out of $6.0 billion by U.S. MOFAs globally). The United Kingdom is the top location in chemicals manufacturing R&D and in PST services R&D by U.S. MOFAs. Japan is the second-largest host for R&D performed by U.S. MOFAs classified in chemicals manufacturing.

On the other hand, among MOFAs classified in PST services, India has emerged as the second-largest host country for U.S.-owned R&D performance after the United Kingdom ($0.8 billion compared with the United Kingdom’s $1.8 billion), based on available preliminary 2010 country-industry details from BEA (table 4-10).

[13] For forthcoming releases from a project linking and comparing BEA’s MNC and BRDIS foreign statistics, see
[14] BEA releases MNC statistics in current dollars. Figures in the text were deflated by the authors using the GDP implicit price deflator (2005 = 1.00000) published separately by BEA (see endnote 1; appendix table 4-1).
[15] Some companies are both parents of U.S. MNCs and subsidiaries of foreign MNCs, so the latter shares overlap.
[16] For value-added and other MNCs operations data, see
[17] See additional MNC R&D parent data by industry in appendix table 4-29.