| Foreign-Owned
R&D Spending in the United States
U.S. MNCs and Overseas R&D Spending
R&D Expenditure Balance
International R&D investments by multinational corporations
(MNCs), such as overseas R&D spending and R&D joint ventures
and alliances, support long-term activities aimed at the development
of new products and technological capabilities. The resulting technological
linkages across firms and geographic regions are increasingly vital
in the fast-paced environment of scientific research and global
market competition. International R&D spending links are particularly
strong between U.S. and European pharmaceuticals, computers, and
transportation equipment companies.
In recent years, the United States has attracted large investments
by foreign R&D-performing companies. Foreign-owned R&D in
the United States grew at a real average annual rate of 10.8 percent
from 1994 to 2000, mostly as a result of mergers and acquisitions,
compared with an average annual growth rate of 6.9 percent for U.S.-owned
R&D overseas. This section analyzes data on foreign direct investment
(FDI) in R&D (see sidebar, "Foreign Direct Investment
in R&D"), including activity by foreign-owned companies
in the United States, parent companies of U.S. MNCs, and U.S. overseas
affiliates in terms of investing or host countries, their industrial
focus, and implications for the ownership structure of U.S. R&D.
Major findings were:
- Foreign-owned firms conducting R&D in the United States
accounted for $26.1 billion (13 percent) of the $199.5 billion
in total industrial R&D expenditures in the United States
in 2000. This share fluctuated between 11 and 13 percent during
the period 1994–2000.
- In 2000 about two-thirds of foreign-owned R&D in the United
States was performed in three industries: chemicals and pharmaceuticals,
computer and electronic products, and transportation equipment.
Seven countries invested $1 billion or more in R&D in the
United States in 2000: Germany, the United Kingdom, Switzerland,
Japan, Canada, France, and the Netherlands, accounting for about
90 percent of all R&D expenditures by foreign-owned firms
in the United States.
- Parent companies of U.S. MNCs accounted for two-thirds of the
R&D spending by all industrial R&D performers in the United
States in 2000. In that year, these parent companies had R&D
expenditures of $131.6 billion in the United States, whereas their
majority-owned foreign affiliates (MOFAs) had R&D expenditures
of $19.8 billion for a total of $151.3 billion in global R&D
expenditures.
- Two-thirds of the R&D performed overseas in 2000 by U.S.-owned
companies ($13.2 billion of $19.8 billion) took place in six countries:
the United Kingdom, Germany, Canada, Japan, France, and Sweden.
At the same time, emerging markets such as Singapore, Israel,
Ireland, and China were increasingly attracting R&D activities
by U.S. subsidiaries. In 2000, each of these emerging markets
reached U.S.-owned R&D expenditures of $500 million or more,
levels considerably higher than those in 1994.
- Three manufacturing sectors dominated overseas R&D activity
by U.S.-owned companies: transportation equipment, computer and
electronic products, and chemicals and pharmaceuticals. These
are the same three industries that accounted for most foreign-owned
R&D in the United States, implying a high degree of R&D
globalization in these industries.
Foreign-Owned R&D Spending in the United
States 
Overview
The economic presence of foreign-owned companies in the United
States is substantial. In 2000, majority-owned U.S. affiliates of
foreign companies—affiliates operating in the United States
in which the ownership stake of foreign direct investors is more
than 50 percent—had a gross product (value added) of $449.4 billion,
sales of $2.1 trillion, and almost 5.6 million employees in the
United States, according to data from the U.S. Bureau of Economic
Analysis (BEA)
(table 4-22  ).
These affiliates accounted for 6.0 percent of U.S. private-industry
GDP and 4.9 percent of U.S. private employment in 2000 (Zeile
2002).
R&D spending by majority-owned U.S. affiliates of foreign companies
(hereafter, foreign-owned R&D) reached $26.1 billion
in 2000, an increase of 8.6 percent over 1999 expenditures.
In 2000, foreign-owned R&D spending accounted for 13 percent
of the $199.5 billion in total industrial R&D expenditures in
the United States, according to NSF's Survey of Industrial Research
and Development.
This share fluctuated between 11 and 13 percent between 1994 and
2000. Note that the share of foreign-owned R&D spending in 2000
(13 percent) was more than twice the comparable share of U.S. private-industry
gross product and employment, reflecting significant activity in
R&D-intensive industries.
Investing Country and Industry Analysis
Relatively few investing countries account for most of the foreign-owned
R&D in the United States. In 2000, European-owned subsidiaries
accounted for $18.6 billion (71 percent) of foreign-owned R&D
in the United States (figure
4-34  ),
a share comparable with their 67 percent share in foreign-owned
gross product in the United States. The corresponding R&D shares
for Canadian- and Asia/Pacific-owned subsidiaries were 14.0 and
10.9 percent, respectively. In particular, R&D activities by
U.S. affiliates of foreign companies were dominated by seven investing
countries with $1 billion or more in R&D expenditures (table
4-22 ).
These top countries accounted for about 90 percent of all foreign-owned
R&D in the United States, a somewhat higher percentage than
their corresponding shares of gross product (value added), sales,
and employment (82, 73, and 80 percent, respectively). German- and
British-owned subsidiaries accounted for about 20 percent each of
the total foreign-owned R&D spending in the United States in
2000, followed by Canadian-owned affiliates with 14 percent. Relative
to gross product, German-, Canadian-, and Swiss-owned companies,
respectively, were the most R&D-intensive subsidiaries (table
4-22 ).
Foreign-owned R&D in the United States is performed primarily
in manufacturing. In 2000 about two-thirds was performed in three
industries: 27 percent in chemicals (of which 80 percent was in
pharmaceuticals), 24 percent in computer and electronic products
(of which three-fourths was in communications equipment), and 12
percent in transportation equipment, mostly in motor vehicles. Electrical
equipment and components and machinery accounted for 7 and 3 percent,
respectively, of foreign-owned R&D in the United States (table
4-23
and appendix
table 4-50  ).
The information sector and the professional, technical, and scientific
services sector each represented 3 percent of this U.S. total in
2000, exhibiting little change from 1999.
Firms from some investing countries are particularly active in
certain industries. In 2000, 80 percent of R&D performed by
Swiss-owned subsidiaries in the United States was performed by chemical
and pharmaceutical affiliates, compared with 38 and 24 percent,
respectively, for British- and German-owned subsidiaries (table
4-23 ).
In contrast, more than a fourth of Japanese-owned R&D was performed
by companies classified in computer and electronic products.
The shares of computer and electronic products as well as transportation
equipment in foreign-owned R&D spending are comparable with
their shares in total company-funded industrial R&D spending
in the United States, according to data from NSF's Survey of Industrial
Research and Development.
However, the share of chemicals in foreign-owned R&D was more
than twice the share of chemicals in overall industrial R&D
in the United States (11 percent in 2000).
This difference suggests the appeal of the United States as a center
for chemicals and pharmaceuticals R&D for major foreign companies,
reflecting asset-seeking FDI goals. At the same time, the share
of the gross product of these foreign-owned chemical affiliates
in total foreign-owned gross product in overall chemical industry
share in U.S. (private industry) GDP in 2000 (2.1 percent), indicating
substantial production the United States (9.1 percent) was much
higher than the activity by these affiliates (U.S.
BEA 2003). These observations suggest that R&D investments
by foreign chemical companies in the United States are likely pursuing
both market- and asset-seeking objectives.
U.S. MNCs and Overseas R&D Spending
Overview
The economic reach of U.S. MNCs—defined as U.S. parent companies
and their foreign affiliates—is considerable.
According to BEA data, U.S. MNCs had a gross product of $2.70 trillion,
sales of $9.03 trillion, and 31.20 million employees worldwide in
2000 (table 4-24 ).
Parent companies of U.S. MNCs (hereafter, U.S. MNC-parent companies)
had R&D expenditures of $131.6 billion in 2000, whereas their
MOFAs had R&D expenditures (hereafter, U.S.-owned overseas
R&D) of $19.8 billion for a total of $151.3 billion in global
R&D expenditures.
Between 1994 and 2000, R&D spending by MOFAs grew at a faster
rate (6.9 percent real average annual rate) than that of their U.S.
parents (4.3 percent).
The percentage of total R&D spending by U.S. MNCs that was performed
abroad by their MOFAs increased from 11.5 percent in 1994 to 13.1
percent in 2000. However, the 2000 R&D spending share of MOFAs
within the worldwide operations of U.S. MNCs was approximately half
of their share in employment and sales and a little more than half
of their share in gross product (value added) (table
4-24 ).
This shows a relative preference by parents of U.S. MNCs for domestically
based R&D performance compared with other activities, which
is consistent with the behavior of MNCs based in other advanced
economies (Niosi 1999). The high
concentration of R&D expenditures by U.S. MNCs at home results
in a significant role of these parent companies as R&D performers
in the United States. U.S. MNC-parent companies accounted for two-thirds
of the R&D spending by all industrial R&D performers in
the United States in 2000.
In comparison, the gross product of U.S. MNC-parent companies accounted
for about a fifth of U.S. (private industry) GDP in 2000, according
to BEA.
Host Country and Industry Analysis
Two-thirds of the R&D performed overseas in 2000 by MOFAs of
U.S. companies ($13.2 billion of $19.8 billion) took place in six
countries: the United Kingdom, Germany, Canada, Japan, France, and
Sweden (table 4-25 ).
On a regional basis, the European region accounted for approximately
two-thirds ($12.9 billion) of all U.S-owned overseas R&D; the
Asia/Pacific region ($3.7 billion, or 18.9 percent) outpaced Canada
($1.9 billion, or 9.5 percent) as a locale for U.S.-owned overseas
R&D (figure 4-34
).
In 2000, approximately three-fourths of U.S.-owned overseas R&D
was performed in three manufacturing sectors: transportation equipment
($5.7 billion, or 29 percent), computer and electronic products
($4.9 billion, or 25 percent), and chemicals ($4.3 billion, or 22
percent, most of which, 83 percent, was in pharmaceuticals)
(table 4-25 ).
Compared with 1999, the share of computer and electronic products
increased 3 basis points, mostly at the expense of chemicals, whereas
the transportation equipment share was little changed. Information
as well as professional, technical, and scientific services represented
2 and 6 percent, respectively, of overseas R&D in 2000, compared
with 1 and 5 percent, respectively, in 1999. Certain emerging markets
play an increasing role in U.S.-owned overseas R&D. The 10 locations
shown in table 4-26
hosted $3.5 billion (18 percent) in R&D expenditures by MOFAs
of U.S. parent companies in 2000, compared with $1.3 billion (11
percent) in 1994. Furthermore, U.S.-owned R&D expenditures in
these 10 countries increased by 15.9 percent annually (real average
annual growth) from 1994 to 2000, compared with 6.9 percent annual
growth for the aggregate of all host countries. For some of these
locations, the real average annual increases were much higher, albeit
from smaller levels of R&D activity.
The change in the relative overseas R&D rankings of these emerging
markets are significant, indicating a selective diffusion of global
R&D activities beyond traditional areas, likely aimed at adapting
products to local markets and regulations, complemented by local
know-how and human R&D resources. For example, U.S. subsidiaries
in Singapore, Israel, Ireland, Taiwan, and South Korea with activities
in computer and electronic product manufacturing spent a total of
$1.2 billion in R&D in 2000, or 25 percent of $4.9 billion of
U.S.-owned overseas R&D in this industry. A third of the combined
$555 million in R&D expenditures by U.S. subsidiaries in Mexico
and Brazil was devoted to transportation equipment R&D.
R&D Expenditure Balance
Foreign-owned R&D expenditures in the United States grew at
a real average annual rate of 10.8 percent from 1994 to 2000, compared
with an average annual growth rate of 6.9 percent for U.S.-owned
overseas R&D. In 1998–2000 annual foreign-owned R&D
spending in the United States exceeded U.S.-owned overseas R&D
spending by at least $5 billion (figure
4-35 ),
or more than 3 percent of total industrial R&D in the United
States. In 2000 the difference, or expenditure balance, was $6.3
billion, down from a record $7.7 billion in 1998. At the regional
level, R&D expenditures by European-owned companies in the United
States outpaced overseas R&D spending by U.S. subsidiaries in
Europe by $5.7 billion in 2000 (figure
4-34 ).
U.S.-owned companies in the United States and abroad, and foreign-owned
affiliates in the United States, may have a combination of local
and foreign sources of R&D funding. However, data on international
funding sources for industrial R&D in the United States are
generally unavailable. Both dimensions, ownership structure and
funding sources, and how they may affect each other, are necessary
for a fuller characterization of the international character of
U.S. R&D activities. The Bureau of the Census, which conducts
the NSF Survey of Industrial Research and Development, and BEA,
which conducts the FDI surveys, are engaged in a data-linking project
aimed at a more detailed profile of U.S R&D performance and
funding.
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