Study: Low Cost Not Driving Offshoring
Feb. 22, 2006--Companies that move their research-and-development activities abroad cite intellectual capital and university collaboration, not lower costs, as their main reason for doing so, according to a new study by the Ewing Marion Kauffman Foundation.
As a result, the U.S. is losing some of its competitive advantage when it comes to innovation, representing a potential loss of opportunity for American entrepreneurs and scholars, the foundation said.
The study, which was released Feb. 16 by the Kansas City, Mo.-based entrepreneurship organization, examined more than 200 multinational companies in 15 industries -- most of which were located in the U.S. and Western Europe.
U.S. corporations are not moving their R&D to India and China solely because labor is cheaper, the study found. Kauffman officials said that the new study is the first to provide more than anecdotal evidence on the popular belief -- generated in part by the media -- that cost is the major factor driving R&D offshoring.
"There is a breaking of positive relationships between university faculty and businesses in the U.S.,? said Lesa Mitchell, vice president of advancing innovation at the Kauffman Foundation.
According to the study, more than half of the corporate respondents with businesses based in the U.S. have recently expanded or are planning to locate R&D facilities in China and India, despite concerns over IP protection. Companies are keeping their most cutting-edge research in developed countries where IP protection is the strongest.
Mitchell said she is concerned less about corporations moving their R&D to Asia than the need for American universities to be open to collaborating, teaching the best students, and retaining the best faculty.
Companies "need access to the top talent wherever they are,? Mitchell said. "The transaction cost for collaborating outside the U.S. is cheaper.? Problematic immigration and visa services add to the loss of the smartest students and top-tier faculty each year in the U.S., Mitchell added.
"We are educating the best and the brightest, but make it impossible for them to stay in America and immigrate,? said Marie Thursby, professor of Strategic Management at Georgia Tech's College of Management. Thursby conducted the study with Jerry Thursby, chairman of the Department of Economics at Emory University.
To help combat the problem, Marie Thursby called for a "major immigration reform that welcomes, instead of pushes out, highly skilled workers.?