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Which Global R&D Units to Woo

Which Global R&D Units to Woo

BOK Deuk-Kyu

Mar. 27, 2006

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The world's leading multinationals are rushing to set up research and development (R&D) units overseas as they compete for technology, talents, and markets on a worldwide scale. R&D investment by their overseas subsidiaries in 30 countries jumped from US$29 billion in 1993 to US$67 billion in 2002. The overseas share of their total R&D investment rose from 10% in 1993 to 16% in 2002.

More and more global companies are setting up R&D units in developing countries, especially in Nort heast Asia. As of 2005, leading multinationals, including Procter & Gamble, Microsoft, and IBM had 750 R&D units in China for reasons of its market size as well as quality talents.

Host countries, too, compete for foreign R&D units, especially those dealing with state-of-the-art technology or technologies that can improve their industrial structure. Not only developing countries, but advanced countries also compete for them.

Korea has long been a part of this competition. It has enacted Foreign Investment Promotion Act and Technology Transfer Act, offering lab sites or financial support for foreign R&D units. It has also enacted Tax Reduction and Exemption Act to provide tax benefits; Investment Korea and Korea Foundation for International Cooperation of Science and Technology have been established to help invite more of them. The government's policy is to turn Korea into a regional R&D hub for Northeast Asia. As of August 2005, Korea had lured no fewer than 898 global R&D units.

However, foreign R&D investment in 2004 accounted for a mere 0.5% of Korea's total. Not only that but a growing number of global R&D units already in Korea have closed operation, while new ones have been slow to open up. Korea needs to analyze the characteristics of global R&D units and examine what effects they have on Korea's economy.

For this purpose, Samsung Economic Research Institute (SERI) conducted a survey from September to November 2005 of global companies' R&D units located in Korea, sending questionnaires to 407 units, and receiving replies from 76 units.

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