Since 1985, Japanese and U.S. electronics companies have greatly increased the number of R&D facilities in each other's country. A study explains why.
OVERVIEW: Most U.S. and Japanese firms have traditionally conducted all of their R&D in their home countries. However, an increasing number of U.S. and Japanese electronics companies are expanding their multinational involvement and increasing their cross-border direct investments in R&D. These companies have not only established new R&D facilities in the U.S. and Japan, but they are also increasingly conducting higher-value-added R&D in each other's markets. There are several reasons for this growth in cross-border R&D investments. Three major ones are: (1) To assist the parent company in meeting host country customer needs; (2) to monitor technological developments; and (3) to acquire new technology.
Multinational involvement in foreign-based R&D has expanded significantly during the past decade. Nowhere is this trend more evident than in the recent growth of Japan-U.S. cross-border direct investments in R&D. By the end of 1993, when this study was conducted, Japanese firms had established over 190 R&D facilities in the United States, and U.S. companies had set up over 70 R&D centers in Japan. Over 50 percent of these R&D facilities were established or acquired between 1985 and 1993. They include R&D subsidiaries of such leading multinationals as General Motors, IBM, Toyota, and Matsushita.
Despite the rapid growth of Japan-U.S. cross-border direct investments in R&D, little is known about why Japanese and U.S. companies have established R&D facilities in each other's countries. Information on the nature and scope of research conducted by these facilities is also limited. To help fill this gap, I conducted this study to investigate, compare and contrast the investment motives, research activities and selected aspects of the management and organization of Japanese R&D facilities in the United States, and U.S. R&D facilities in Japan, in the electronics industry (see "About the Study," next page) This article discusses the major findings of this study.
Growth of Japan-U.S. Direct R&D Investments
Japanese direct R&D investments abroad have increased significantly since 1985. In 1991, the Japan Science and Technology Agency (STA) surveyed 831 Japanese companies with capitalization of at least Y 1 billion and identified 117 companies that had established or acquired 276 R&D facilities abroad. Figure 1 shows the periods during which Japanese companies first acquired or established R&D facilities in selected regions. It portrays two important trends. First, as previously noted, the number of Japanese companies that have established or acquired R&D facilities abroad increased dramatically between 1985 and 1991. Second, the lion's share of Japanese R&D facilities is located in the United States. A recent U.S. Department of Commerce survey identified over 190 Japanese R&D facilities in the United States owned by about 100 Japanese parent companies (1). These R&D facilities are predominantly in three industries: electronics (including computers and computer software), automotive and biotechnology.
Similarly, U.S. companies have increased their R&D investments in Japan in recent years. According to Japan's Ministry of International Trade and Industry (MITI), there were over 110 foreign-owned R&D facilities in Japan at the end of 1992. Of these, 79 R&D facilities were owned 50 percent or more by U.S. companies. These facilities, which are primarily concentrated in the electronics, chemical and pharmaceutical industries, employed over 6,000 researchers and engineers and had an annual operating budget of over $500 million (2).
Among the Japanese electronics R&D facilities in the United States, the greatest number perform R&D in computers and computer software (44 facilities), followed by semiconductors (19 facilities) and telecommunications (14 facilities). …