As has been widely reported, U.S. company Applied Materials (AMAT), the world's biggest manufacturer of equipment used to make solar cells, recently decided to construct the world's largest, most advanced nongovernment solar energy research and development facility in Xian, China. Applied Materials also relocated its chief technology officer, Mark Pinto, to China—the first such case of a top U.S. technology executive moving there.
According to Pinto, researchers in the U.S. and Europe must be willing to move to China if they want to do cutting-edge work on solar manufacturing research. Thus, unlike most R&D in developing markets—adapting products to meet local needs—China's growing clean energy market is cultivating the sector's most advanced R&D.
Applied Materials is not alone. IBM (IBM) has announced it will invest $40 million to create the company's first "energy-and-utilities-solution lab" to develop innovative new technologies for smart grid and other applications. The new lab will also be located in China. These decisions suggest that investment is starting to flow not just to low-cost manufacturing in China, but to high-value R&D as well, threatening the U.S.'s historical "comparative advantage" in innovation.
We shouldn't be surprised at these developments. They represent a trend that has been going on for at least a decade. Such other U.S. companies as GM, Dow Chemical (DOW), and Intel (INTC), have constructed high-tech research labs in China. According to Chinese government statistics, there are now 750 foreign-funded R&D centers in China—up from 50 in 1997. In comparison, the decade from 1995 saw the share of corporate R&D sites in the U.S. decline from 59 percent to 52 percent, with the share in China and India increasing from 8 percent, to 18 percent, according to a 2006 report by Booz Allen Hamilton and INSEAD.Overall, as we pointed out in the February 2009 Information Technology & Innovation Foundation report "The Atlantic Century," the U.S. no longer leads the world in innovation-based competitiveness. The country ranks sixth—behind such nations as Singapore, South Korea, and Sweden—and it ranked last among 40 nations in progress on innovation and competitiveness in the most recent decade. China placed first.
INNOVATION IS GLOBALIZING, TOO
Even as the U.S. continues to slip further behind economic rivals in the production and deployment of clean energy technologies, many commentators still cling to the comforting belief that, as New York Times columnist Tom Friedman has written, America will "specialize in research and innovation."
Yet it is clear that we are moving into an era in which the supposed choice between locating for low-cost manufacturing and locating for innovation is revealed as a false one. As clean energy technology has globalized, innovation has followed manufacturing and markets, something that many in the U.S. have yet to appreciate fully. The globalization of innovation has led many multinationals to become truly global in their R&D, manufacturing, and marketing as they increasingly collaborate with foreign companies and governments.
[ BusinessWeek.com ]
