Category:	Science and Technology
Domain:	Economics
Keywords:	Work & organisation - economics, telecommunications, globalisation, innovation, R&D
Outlook:	A shift in R&D processes from “ivory tower” models to global networks of contractors and alliances could have a significant impact on the economics of innovation.
Summary Analysis:	During most of the 20th century, the usual site for innovation in science and technology was the academic laboratory or the corporate research park. MIT's Lincoln Labs, Bell Laboratories, and Xerox PARC are notable examples of such laboratories. In the 1980s and 1990s, there was a marked shift to regional innovation clusters – Silicon Valley in California and Cambridge, England, emerged as two of the global leaders. While large research organisations continued to exist in this new milieu of innovation, they were seen as less competitive. Firms like Cisco Systems, which shunned internal R&D and instead acquired innovative start-ups, were better able to maintain a competitive edge. Over the next 20 years, the geography of R&D may shift again – from regional clusters in the developed world to global networks with large outsourced operations in the developing world. India and China, in particular, will provide large pools of highly skilled workers at 25% to 50% of the cost of their counterparts in the West and Japan. The Indian government estimates that outsourced R&D in India currently generates about $1 billion annually; this is projected to rise to $11 billion by 2008, mostly in software. China's manufacturing capacity gives it a natural advantage in computer hardware R&D. Both nations also have the long-term potential for large-scale work in pharmaceuticals and biotechnology. The trend towards sourcing R&D off-shore may change the economic significance of sourcing services off-shore generally. Up to now, the practice has tended to free up capital and labour in developing countries and provided resources for the creation of new, higher value-added enterprises. However, some of the R&D jobs that may be outsourced are among the most highly prized. Serious obstacles still remain, in particular, quality control and the protection of intellectual property. Furthermore, for the near future R&D outsourcing will be limited to 'modular innovation', namely incremental improvements in existing lines of research. Radical, breakthrough innovation will continue to be the domain of regional clusters in developed countries.

	Implications:	Rising demand for an R&D labor force in China and India Acceleration of the pace of technological innovation
	Early Indicators:	China is now the 2nd largest global cluster of researchers in the world 2004 (2nd only to the US) Increase in the number of offshoring deals announced by Fortune 500 firms Growth of services export clusters in India Departure of Professor Andrew Yao from Princeton in 2004 for a position with the Center for Advanced Study at Tsinghua University
	What to Watch:	By 2017, 3.3 million U.S. service industry jobs, including 1 million IT service jobs and $136 billion in wages, have moved offshore. Outsourced R&D in India grows to $11 billion by 2008. The first instance of a WIPO dispute over stolen intellectual property at a Chinese R&D outsourcing firm occurs. The Turing Award is given for the first time to a researcher in a Chinese or Indian research lab. Fortune 500 firms initiate major downsizing at their US/European R&D labs.
	Parallels/Precedents:	Offshoring of manufacturing in the 1990s and of routine services in 2000 and later
	Enablers/Drivers:	Continued expansion of high-capacity global undersea fiber optic networks Acceptance of English as the global business language Continued development of domestic venture capital sources for export-oriented services firms Increasingly widespread use of Voice over Internet Protocol (VoIP) Development of global intellectual property standards and enforcement
	Leaders:	Institutions: Fortune 500 firms Indian firms in clusters around Bangalore, Hyderabad, and Chennai Firms in China Zhongguancun Science Park [link] Chinese Academy of Sciences [link] Indian Institute of Science, Bangalore, India [link] Indian Institute of Technology [link] Indian Government [link] Science Policy Research Unit and Institute of Development Studies Research, University of Sussex, [link] [link]
	Figures:
	Sources:	Saxenian, Annalee. "Government and Guanxi: China's Software Industry in Transititon." [link] Dossani, Rafiq and Martin Kennney. 2004. "The Next Wave of Globalization: Exploring the Relocation of Service Provision to India." Berkeley Rountable on the International Economy. [link] Barma, Naazneen. 2005. "The emerging economies in the digital era: market places, market players, and market makers." Berkeley Roundtable on the International Economy. [link] Castells, Manuel and Hall, Peter. 1994. Technopoles of the World. London: Routledge. Friedman, Tom. The World is Flat. New York: Farrar, Straus and Giroux. United Nations University Press. The Uncertain Quest: Science, Technology and Development. [link] "Report on the Emerging Global Labor Market." McKinsey Global Institute [link] Verma, Rohit. "China's Rise: IT's Not a Problem for India." Asia Times Online. 17 June 2005. [link] "Transnational Corporations and the Internationalisation of R&D." 2005. United Nations Conference on Trade and Development (UNCTAD) [link] Athreye S. "The Indian Software Industry and its Developing Service Capability." January 2003. Development Policy and Practice, Open University [link] "China to Build 30 New Science and Technology Parks." SciDev.Net. April 19 2006 [link] Cox A and Sepetys K. "Intellectual Property Rights Protection in China: Litigation and Economic Damages." January 6 2006. Global Intellectual Property Asset Management Report [link] "Watch Out, India." May 4 2006. Economist [link]

	At A Glance:	When:	11–20 years
		Where:	Global
		How Fast:	Years
		Likelihood:	Medium
		Impact:	Medium-Low
		Controversy:	Low

Related Outlooks: