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The unprecedented pace and scale of today’s globalisation process has attracted much attention in recent years. Globalisation is having a particularly large impact on innovation. The scope for global collaboration is increasing as more of the world’s regions possess important research and innovation capabilities. So while the United States, the European Union and Japan have so far been the leaders in this respect, countries such as China and India have a growing research and innovation capacity.

This has become a major reason for companies to locate research and development (R&D) outside the home country. While corporate R&D activities are still carried out predominately in the home country, companies are changing how they innovate and building globally distributed R&D (and innovation) networks. Innovation strategies of companies increasingly depend on global sourcing to sense new market and technology trends worldwide, as global competition has forced companies to innovate and to develop commercially viable products and services faster. The knowledge needed to do so has become more multidisciplinary and more broadly located, making innovation more expensive and riskier.

The internationalisation of R&D is not entirely new: in the 1980s, R&D investments mainly took place between developed countries, often through mergers and acquisitions (M&As). The current internationalisation of R&D has three distinguishing characteristics: it is gathering pace because of the often greenfield investments of multinational enterprises (MNEs), it is spreading to more countries, including developing countries, and it goes beyond adapting technology to local conditions. The internationalisation of R&D and the redistribution of R&D capabilities are in many cases part of firms’ broader strategic decisions on production, marketing and M&As.

This Policy Brief looks at the changing R&D landscape and its implications for business and government policy.