Is U.S. Innovation Headed Offshore?

(page 2 of 2)

There are cases where the U.S. can lose a commanding lead when domestic manufacturing disappears—namely in flat-panel displays and lighting. Macher also concedes "there are problems on the horizon" regarding America's future competitiveness. Other nations are starting to mimic many of the strategies that give the U.S. an innovation edge, for example. And as Asians grow richer "they are becoming more sophisticated and demanding than Americans as users of many tech products."

But for now, "all evidence is that our position in many of these industries will continue," says Macher. Why is the U.S. so entrenched? One reason, he says, is simply that U.S. corporations are proving very adept at managing global R&D networks while keeping core innovation at home. While innovative activity in chips and software is growing fast elsewhere, it has not yet been enough to close the gap with the U.S.

The fact that the U.S. remains by far the world's most lucrative market for pharmaceuticals and business software helps explain its continued strength in those industries. What's more, industry clusters involving companies, universities, and venture capital are so well-established—such as San Diego and Cambridge, Mass., in biotech—that it will take many years for other nations to replicate them.

Persistent Worries

Despite the impressive volume of data, however, the National Academies study is unlikely to allay completely fears that U.S. supremacy in innovation is under threat. The old data, for example, are fine in the academic world, which prizes the reliability and consistency of data over timeliness and where research papers take eons to wend through the peer-review process.

But the real boom in offshore R&D in Asia and Eastern Europe has occurred in the past six years, when multinationals began hiring engineers and designers by the thousands and signing major outsourcing deals with foreign engineering houses. Visit the huge Indian labs of companies like General Electric (GE), Texas Instruments (TXN), IBM, Cisco (CSCO), and Motorola (MOT), for example, and you'll find many examples of Indian engineers developing important next-generation products for global markets. In the pharmaceutical industry, Merck (MRK), Eli Lilly (LLY), Forest Laboratories (FRX), Wyeth (WYE), Bristol-Myers Squibb (BMY) and others have struck alliances to collaborate with Indian companies on major drug-discovery programs since 2005.

Most authors of the papers in the study acknowledge their data aren't perfect. But they contend that even the growth in offshore R&D in the past few years probably isn't enough to change the big picture about where important innovation is taking place—and who profits from it.

It is probably true that American companies are the biggest winners from the globalization of R&D. But if the aim is to rally national support for dramatic increases in federal spending for science and technology in the name of boosting American competitiveness, the next studies on the topic may need to go further. The deeper question is whether U.S. leadership in innovation still creates wealth for average Americans, not just corporate shareholders and top executives.

Click to view a slide show looking at the state of U.S. innovation within specific sectors.

Engardio is an international senior writer for BusinessWeek .