Losing Our Lead in Innovative R&D

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We realized that the best way to learn what was happening globally was to visit the countries growing fastest. Over 18 months we made several trips to India and China and interviewed the executives of approximately 115 companies in the pharmaceutical, semiconductor, automotive, aerospace, cell-phone, and computer-networking industries. We toured their labs, met their researchers, interviewed their customers, and reviewed many of the technologies they had under development.

We found that in aerospace, Indian companies are designing in-flight entertainment systems, collision-control/navigation-control systems, fuel-inverting controls, interiors of luxury jets, and other key components of jetliners for American and European corporations. In the automotive industry, Indian engineers are helping to design bodies, dashboards, and powertrains for Detroit vehicle manufacturers. In telecom and computer networking, Indians are developing futuristic technologies for the intelligent cities that are being constructed in the Middle East. Indian engineers are also developing technology for the next generations of cell phones for European and American companies.

State-of-the-Art R&D

China is already the world's biggest exporter of computers, telecom equipment, and other high-tech electronics. Multinationals and government-backed companies are pouring hundreds of billions of dollars into next-generation plants to turn China into an export power in semiconductors, passenger cars, and specialty chemicals. In 10 to 15 years, they may also develop their own commercial airplanes.

Most of the R&D in China appears to target the domestic market. India is developing technology for a global market. India appears far ahead, but China is investing massively in building R&D capacity by subsidizing state-of-the-art labs in biochemistry, nanotech materials, computing, and aerospace technologies.

In pharmaceuticals, both India and China are making impressive advances. Our report shows that the largest multinational drugmakers, including Merck (MRK), Eli Lilly (LLY), and Johnson & Johnson (JNJ), first moved manufacturing and clinical-trial work to China and India. And now, driven by cost pressures and growth opportunities, they are partnering with firms there to do sophisticated drug research and clinical testing. Indian and Chinese companies are making strides in the segments of global value chains that are most lucrative. They are also now performing their own drug discovery with the hope of marketing new products through their multinational partners.

We are likely to see new types of innovation coming from India and China. Dr. Reddy's Laboratories, for example, is developing what it calls a poly pill, which combines the four most common medications taken by heart patients—anti-hypertensive, statin, beta-blocker and aspirin—into a single pill. Where's the magic? Satish Reddy, managing director of Dr. Reddy's, says he expects to get it to market for less than $30 per patient per year in the U.S.

Innovation Where It's Needed Most

Ranbaxy Laboratories is India's largest drugmaker. CEO Malvinder Singh says his company is focused on finding treatments for neglected diseases endemic to the developing world. These include anti-malarial drugs and pediatric formulations of HIV/AIDS drugs. Similarly, Jason Jin, CEO of ShanghaiBio, says Chinese companies are aiming to cure diseases such as hepatitis B and cancers of the liver and breast, which are common in China.

Is this good for the U.S.? So far, it is. Bob Litan is vice-president of research and policy at the Ewing Marion Kauffman Foundation, which sponsored some of our research. He says: "Having more countries like India and China develop treatments for diseases is good for the world and will help reduce the overall costs of health care."

But will other industries go the way of LCD panels, which originated in the U.S. and moved first to Japan and then Korea and Taiwan? It's too soon to tell. We're not going to be able to stop globalization. Other countries will rise economically and will create inventions that benefit us. This will create new opportunities and competitive risks for the U.S. And it will affect employment. Meanwhile, let's own up to it and find ways to stay ahead and keep research leadership at home (BusinessWeek.com, 1/18/07)—instead of pretending that everything is O.K. just the way it is.

Wadhwa is senior research associate at the Labor & Worklife Program at Harvard Law School and executive in residence at Duke University. He is an entrepreneur who founded two technology companies. His research can be found at www.globalizationresearch.com.