Factors motivating International R&D Investment

1. Factors motivating International R&D Investment Drawing upon background paper by Sara El-Khishin and relevant research by Manchester Institute of Innovation Research and Collaborators

2. R&D-related FDI or Internationalisation of R&D • Growing trend of internationalisation of corporate R&D • Patents with co-inventors up from 7-16% for France and 12-22% for UK • R&D activities of foreign affiliates growing much faster than those of indigenous companies across OECD • 69% of companies in UNCTAD survey saying intend to increase R&D in foreign locations

3. Evolution of R&D Strategy

4. 2nd Generation

5. 3rd Generation

6. 4th generation

7. Open Innovation Redundant model: closed innovation Assumptions: • Innovation happens within the company and needs to be controlled • Companies generate ideas and develop, manufacture, market, distribute and service those ideas in-house. New model: open innovation • knowledge is shared and companies actively access relevant R&I from outside, from universities and other knowledge providers • closer links and active engagement of clients and supply chain in product/process innovation FDI becomes part of the company’s horizon scanning activity

8. MNC’s Motivations for Investment Motivations for MNEs from the Triad regions to invest in R&D abroad Source: Edler, Meyer-Krahmer and Reger 2002

9. Benefits to Developing Countries WIR list • Open up new opportunities to access technology • Build high value-added products and services • Develop new skills and foster a culture f innovation through spillovers to local forma and institutions • Help countries to strengthen their innovation systems and upgrade industrially and technologically • Enable countries to perform more demanding functions’ handle more advance equipment and make more complex products

10. Potential disbenefits • Potential downsizing of existing R&D when FDI involves takeovers of domestic firms • Unfaor compensation to local firms and institutions collaborating with MNCs in the area of R&D • Crowding out of local firms in market for researchers • “Race-to-the bottom” in attracting R&D related FDI and unethical behaviour by MNCs

11. Central position of market friendly to innovation Direct negative evidence to panel about Europe’s fragmented markets from major firms EU 2005 Survey of R&D Trends shows: Market demand for new products & services most important factor influencing level of R&D investment Market access is most important factor influencing mobile R&D investments Major policy response this year with launch of Lead Markets Initiative Europe’s Conclusions http://ec.europa.eu/invest-in-research/action/2006_ahogroup_en.htm

12. UNCTAD Drivers of FDI in R&D • Supply and demand factors • Home country policies encouraging investment in Developing Countries • Embedding MNC in wider network • Active inward investment policies • Liberalisation and strengthening of national S&T base • Education and skills • Intellectual property framework • Extent to which country is a lead market for region

13. Aims today • Identify and articulate the key trends and drivers likely to impact upon the Egypt economy and innovation system. • Develop “outlooks” or mini-scenarios for the future direction of these drivers • Drivers (of change) are the key forces which, according to the direction they take, influence the future of the object of a scenario

14. Content of a driver brief • Summary of key trends and issues that define the driver – around 150 words • Three outlooks of about 50 words each • Alpha Outlooks represent a “business as usual” future, in effect an extrapolation of current forces and processes (if not always an extrapolation of trends). Current frameworks and conditions relating to the set of influences are expected here to remain more or less unchanged, or changes that are already planned or in hand are expected to be introduced as scheduled, more or less successfully. • Beta Outlooks consider, in particular, some of the many things that could ‘go wrong’. What would be the circumstances under which frameworks might break down without viable replacement, where projects and plans might go amiss? The intention here is to get a handle on counter-trends, reasons why undue optimism might be unfounded, challenges that could well need to be confronted if we do set out on the routes mapped out by the Alpha Outlook. • Delta Outlooks consider potential changes in direction. The aim here is to go beyond analysis in terms simply of success or failure of the plans and programmes mentioned above. For instance, new goals might emerge, or new frameworks or rules of the game may be established. We are particularly interested in those possibilities that involve more visionary outcomes – especially if these contribute to solutions of major social problems.

15. Driver 6Global re-location of scientific strength, investment and human resources Europe has just over half the number of researchers per 1000 labour force compared with Japan and the USA. However, the rapidly rising numbers of qualified researchers in China, India and other emerging economies creates a new challenge. At the same time the R&D expenditure of these countries as a percentage of GDP is rapidly catching up, while Japan and Korea are already well ahead. Over a 10 year period 5 Asian economies which collectively used to invest 25% less than the EU now invest over 15% more. Looking to the future the ageing European scientific population may well only be sustainable through immigration. Through brain circulation it may be the case that neighbouring countries (particularly North Africa) with rapidly growing and youthful populations emerge as significant scientific players. • Alpha Outlook • Europe has a gradually declining share of scientific outputs as other regions grow their activity. The present scientific workforce is maintained through immigration and constant campaigns to interest young people in research careers. In 2010 Europe fails to meet its 3% target but the increase in R&D spend achieved is considered to have justified the target. Nonetheless business R&D levels continue to fall short of expectations as new investment tends to go to emerging economies and the USA. • Beta Outlook • Entry to scientific careers in Europe reaches crisis point as the number of private sector jobs for researchers declines and for some member states waves of retirements reduce the absolute number of researchers. Europe’s share of high quality scientific publications declines rapidly. • Delta Outlook • New coordinated approaches to research and innovation policy restore industrial confidence and are accompanied by a substantial increase in investment in op level scientific training. Inward migration of researchers is actively encouraged but at the same time it becomes a normal part of a European research career to spend some time in the USA and another period in Asia. The global flow of ideas is stimulated. EXAMPLE OF DRIVER BRIEF FROM WORKSHOP ON ERA

16. Generalised TR architecture Markets/Customers/Competitors/ Environment/Industry/ Business/Trends/Drivers/Threats/ Objectives/Milestones/Strategy Products/Services/Applications/ Capabilities/Performance/ Features/Components/Families/ Processes/Systems/Platforms/ Opportunities/Requirements/Risks Technology/Competencies/ Knowledge/Development Skills/Partnerships/Suppliers/ Facilities/Infrastructure/ Organisation/Standards/Science/ Finance/Research Phaal, 2003

17. Linking technology to markets Phaal, 2006

18. Linking future to present Phaal, 2006

19. WORKSHOP Process Outline Part 1 Identify Key Drivers 2 groups looking at Firm and Business Environment Breakout groups identify most important trends and drivers Plenary discussion of drivers and outlooks Plenary discussion of Success scenario for International R&D investment in Egypt Concluding discussion on key steps for roadmap to success

20. Think laterally- things are not always what they seem!