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OM in the News: R&D Shifts Towards Asia

January 19, 2012

If yesterday’s blog about increased productivity in US factories provided some good news during these difficult economic times, today’s may take the wind out of our sails. It is based on with two separate articles in the Wall Street Journal (Jan.18,2012) about why we are losing critical (and high-paying) R&D jobs.

In the first, we find we are rapidly losing our research labs to China and Asia. Firms like GE and Caterpillar are spending billions to expand R&D overseas to: “tap a broader pool, of scientific talent, tailor products to overseas markets, and curry favor with foreign governments”. Here is what 3M’s CEO George Buckley has to say: 3M is expanding overseas labs “in preparation for a world where the West is no longer the dominant manufacturing power. Given the moribund interest in science in the US, this is strategically very important”. 

To a large extent, companies are setting up labs near factories (where ideas can be tested) and where engineering and scientific talent is becoming concentrated. Since 56% of the world’s engineering degrees are awarded in Asia–compared to 4% in the US — Caterpillar is hiring 500 engineers at its China R&D center while GE is setting up six product development centers there.

In the second Journal article, Harvard’s  Michael Porter answers that what is making us less competitive is “political gridlock, faltering schools, and a convoluted tax code”. Nearly 1/3 of the 9,750 execs he surveyed said “other countries offered better access to high-skilled workers and labor productivity”. More disquieting, of 607 site decisions resolved the prior year by respondents, work was moved out of the US in 511 (or 84%) of the cases–and many of these “involved R&D and engineering activities, belying the common perception that only low-skill jobs are at risk”.

Discussion questions:

1. What are the chief obstacles to retaining high-paying R&D jobs in the US?

2.  Why are the major manufacturers moving labs overseas?

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