Outsourcing can be good for Europe, finds report
The EU drive to stop outsourcing and encourage companies to locate their research laboratories in Europe could be counterproductive, according to a new UK report. According to researchers from the London School of Economics' Centre for Economic Performance (CEP), outsourcing research and development (R&D) activities to overseas locations can boost innovation and productivity. 'Not just through creating technological advances, but also by making it possible for companies to learn about and absorb innovations from elsewhere,' explained John Van Reenen, director of CEP. For example, the UK economy received a major boost from the US-based research laboratories of UK companies during the 1990s, Professor Van Reenen argued. 'Many European policymakers are trying to get firms to relocate their R&D labs back to Europe in order to reach the 'Lisbon agenda' target of getting R&D [spending] up to 3 per cent of GDP,' state the report's authors. 'But the evidence on the productivity benefits of US-based R&D suggests that they could be shooting themselves in the foot.' UK companies that have placed a large number of their researchers in the US have been able to draw on the new ideas of US scientists. Bringing these ideas back to the UK helped boost productivity, say the authors, who believe UK productivity would have been about five per cent lower in 2000, without the growth in US spending on R&D in the 1990s. The CEP researchers, who analysed the accounts of 188 large UK companies and 570 US companies between 1990 and 2000, established that UK companies with US-based research labs profited disproportionately from the US innovation boom. The benefits were especially apparent in industries where the productivity gap with the US was greater. US companies, on the other hand, did not benefit so much from investing in R&D laboratories in the UK. 'Technology sourcing is more important for countries that have most to learn,' concludes the report. 'So when it comes to the special relationship, the UK benefits much more from US R&D than vice versa.'
Countries
United Kingdom, United States