U.S. companies spend more on R&D overseas than at home, but 40% of all corporate R&D dollars invested in the U.S. is spent by foreign headquartered companies; race to tap technical talent and new global markets exceeds the pursuit of lower labor costs as reason to conduct R&D offshore.

Booz & Company’s fourth annual analysis of the world’s 1,000 largest publicly traded corporate research and development spenders, released today, found that these corporations continue to invest aggressively in R&D — spending a total of US$492 billion on research and development in 2007, a 10% rise over the previous year, and well over the compound growth rate of 6.7% since 1999. The majority of these companies (91%) conducted their R&D activities in multiple countries beyond that in which they are headquartered.

The Booz & Company study found that the average global multi-national corporation spends just 45% of its total corporate R&D dollars in its home country, while the majority is invested in other countries in its global footprint to capitalize on specialized R&D skills, proximity to new markets and insights into local customers. As in previous years, there is no statistically significant evidence that a higher level of R&D spending relative to peers assures better results. However, companies that invested more than 60% of their R&D spending outside their home countries over the past three years appeared to enjoy superior performance in total shareholder return, operating margin, market cap growth and return on assets. Further, companies investing a higher percentage of R&D resources overseas than their percentage of sales overseas had three-year market cap growth fully 50% higher than those that invested at lower levels.

Source: Booz & Company