The IT Revolution and the Globalization of R&D

Since the 1990s, R&D has become less geographically concentrated, and has seen especially fast growth in emerging markets. One of the distinguishing features of the R&D globalization phenomenon is its concentration within the software/IT domain; the increase in foreign R&D has been largely concentrated within software and IT-intensive multinationals, and new R&D destinations are also more software and IT-intensive multinationals than traditional R&D destinations. In this paper we document three important phenomena: (1) the globalization of R&D, (2) the growing importance of software and IT to firm innovation, and (3) the rise of new R&D hubs. We argue that the shortage in software/IT-related human capital resulting from the large IT- and software-biased shift in innovation drove US MNCs abroad, and particularly drove them abroad to “new hubs” with large quantities of STEM workers who possessed IT and software skills. Our findings support the view that the globalization of US multinational R&D has reinforced the technological leadership of US-based firms in the information technology domain and that multinationals’ ability to access a global talent base could support a high rate of innovation even in the presence of the rising (human) resource cost of frontier R&D.