Danish firms can benefit greatly from good ideas in growth countries

af Matilde Hørmand-Pallesen

Even though Denmark has to survive on its own ideas, we won’t go bankrupt drawing on others’ ideas – quite the reverse, actually. If we perform part of our research and development (R&D) in growth countries, we enhance our own ability to innovate, explains Keld Laursen, CBS professor of innovation .

In cooperation with two Italian researchers, Professor Laursen has studied what significance carrying out research and innovation in fast-growing economies has for the world’s richest countries.

- The public debate has been marked by the fear that fast-growing economies threaten our position. Our research, however, shows that if we take advantage of collaboration and the division of labour correctly, we’ll generate more technological innovation by performing part of our R&D activities in growth countries, clarifies Professor Keld Laursen, whose published a research article in the Journal of Economic Geography[N1] .

Professor Laursen adds that it is well established that the ability to innovate is crucial for a country or region’s competitiveness and wealth. The article is based on an analysis of 221 major OECD regions and their firms’ outsourcing of R&D to Brazil, Russia, India, China, Singapore and Taiwan (BRICST).

Investment at home and abroad
The findings show that the regions that combine investments in R&D in the home region with investments in fast-growing economies are also the most technologically innovative. The researchers’ study shows that California mastered this discipline especially well.

- Firms get more out of every dollar invested at home by also simultaneously investing in fast-growing developing countries. It’s essential for firms to assess which R&D activities can be usefully placed in another geographic region, says Professor Laursen. Grundfos is an an example of a Danish company that benefits from investing at home and abroad by developing its own complex pump control systems in Denmark, but that carries out development of the pump’s mechanical parts in China.

Danish firms ought to invest in low-tech technology abroad
The type of investments made matters greatly. At home, Danish firms ought to do research on advanced technologies such as pharmaceuticals and electronics. It is advantageous, however, to invest in low-tech technology in BRICST countries in terms of simpler inventions.

- Danish firms need to avoid spending resources on developing low-tech technology, for example the simple parts of furniture, such as hinges. This type of development should take place abroad, where it can be done more cheaply, says Professor Laursen. Research shows that several OECD regions have benefitted from having their firms invest in the BRICST countries’ research on low-tech technology, such as textiles, food, soap, plastics and simple machines.

For additional information please contact Professor Keld Laursen on email kl.ino@cbs.dk.

Behind the research
The title of the research article is “The impact of R&D offshoring on the home knowledge production of OECD investing regions[N1] ”. An innovation professor at CBS, Keld Laursen wrote the article jointly with Lorena M. D’Agostino and Grazia D. Santangelo from the University of Catania, Italy. The research builds on the analysis of 221 regions in 21 high-income OECD countries from 2003-2007. The study examines the interaction between firms’ investments in R&D in their home region and their offshoring of R&D to Brazil, Russia, India, China, Singapore and Taiwan (BRICST). The regions’ success with innovation derived from investment in research is measured in terms of the firms’ patent activities. The analysis is based on the interconnection of various types of official data from the OECD.