India's Progress

I read an article in the Wall Street Journal today lamenting that many American companies are moving more and more R&D spending to Asia.  Read: China and India.  The article's tone was somewhat negative, and regretful of the movement of high skill jobs and R&D money out of the United States.  The aricle fails to take into account 3 major points we can infer from this increased investment abroad. 

1) U.S. corporations realize that they can earn a better return from investing in projects in these countries.  Economic theory is based upon the assumption that capital will flow to where it gets the greatest return.  In most of the recent globalization, this has perversely not been the case.  Instead capital from emerging markets has been flowing towards the rich world, and particularly into U.S. treasuries.  The WSJ (of all publications) should be lauding this (small) return to normal economic conditions.  In addition, since when are greater profits for American companies a bad thing?

2) Investment in and development of Asia, particularly India and China, is not a zero-sum game.  As we saw during our visit to GE, R&D for a large multinational is often done at a global scale with 3 or 4 centers.  Breakthroughs in any of these encourage breakthroughs throughout and the more money that is invested in each area, the better off they all will be.  Progress requires adequate investment throughout the R&D chain.  India in particular, with its legions of world-class engineers ought to be bringing in even more R&D money.  Further integration of worldwide R&D and greater investment in all areas will produce more and more rapid economic growth throughout the world.  

3) Following from the lest point, and perhaps the most important take-away from this article, is the signal that increased R&D expenditure in India sends.  For a company to increase its R&D budget for a particular office, it should first be comfortable broadly speaking with government protection of intellectual property created.  As we saw at the law firm we visited, even just in the past year, IP protection has increased by leaps and bounds.  What began at the behest of the increasingly IP reliant pharmaceutical industry is now spreading throughout the Indian economy, with the judiciary increasingly hawkish on IP matters.  Greater R&D budget allocation is a further symptom of this new maturity of the Indian economy.  It is clear that companies are taking the cue from the central government that their innovations will be protected and therefore pumping much needed dollars into the Indian economy.

Far from being a cause for concern, the WSJ and all Americans should see this R&D shift as further evidence of India's emergence into the global economy as well as the increased maturity of the government of India to foster economic prosperity at home.