Executive Summary

Under the auspices of the National Research Council’s National Materials Advisory Board and with the sponsorship of the Department of Defense, a study was conducted by the Committee on Globalization of Materials Research and Development to assess the current status of materials science and engineering research and development (MSE R&D) from a global perspective, to identify the drivers of U.S. companies’ decisions to locate materials research in the United States or abroad, to assess the impact of the globalization of MSE R&D on the U.S. economy and national security, and to recommend actions to ensure continued U.S. access to critical MSE R&D. Globalization of MSE R&D is defined in this study as the worldwide expansion of MSE knowledge-creation centers as a result of U.S. and non-U.S. industry and government investments, along with increased worldwide collaboration, facilitated by information technology. Data from the National Science Foundation (NSF) and other sources1 indicate increases in transnational academia-led R&D with international academic and industrial collaborators as well as in transnational corporation-led R&D with foreign affiliates of U.S. corporations, foreign academics, or foreign corporations. Given the prospect that global shifts in MSE R&D will continue, What are the possible risks and benefits for the

1  

See NSF, Main Science and Technology Indicators, 2004, available at http://www.nsf.gov/sbe/srs/seind04/start.htm; Economist Intelligence Unit, Scattering the Seeds of Invention: The Globalization of Research and Development, 2004; and the results of a poll of MSE practitioners carried out for this study as described in Appendix E.



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Globalization of Materials R&D: Time for a National Strategy Executive Summary Under the auspices of the National Research Council’s National Materials Advisory Board and with the sponsorship of the Department of Defense, a study was conducted by the Committee on Globalization of Materials Research and Development to assess the current status of materials science and engineering research and development (MSE R&D) from a global perspective, to identify the drivers of U.S. companies’ decisions to locate materials research in the United States or abroad, to assess the impact of the globalization of MSE R&D on the U.S. economy and national security, and to recommend actions to ensure continued U.S. access to critical MSE R&D. Globalization of MSE R&D is defined in this study as the worldwide expansion of MSE knowledge-creation centers as a result of U.S. and non-U.S. industry and government investments, along with increased worldwide collaboration, facilitated by information technology. Data from the National Science Foundation (NSF) and other sources1 indicate increases in transnational academia-led R&D with international academic and industrial collaborators as well as in transnational corporation-led R&D with foreign affiliates of U.S. corporations, foreign academics, or foreign corporations. Given the prospect that global shifts in MSE R&D will continue, What are the possible risks and benefits for the 1   See NSF, Main Science and Technology Indicators, 2004, available at http://www.nsf.gov/sbe/srs/seind04/start.htm; Economist Intelligence Unit, Scattering the Seeds of Invention: The Globalization of Research and Development, 2004; and the results of a poll of MSE practitioners carried out for this study as described in Appendix E.

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Globalization of Materials R&D: Time for a National Strategy United States? Like the study of materials itself, the task of assessing current and future impacts of the globalization of MSE R&D is complex and involves interconnected and multidimensional elements. Today global MSE R&D is diversifying geographically at an accelerating rate as various other countries, including some not previously known as centers of MSE expertise, invest in the creation of their own MSE knowledge base. As a result, the relative U.S. position in many MSE subfields is in a state of flux. The European Union and the Asia-Pacific region, most notably Japan and most recently China, are now challenging traditional U.S. leadership in various subfields of MSE; it appears, for instance, that Japan has surpassed the United States in the area of alloys and will surpass it in ceramics. In all the MSE subfields examined during this study, global R&D is diversifying and becoming increasingly dispersed geographically, but how this trend will evolve and what the full impact will be for the United States are not yet clear. CONCLUSIONS ON THE CURRENT SITUATION The committee offers these conclusions on MSE R&D today: Conclusion. Globalization of MSE R&D is proceeding rapidly, in line with broader trends toward globalization. As a result of increasing international trade and investment, the emergence of new markets, and the growth of the Internet and the global communications system, MSE R&D in the United States is an internationalized activity with a diverse set of international partners. Conclusion. The globalization of MSE R&D is narrowing the technological lead of the United States. Patent and literature surveys suggest that at the moment the United States remains either the world leader or among the world leaders across the MSE subfields. The benchmarking evidence in this report and from a previous study2 paints a varied picture across the MSE subfields, indicating that the United States leads in some critical areas and is among the leaders in others. In some subfields, however, all the data suggest that the probability of the United States’ maintaining leadership in MSE R&D varies from uncertain to unlikely. 2   National Academy of Science, National Academy of Engineering, Institute of Medicine, Experiments in International Benchmarking of U.S. Research Fields, Committee on Science and Engineering Public Policy, Washington, D.C.: National Academy Press (2000).

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Globalization of Materials R&D: Time for a National Strategy Conclusion. At this stage, economic analysis is limited by a dearth of data and by the lack of a comprehensive empirical framework. Although available evidence suggests that the globalization of MSE R&D has had a limited impact on the U.S. economy so far, the medium-term impact is highly uncertain. A positive impact will depend on globalized MSE R&D leading to increased U.S. productivity and contributing positively to U.S. domestic innovation. The impact on the U.S. economy of globalized MSE R&D is likely to differ across materials subfields. On the one hand, a decline in domestic MSE R&D in particular subfields might have a negative effect on domestic growth, wages, and jobs in those and other MSE R&D subfields and industries dependent on materials research. On the other hand, a relative decline in MSE R&D in one subfield might release resources for investment in another, more promising subfield in which the United States enjoys a comparative advantage, thus enabling U.S. firms to generate new knowledge, products, and growth in the medium term. Similarly, relocating overseas any MSE R&D that can be performed more efficiently by foreign counterparts might allow U.S. firms to expand other domestic MSE R&D, thereby increasing the global knowledge base that will stimulate innovation in all countries. One result could be a new comparative advantage for the United States if it can integrate the results of domestic and global research to create new, higher-value products. On balance, the United States may well gain from globalization of MSE R&D, provided that conditions in the private and public sectors lead to increased U.S. productivity, efficiency, and capacity for innovation. Conclusion. The results of MSE R&D continue to enhance U.S. national security and homeland defense by adding improved materials capabilities to the weapons and protective systems used by today’s warfighters. The evolution of materials research in the United States and abroad will affect the nation’s ability not only to defend against emerging threats of the 21st century but also to ensure a healthy economy as a basic underpinning of national security. Because knowledge and the intellectual capacity to generate new knowledge are proliferating across the world, because innovation and development cycles are becoming shorter, and because U.S. dependence on foreign sources of innovation is increasing, the lead in critical technologies enjoyed thus far by the U.S. defense and intelligence communities will be seriously eroded without mitigating action. The ability to meet 21st century U.S. defense needs will depend on R&D in materials and processes to improve existing materials and achieve breakthroughs in new materials and combinations, including, for example, lightweight materials

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Globalization of Materials R&D: Time for a National Strategy that provide equivalent functionality, materials that enhance protection and survivability, and materials that improve propulsion technology. Future defense systems could employ advanced materials that are self-healing, that interact independently with the local environment, that monitor the health of a structure or component during operation, or that host evolving technologies, such as embedded sensors and integrated antennas. Such materials must also deliver traditional high performance in structures; protect against corrosion, fouling, erosion, and fire; control fractures; and serve as fuels, lubricants, and hydraulic fluids. Requirements for material producibility, low cost, and ready availability will be much more demanding than they are today. Conclusion. In response to the globalization of MSE R&D, it is the task of public policy to minimize the risks and maximize the benefits to ensure the ongoing U.S. innovation that is essential to the nation’s economy and national security and to facilitate continued access to the new knowledge generated by MSE R&D. The impact of the globalization of MSE R&D can be positive and large, but the risks of a negative impact for the United States remain substantial. Available data show that companies globalize their R&D for a number of reasons, including the availability of expertise, the impacts of regulatory regimes, proximity to new international customers, and cost savings. Risk factors for U.S. corporate investment in R&D overseas are varied but can include concern about the ownership of intellectual property and the security of trade secrets, as well as wider concerns about the rule of law and democratic institutions, particularly in developing economies. To ensure a positive impact, the U.S. government and the private sector must exploit foreign or joint R&D to benefit domestic innovation by integrating it efficiently and effectively into domestic R&D programs, both civilian and military. With the emergence of new centers of high-value research across the globe has come a new, marketlike demand for the world’s finest students and experts, challenging the ability of the United States to attract top researchers. Any reduction in the supply of non-U.S. experts involved directly in U.S. research and innovation, along with the acknowledged difficulty of attracting U.S. citizens to MSE, will constrain the supply of top scientists and engineers within the United States ready to conduct the MSE R&D needed for U.S. economic growth and national security. Any such loss in expertise will diminish not only the value of the U.S. research output but also, in the long term, the nation’s capacity to recognize, understand, and exploit the research output of the rest of the world. Even if the United States makes great efforts to maintain control of U.S.-generated technologies, knowledge, and capabilities, other governments’ invest-

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Globalization of Materials R&D: Time for a National Strategy ments in their own MSE R&D will challenge the ability of the United States to lead technologically. The loss of a U.S. national capacity for MSE research, or a decline in the ability of U.S. manufacturing to take advantage of and also to motivate MSE research, or a diminished U.S. military, homeland defense, or intelligence capability is not merely a matter of national pride or international image. In a knowledge-based future, only if the United States continues to have access to, and in many cases generate, cutting-edge science and technology will it be able to sustain its current world economic leadership and its strength in national defense and security. Conclusion. It is in the long-term interest of the United States to participate in international partnerships in MSE R&D and thereby ensure U.S. access to cutting-edge knowledge and technology. Conclusion. There is a need to maintain a robust U.S. MSE R&D infrastructure whereby materials problems can be addressed and solved and the solutions verified, from laboratory through pilot scale. Conclusion. The MSE education system, including K–12 mathematics and science education, will have to evolve and adapt so as to ensure a supply of MSE professionals educated to meet U.S. national needs for MSE expertise and to compete on the global MSE R&D stage. The evolution of the U.S. education system will have to take into account the materials needs identified by the federal agencies that support MSE R&D as well the needs of the materials industry. RECOMMENDATIONS FOR ACTION How can the United States best maintain access to the global output of critical MSE R&D? How can it sustain a leadership position in the creation and use of new MSE knowledge? How can it ensure full access to knowledge and technology or access to the right sort of knowledge and technology? Integration also must be a priority, but integrating R&D is not easy. There is a risk that some knowledge generated in MSE R&D abroad will not be absorbed in the United States and that domestic U.S. expertise may not be sufficient to recognize foreign innovation and maximize its integration. Maintaining access to current MSE R&D will require active management, which in turn requires that the nation’s public policy and government leaders ensure development of a national strategy that allows the United States to benefit from all that the globalization of MSE R&D has to offer.

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Globalization of Materials R&D: Time for a National Strategy RECOMMENDATION ON DEVELOPING A NATIONAL STRATEGY To maximize the benefits for the United States of the globalization of materials science and engineering research and development (MSE R&D), the federal government should create a well-defined and coordinated national strategy to manage the development of and access to strategic MSE knowledge and technology in a global framework. Particular emphasis must be given to defining and achieving MSE R&D goals for ensuring a strong 21st century U.S. military and a secure U.S. homeland. In building a U.S. national strategy for effective development and use of MSE R&D, the following elements should be considered: Identifying in MSE R&D across the defense services and other relevant national security agencies programmatic linkages that will facilitate a coordinated approach to answering critical questions across the subfields of MSE and assessing the readiness of R&D programs to do so, analyzing domestic readiness to provide critical MSE capabilities, and developing recommendations on the role that international and transnational MSE R&D might play; Defining (1) immediate priorities for which programmatic directions are clear and (2) next steps, which will require development of a roadmap as a prelude to determining relevant MSE R&D programs; Including as participants a comprehensive range of stakeholders and decision makers from the defense, homeland security, and intelligence communities and obtaining significant input from and coordinating with the wider federal science and engineering agencies—including the National Science Foundation, the Department of Energy, NASA, and so on; and Soliciting independent advice from academia, industry, and other experts, as required—perhaps with the participation of the Defense Science Board—and obtaining input from industry regarding policies and incentives that could encourage proactive industry strategies for sustaining a strong MSE R&D base in the United States. The committee recognizes that building a robust and effective national strategy for ensuring U.S. access to the results of MSE R&D will also require a better understanding of current trends in MSE R&D worldwide; a clear and focused set of critical questions and challenges MSE R&D must address to meet national economic, defense, and homeland security needs; and a fresh approach to managing regulatory regimes, improving the education system, and strengthening the infrastructure for U.S. MSE R&D.

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Globalization of Materials R&D: Time for a National Strategy Any national strategy for ensuring U.S. access to ongoing MSE R&D will require not only sufficient information on global MSE R&D activity and better monitoring of it but also regularly updated benchmarking of the relative global status of U.S. MSE R&D. The committee quickly became aware of the lack of current data on the global flow of investments in R&D generally and in MSE R&D specifically. Building a national strategy for ensuring U.S. access to MSE R&D will require better data and new analytical tools to deal with the complexity of the R&D globalization phenomenon, and obtaining these data and tools will require the collective effort of various agencies across the federal government. Developing the tools to maintain continuous access to global R&D will require consideration of how Department of Defense (DOD) technology forecasting and monitoring systems, for instance, can be strengthened and how current DOD initiatives aimed at identifying critical technology worldwide can be expanded. Essential for a successful strategy is a thorough understanding of what knowledge is needed to develop effective national defense and homeland security systems and how and from where it can be obtained. What critical capabilities will a strong 21st century U.S. defense capability require? Of the priorities already suggested3 or still to be determined, how will choices be made and MSE R&D used to help achieve necessary improvements and breakthroughs in materials? The committee emphasizes that neither innovation nor future threats can always be foreseen and predicted—it may not always be clear today what new capabilities might be developed from the results of yesterday’s research or what particular challenges tomorrow’s adversaries might present. Moreover, previous success in acquiring technology from other countries does not guarantee that it can be acquired from them in the future. Addressing wider national security concerns effectively will benefit from the highest level of coordination and cooperation within DOD and between relevant federal agencies; from ongoing assessment of existing critical technology lists, contractual arrangements, and R&D funding procedures; and from the definition of longer-term goals and challenges for MSE R&D. In the rapidly evolving environment for MSE R&D, how should the nation’s regulatory regime take into account the realities of R&D in the 21st century? Regulatory regimes can drive decisions on where R&D is performed. Among the many considerations are concerns about the security of intellectual property developed abroad, the effects of the export licensing process on the execution of 3   See the following reports: Defense Science Board, Defense Science and Technology, available at http://www.acq.osd.mil/dsb/reports/sandt.pdf; National Research Council, Making the Nation Safer: The Role of Science and Technology in Countering Terrorism, Washington, D.C.: The National Academies Press (2002); and National Research Council, Materials Research to Meet 21st Century Defense Needs, Washington, D.C.: The National Academies Press (2003).

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Globalization of Materials R&D: Time for a National Strategy R&D programs, the availability of skilled researchers, and provisions for tax incentives in the locales under consideration. As MSE R&D becomes increasingly global, it is important for public-policy makers to ensure that U.S. regulatory regimes do not unreasonably impede U.S. researchers’ participation in international R&D of national importance or foreign researchers’ participation in U.S. research. In addition, a review of the nation’s regulatory system should ask whether there are technologies to which the nation must secure access but that it need not necessarily control, as well as how such a distinction would affect the nation’s export control regime. When building a national strategy it may be tempting to consider protecting U.S. interests by retreating from the world stage in areas deemed critical to U.S. national security or economic interests. A protectionist approach, however, might result in the United States’ not having access to superior technologies developed elsewhere. Access to cutting-edge knowledge and technology can be better and more effectively achieved, the committee believes, if the United States becomes the most active player in global MSE R&D. Maintaining a strong domestic U.S. capability to engage in international MSE R&D, to integrate non-U.S. MSE R&D into U.S. systems and ongoing U.S. R&D, and to monitor and understand global MSE R&D and its impact on U.S. leadership and capabilities will require that the U.S. educational system adapt accordingly, producing MSE practitioners who can achieve these goals. A very important, perhaps less-well-known aspect of globalization is the massive and accelerating investment being made by foreign governments, most notably China and India, in their R&D infrastructure, particularly education. These investments are occurring at the same time as comparable investments in the United States are falling. The Organisation for Economic Co-operation and Development (OECD) reports that in 2000 about 40 percent of students in China graduated with engineering degrees,4 whereas in the United States the figure was about 5 percent. Clearly, this and similar trends in U.S. education must be addressed if the United States is to maintain its leadership in innovation, and a robust national research infrastructure must be in place. Building a national strategy to ensure U.S. leadership in and access to advances in globalized MSE R&D will require specific efforts, and in this connection, the committee offers five more recommendations: 4   OECD, Education Statistics and Indicators, Education at a Glance 2002, available at http://www.oecd.org/education.

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Globalization of Materials R&D: Time for a National Strategy RECOMMENDATION ON GATHERING BETTER DATA U.S. data collection efforts and forecasting systems should be strengthened in order to monitor trends in the offshoring of MSE R&D and the growth of MSE R&D worldwide. RECOMMENDATION ON IMPROVING MONITORING The Department of Defense should build on existing capacities to monitor, assess, and promote access to developments in MSE R&D across the globe with a strategic view to underpinning the maintenance of U.S. leadership and security. In addition, existing U.S. government internal systems for strategic and critical technology analysis, management, and integration should be strengthened. Modern database and communication systems for identifying synergies across the defense services should be developed. RECOMMENDATION ON CONDUCTING COMPREHENSIVE, EXPEDITED BENCHMARKING An expedited benchmarking study, similar to Experiments in International Benchmarking of U.S. Research Fields (National Academy Press, Washington, D.C., 2000), should be conducted immediately to assess the relative global position of the United States in MSE R&D. RECOMMENDATION ON ESTABLISHING LONG-TERM SECURITY NEEDS AND CHALLENGES The Department of Defense should strengthen current systems for establishing clearly the materials needs of the 21st century warfighter as well as those essential to achieving national and homeland security priorities. Efforts in this regard should focus not on meeting the shorter-term acquisition needs of the military, but rather on identifying and prioritizing the longer-term questions and challenges that MSE R&D will have to address in order to meet identified long-term U.S. security needs. RECOMMENDATION ON REVIEWING REGULATORY REGIMES A systematic review of the rationale for and the impacts of U.S. government regulation of the transfer of knowledge and innovation across borders within the framework of globalized MSE R&D should be carried out by a government task force of representatives from the relevant agencies, with input from academia and industry. In summary, the challenge presented by the globalization of MSE R&D is significant, multidimensional, and intrinsically interconnected across many agen-

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Globalization of Materials R&D: Time for a National Strategy cies within the federal government. A national strategy to ensure U.S. leadership in and access to advances in global MSE R&D should be established and implemented as a national priority. Such a strategy should address the needs discussed in this study and should mitigate the risks identified. This report’s recommendations offer a framework for the development of a robust strategy aimed at ensuring a positive impact for the United States and continued access in the future to cutting-edge MSE R&D worldwide.