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The National Science Board37 has made the following observations:

  • Two-thirds of the R&D performed overseas in 2000 by US-owned companies ($13.2 billion of $19.8 billion) was conducted in six countries: the United Kingdom, Germany, Canada, Japan, France, and Sweden. At the same time, emerging markets—such as those in Singapore, Israel, Ireland, and China—were increasingly attracting R&D activities by subsidiaries of US companies. In 2000, each of those emerging markets reached US-owned R&D expenditures of $500 million or more, considerably more than in 1994.

  • Three manufacturing sectors dominated overseas R&D activity by US-owned companies: transportation equipment, computer and electronic products, and chemicals and pharmaceuticals. The same industries accounted for most foreign-owned R&D in the United States, implying a high degree of R&D globalization in those industries.

As some large companies reduce their investment in basic research, smaller research-based enterprises often assume risk as the only way to break into a competitive market. Those startup companies commonly rely on the initial capital provided by their investors to finance early research, coupled with the granting of potential future financial gains in the form of stock options to compensate employees. If the money runs out, they can seldom interest venture capital firms until they have grown considerably larger. Many of those companies thus expire before reaching commercialization.38

The overall amount of venture capital invested also has collapsed since the stock market decline of 2000, sinking in 2002 to one-fifth the amount invested in 200039 (Figure 3-10). Venture capital investments in US companies have since stabilized at around $20 billion in 2003 and 2004,40 just one-fifth of their 2000 peak but well above 1998 funding. Led by a resurgence in late-stage financing, total venture capital investment rose 10.5% to $20.9 billion in 2004, according to the MoneyTree Survey by Pricewater-houseCoopers, Thomson Venture Economics, and the National Venture


National Science Board. Science and Engineering Indicators 2004. NSB 04-01. Arlington, VA: National Science Foundation, 2004. P. 4-65.


National Research Council. Board on Science, Technology, and Economic Policy. The Small Business Innovation Research Program: An Assessment of the Department of Defense Fast Track Initiative. Washington, DC: National Academy Press, 2000. Available at:; US Congress House of Representatives Committee on Science. Unlocking Our Future: Toward a New National Science Policy (the “Ehlers Report”). Washington, DC: US Congress, 1998. P. 39.


National Science Board. Science and Engineering Indicators 2004. NSB 04-01. Arlington, VA: National Science Foundation, 2004. Appendix Table 6-15.


National Venture Capital Association. Available at:

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