Outsourcing Technology Innovation to Foreign Technology Centers: An Eipircal Investigation of the Rare Earth Industry

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Although the United States has enjoyed global leadership in many fields of technological development in the past, recent evidence suggests that this country is no longer a leader in as many fields as compared with 20-30 years ago. Many companies have changed their operations to perform less research and development within U.S. borders, and some firms have moved their development work entirely to other countries. Several factors influence the decisions of these companies to work outside of the U.S., among them socioeconomic changes in the U.S. and abroad, regulations, and a change in the influence of geographic barriers. Despite their importance, only a limited number of studies have tried to understand these factors. This is particularly apparent in the rare earth element (REE) industry, where many firms have been outsourcing development to Asia, yet the underlying reasons and consequences are not well understood. In this proposed project, we will study how firms make their decisions to move operations abroad, using the REE industry as a noteworthy example. There are three specific objectives. First, four individual REE firms will be identified, and detailed case studies will be performed on the reasons, processes, and outcomes associated with their movement to Asia, where there is a growing nucleus of REE activity. Information on where company employees were educated, in the U.S. or at foreign institutions, will also be obtained. Second, a quantitative analysis of REE technology patents from 1960-2001 will be conducted. This will provide information on the evolution of the REE industry over time, analyzing in particular the effect of a growing Asian preeminence. Patent data will also yield information on company leadership in REE innovation, both in the US and abroad. Finally, a paradigm will be developed to inform decision makers on how policies impact the environment for innovation in high technology industries in this country. The methods to achieve these objectives will include interviewing company representatives, conducting computer searches of the U.S. Patent and Trademark Office database, and analyzing the qualitative information obtained from the interviews and the quantitative information obtained from the patent searches.Intellectual Merit of the Proposed Activity: This project will assess R&D outsourcing and relocation decisions to developing regions, focusing on the management of technological innovation, while considering the structure of companies, the raw materials and markets for their products, and cultures here and abroad. Furthermore, the project will shed light on the flows of rare earth elements in the U.S. and abroad, considering their sources, uses in products, and ultimate disposal. Broader Impacts Resulting from the Proposed Activity: This project will enhance our understanding of the factors that strengthen and weaken the leadership position of the U.S. in high technology industries, focusing on the trend toward more outsourcing. The results of the research will also be incorporated into coursework at Carnegie Mellon. Overall, the project will help the U.S. maintain a competitive advantage in new global markets.