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Week of October 23 - 29, 2006

What Explains R&D Location?

Earlier this year, we reported on a study sponsored by the Ewing Marion Kauffman Foundation on how multinational firms decide on the location of their R&D facilities. The study, Here or There? A Study of Factors in Multinational R&D Location, is now available from the National Academies Press website. It reports on surveys of over 200 multinational companies from 15 different countries. Not surprisingly, the typical firm reviews a host of factors before it locates a new R&D facility. But, four factors seem to be most important: output market potential, quality of the R&D personnel, university collaboration, and intellectual property protection. For developed economies, the quality of R&D personnel and IP protection ranked as the most important decision factors. In developing economies, the potential local market size and R&D personnel quality took precedence. Astute readers will note that cost does not rank high on this list of decision making influences. Survey respondents did not discount the impact of costs, but noted that other factors assume a much more prominent role in determining whether they invest their R&D resources. Low cost does not trump these other factors.

The 2006 National Academy of Sciences report, Here or There? A Study of Factors in Multinational R&D Location, by Jerry Thursby and Marie Thursby, can be accessed at: http://www.nap.edu/catalog/11675.html.

State Business Tax Climate Rankings

If you really hate paying taxes, you might consider a move to Wyoming. That’s because Wyoming ranks No. 1 in the latest State Business Tax Climate rankings produced by the Tax Foundation. Each year, the Tax Foundation assesses how states perform on a host of measures. The reports assess 113 different variables that examine corporate taxes, individual taxes, sales, unemployment, and property taxes. The Index doesn’t simply honor states for keeping taxes low. The Tax Foundation’s top performers have low, flat taxes that treat all taxpayers in a similar manner. In addition to Wyoming, other top performers (in rank order) are: South Dakota, Alaska, Nevada and Florida. On the other side of the ledger are Rhode Island (#50), Ohio (#49), and New Jersey (#48).

To access the 2007 edition of the Tax Foundation’s State Business Climate Tax Index, visit www.taxfoundation.org/publications/show/78.html.

Two Perspectives on Business in China

Two of America’s leading business schools (Wharton and Harvard) have recently published interesting new articles on the business environment in China. The online journal Knowledge@Wharton is out with a new special edition on “Selling in China.” With a potential customer base of over 1 billion people, China seems like a proverbial gold mine for any company. But navigating the market can be tricky, and experts offer some useful guidance for doing things right. Many Chinese markets are dominated by state-owned enterprises or small private wholesalers. An effective Chinese sales force must be tailored to work within these unique systems. The report also examines “the emerging Chinese company” and warns that these firms will be fierce global competitors as they have already been forced to compete and survive within the often cutthroat Chinese domestic market.

Meanwhile, Harvard Business School’s on-line publication, HBS Working Knowledge, also contains a look at China—through the eyes of Chinese entrepreneurs. In June 2006, a group of Harvard faculty visited China and met with numerous entrepreneurs. They came back impressed. They heard many descriptions of the phenomenon that Chinese call the “sea turtle,” i.e., the skilled Chinese national who goes abroad and returns home to “lay eggs” (start new ventures). The Chinese government is providing incentives for these investments, and is also pursuing a host of other initiatives to spur entrepreneurship among overseas Chinese and current residents.

The October 2006 Knowledge@Wharton special report “Selling in China,” is available at:
http://knowledge.wharton.upenn.edu/special_section.cfm?specialID=57.

To view the October 2006 HBS Working Knowledge report, “Report from China: The New Entrepreneurs,” visit http://hbswk.hbs.edu/item/5523.html.

Financing Medical Innovations

A new Milken Institute study examines a complex issue: how to improve the availability of funding for early stage medical research. As drug companies have shifted their early stage research toward the creation of “blockbuster drugs” and other forms of early state equity financing remain difficult to access, medical researchers face real challenges in finding ways to pay for early-stage, cutting edge research. The report summarizes the work of an expert’s panel that offered a number of potential vehicles to move more resources into this sector. Among the ideas considered were:

  • Create new investment vehicles that promote the pooling of intellectual property

  • Tap into and expand the market for intellectual property-backed securities

  • Fund drug development through customer-financed advance purchases

  • Use foundation investments as financial guarantees to help reduce the risk of investments in early stage drugs.

The convened experts plan to continue their work in this area, but this research highlights an important point. When it comes to new drug development, scientific innovation will not be enough. Innovations in terms of financing and marketing will also need to be part of the mix.

To access the October 2006 Milken Institute report, Financial Innovations for Accelerating Medical Solutions, visit http://www.milkeninstitute.org/pdf/fin_innov_vol2.pdf.

The National Dialogue on Entrepreneurship, an initiative of the Public Forum Institute made possible by a grant from the Kauffman Foundation of Kansas City. Through NDE-news, we bring you short summaries and analyses of various trends driving the innovation economy. Subscribe now to receive your weekly copy. Archived issues are available online. Links to the day's entrepreneurship stories from across the nation and around the world are posted each weekday on the NDE main page - bookmark it and stay informed about the latest entrepreneurship news.

Kauffman Foundation    The Public Forum Institute

National Dialogue on Entrepreneurship
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Mark Marich, Editor

All stories © 2006 The Public Forum Institute
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