At a new research complex in Palo Alto, Calif., scientists, engineers, and software developers create technologies for the knowledge-based work environment of the 21st century. At another laboratory in Kendall Square in Cambridge, Mass.-practically across the street from MIT-computer scientists, artificial intelligence experts, and software developers pioneer advanced computing and information systems. Inside a striking new facility in Princeton, N.J., Nobel prize-winning scientists conduct basic research at the frontiers of information technology. We've all heard that U.S. companies and government agencies are slicing their R&D budgets, so what accounts for these investments? The answer: foreign-owned corporations, pouring money into the U.S. R&D enterprise in an effort to develop products for the huge U.S. market, gain access to cutting-edge scientists and engineers, and take advantage of the world's most creative and productive R&D climate.

Foreign investment in U.S.-based R&D shot up from $700 million in 1987 to more than $17 billion in 1995 (the last year for which figures are available). The latter amount represented more than 15 percent of all funding for industrial R&D in America that year, according to a survey by the U.S. Department of Commerce. Foreign companies employ more than 100,000 Americans in R&D activities at hundreds of research laboratories and manufacturing facilities.