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.

The growing presence of foreign companies conducting research and development in the U.S. reflects a fundamental trend: the globalization of innovation. Multinational enterprises have long operated international networks of manufacturing plants. But over the past decade, these multinationals have added a new dimension to their activities-an increasing capacity for R&D and innovation in various locations outside their home countries.

The relatively new phenomenon of foreign-owned, U.S.-based R&D has provoked controversy. Proponents believe foreign-owned laboratories contribute to the U.S. science and technology base, and that the government should encourage their development. Critics argue that the facilities are merely skeleton research operations designed to monitor the American research scene-even pirate ideas developed here.

To sort out this debate, I directed a study at Carnegie Mellon University. We surveyed all of the foreign-owned laboratories in the United States to gain insight into the thorny issues surrounding why foreign companies are investing in America, what foreign labs actually do, and how they contribute to the American system of innovation. As part of the project we interviewed executives of leading technology corporations in the United States, Europe, and Japan. Our research leads to the conclusion that foreign-owned labs do more good than harm.