The Global Innovation Migration

Research and development is increasingly going global, according to a new report by Duke’s Offshoring Research Network (ORN). More than half of U.S. companies now have corporatewide initiatives to outsource innovation activities, up from 22% in 2005, according to the ORN, which has been tracking the growth of outsourcing since 2004. And of those companies already offshoring development, 60% intend to do so more aggressively.

The days when you could trace development of the majority of the world’s innovative technologies back to U.S. labs are fading fast. Outsourcing of R&D is irreversible. Still, the U.S. retains key advantages and remains well-positioned to continue its technology leadership. But that can happen only if as a nation we recognize the changing role of R&D and refrain from wasting scarce resources trying to recapture a bygone era. Mandating that R&D traditionally performed in the U.S. should stay in America would tie the hands of companies at precisely the time they need flexibility to compete against up-and-coming foreign competitors. (By Vivek Wadhwa, BusinessWeek, November 9, 2009)

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Japan: The Land of the Rising CDS

Canary in the coal mine? The cost of insuring Japanese government bonds against default has doubled to 0.75 percentage point in the past three months, as markets fret about debt issuance. Credit risk is assuming ever-greater stature in government-bond markets previously blithely assumed to be risk-free.

Japan’s debt problem is becoming urgent. It is grappling with issues other governments such as the U.S. and the U.K. will face, but is much further down the road already.

Its debt-to-gross-domestic-product ratio is set to rise to a staggering 227% in 2010, the International Monetary Fund forecasts, making it particularly exposed to any rise in market interest rates. Japan’s aging population is a crucial concern, driving a change from saving, much of which went into JGBs, to consuming.(By RICHARD BARLEY,The Wall Street Journal, NOVEMBER 11, 2009)

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Cheap and Trendy Gains as Luxury Fades in Japan

TOKYO—As major luxury brands in Japan delay store openings or quietly slink away from what was once their largest single market, two recent foreign entrants on the other end of the spectrum are aggressively plotting their expansion: Hennes & Mauritz and Forever 21.

Both Forever 21 and H&M are purveyors of “fast fashion”—their shops feature cheap, trendy clothes, with new items hitting the shop floor on a daily basis. In brand-obsessed Japan, the success of both stores underlines a deep shift in consumers’ mentality, as shoppers put value ahead of logos.

Privately owned Forever 21, which entered the market in April with a shop in Harajuku, is aiming to open two to three more stores in Japan over the next nine to 12 months, said Larry Meyer, its chief financial officer.(By MARIKO SANCHANTA,Wall Street Journal, NOVEMBER 10, 2009)

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EU Welcomes the Signature of the Lisbon Treaty

Following today’s signature of the Lisbon Treaty by Czech President Vaclav Klaus, European Commission President José Manuel Barroso said: “It’s now absolutely clear that the Lisbon Treaty will enter into force soon…I want to pay tribute to all those who have worked hard in the 27 EU Member States to make the Lisbon Treaty a reality. The road is now open for the consultations on the appointment of the President of the European Council and Vice President of the European Commission/High Representative to begin. This will in turn allow me to start the process of nominating the new Commission.”

EU High Representative for the Common Foreign and Security Policy Javier Solana said: “I am very pleased that President Vaclav Klaus has signed the Lisbon Treaty today. All obstacles have now been lifted for the prompt entry into force of a treaty that will open a new era for the European Union. The Lisbon Treaty will enable us to work in a much more coherent and efficient way and give us a stronger voice on the international scene.”

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EU-US Summit

Leaders from the European Union and the United States gathered in Washington, DC, yesterday for the annual EU-US Summit.

European Commission President José Manuel Barroso commended President Obama’s leadership on climate change stating that he “changed the climate on the climate negotiations.” President Barroso stressed that with the strong leadership of the United States an agreement on climate change would be possible. “We are working toward a framework agreement in Copenhagen that will be an important agreement for the world. And we had particularly a very good discussion on this today and I think it was one of the most important points of our exchange.”

The summit also focused on ways for the EU and the US to cooperate on global challenges, including economic recovery and growth and providing effective assistance to developing countries. A number of foreign policy issues, including the situation in the Middle East and Afghanistan, were also discussed.

In conjunction with the Summit, a newly established EU-US Energy Council also met for first time today to deepen bilateral energy cooperation and address the growing challenges of global energy security, sustainability and climate change.

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Chinese Small-Business Lending Getting Smaller

In a little-noticed statement last week, China’s central bank and banking regulator gave an update on how well the country’s small businesses are doing at getting loans from banks (original in English here). That’s become a crucial issue this year, with growing concerns among officials and scholars that China’s extraordinary credit boom is bypassing the very firms that account for most new job creation. Yet the latest numbers — like many Chinese statistics – confuse as much as they enlighten.

The regulators said small- and medium-sized enterprises, SMEs for short, accounted for 14.1 trillion yuan of outstanding bank loans at the end of September, up 28% from a year earlier. Overall bank lending, by contrast, was up 34.2% in September. According to our calculations, the figures would mean small-business loans account for 36% of China’s total lending and 45% of lending to corporations. (The 3.08 trillion yuan in new loans to SMEs is also 45% of this year’s new lending to corporations.) (By Andrew Baston, The Wall Street Journal, October 27, 2009)

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Replacing the U.S. Consumer: Is China Up To The Job?

China’s rapid growth is leading the recovery in the Asian and world economies, the International Monetary Fund says in its latest regional economic outlook. The fund now forecasts China will grow an outsize 8.5% in 2009 and 9% in 2010, driven by strong investment spending and surging loan growth. By contrast, Japan’s economy is expected to shrink 5.4% in 2009, and other Asian emerging markets are forecast to grow a combined 1.7%. But how much does China’s recovery help the rest of the world?

Some benefits from China’s boom have been spilling over into neighboring countries, the IMF argues: “A part of Asia’s export revival is due to the recovery of China’s domestic demand. …In particular, commodity exporters (such as Australia and Indonesia) and to a lesser extent capital goods exporters (Japan, Korea, and Taiwan Province of China) have benefited from the surge in China’s infrastructure investment.”(By Andrew Baston, The Wall Street Journal, October 29, 2009)

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E.U. Plan Could Lead to Lower Cost International Calls

BERLIN — The European Commission will urge the 27 European Union countries Wednesday to reserve a uniform slice of broadcast spectrum for a pan-European mobile broadband network, one that could enable flat-rate, international voice and data calling plans.

A copy of the proposal, reviewed by the International Herald Tribune, sets out technical guidelines for E.U. countries that choose to redeploy part of their low-frequency spectrum, a bandwidth that has been used exclusively by television broadcasters since the inception of the industry more than 50 years ago. (By KEVIN J. O’BRIEN, The New York Times, October 27, 2009)

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U.S. and China Ease a Range of Trade Restrictions

HANGZHOU, China — The U.S. and China agreed to relax restrictions on agriculture, technology, travel and other trade restrictions ahead of President Barack Obama’s first visit to Beijing next month.

The two sides made “solid progress” that helps “both of our countries achieve balanced and sustainable growth,” U.S. Trade Representative Ron Kirk said Thursday at the end of a meeting of the U.S.-China Joint Commission on Commerce and Trade, or JCCT.

Chen Deming, China’s commerce minister, said the two sides will “jointly oppose trade and investment protectionism.”
(By JAMES T. AREDDY, The Wall Street Journal, OCTOBER 30, 2009)

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Euro-Zone Consumer Confidence Improves

Economic and consumer confidence in the 16 countries that use the euro improved for the seventh straight month in October, as confidence over an economic recovery continues to gather steam.

In a monthly survey by the European Commission, the overall Economic Sentiment Indicator for the euro zone rose sharply to a 13-month high of 86.2 from 82.8 in September.

The increase in the ESI was stronger than expected, with economists surveyed by Dow Jones Newswires last week having forecast it would increase to 84.5.(By ILONA BILLINGTON and ROMAN KESSLER, The Wall Street Journal, OCTOBER 29, 2009)

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