Driven by the push to reduce costs and drawn by both qualified workers and a large potential customer base, companies increasingly outsource technology R&D overseas. Intel, for example, is developing Banias, its next-generation mobile processor, in Israel; Nortel Networks is developing its wireless Internet infrastructure in India. Alcatel raised its R&D investment in China to $100 million. The trend is not restricted to large companies. India is the overall outsourcing leader, followed by Ireland and the Philippines. But China is rapidly gaining ground with a cost structure 40% lower than India.

In lieu of outsourcing R&D, some companies have chosen the "offshore" R&D by establishing their own subsidiaries rather than farm out the work to third parties. This avoids some of the difficulties involved in the management of outsourcing relationships and eases the risk of infringement on intellectual property rights.

Critics blame the outsourcing of R&D for the rise of the unemployment rate in the profession to unprecedented levels (7 percent in first-quarter 2003). But others argue that the offshore centers are only supplementing not replacing domestic jobs.