On the outskirts of Shanghai, 1,000 Intel researchers work in a state-of-the-art facility. By 2012, there could be 10,000. In Gurgaon on the edge of New Delhi, Ranbaxy, the Indian drug company, has a new research and development centre with 2,000 scientists, which is an exact copy of a Bristol-Myers Squibb facility in the US.

Flowing through the airports of Asia’s innovation hotspots are research scientists, corporate innovation managers and serial entrepreneurs, flooding back from the US and carrying with them Western management methods, money, contacts and ambition. They are attracted by a potent cocktail — fast-growing markets, plentiful state funding for research and middle-class lifestyles in increasingly cosmopolitan cities.

British business, universities and research funders need to wake up to what’s happening in Asia. The worst mistake would be to retreat into an anxious techno-nationalism. Instead, we need to move boldly to meet the challenges and grasp the opportunities that Asia offers. Just as Britian has become the centre for international financial services, we need to be open collaborators in science and innovation as well. Think the City of London for science.

Research shows that the reverse migration into Asia heralds a new phase of globalisation in which ideas and innovation will flow from many more sources. Yet it is a huge mistake to lump China and India together, as politicians so often do. China and Korea’s development is based on manufactured products; India’s growth relies on services. In China, the state is at the centre of innovation; in India, the impetus comes from social networks of non-resident Indians and the alumni of Indian institutes of technology.

China’s innovation system is directed towards long-term goals; India’s is diffuse and chaotic. China is not a democracy; India is. China wants independent innovation to lessen its reliance on the West; India is positioning itself as an interdependent innovator networked with the West.

Despite these differences, a set of common forces is pulling innovation east. India and China have a combined population of 2.3 billion and are creating an urban middle class on a vast scale. ABB, the engineering group, has shifted more R&D to Beijing because China is the world’s fastest growing electricity market. Ericsson, Nokia and Vodafone are doing more R&D in China because it is adding 60 million mobile-phone subscribers a year.

India, with 17 per cent of the world’s population but only 2.5 per cent of global GDP, is enjoying economic growth of about 8 per cent. Three quarters of the population is under the age of 25 and 390 million people live on less than a dollar a day. Korea, by contrast, is one of the world’s most educated and connected societies. By 2008, high-speed mobile internet access will be pervasive. Korea’s innovation policymakers hope that will give them a headstart with new mobile services.

Governments are using the proceeds of economic growth to invest more in home-grown innovation. China’s R&D spending has grown at about 20 per cent a year since 1999, with plans for it to rise to 2.5 per cent of GDP by 2020. In Korea, R&D spending has risen from 0.39 per cent in 1970 to close to 3 per cent today. Even the languid Indian state is stirring. Last October, Prime Minister Manmohan Singh announced plans to raise R&D from 0.8 per cent of GDP to 2 per cent by 2012.

India and China are creating large pools of talent, skilled in disciplines such as physics and chemistry that are increasingly falling out of fashion in the UK and the US. Between them, China, India and South Korea have about 2,500 universities. The UK has 120.

India’s domestic talent pool contains 14 million recent graduates, 1.5 times the number in China and twice the US. India produces 2.5 million new graduates a year in IT, engineering and life sciences, with 650,000 postgraduates and 4,000 to 6,000 PhDs. China enrolled 4.74 million undergraduates in 2004, up from one million a decade before, and produced 23,500 PhDs in 2005, 70 per cent of them in science and engineering.

Asia is breeding industrial clusters such as the Hsinchu industrial park in Taiwan, which makes 75 per cent of the world’s semiconductors. If mainland China replicates in other industries what Taiwan has achieved in semiconductors, it will be a major force in the high-tech world by 2030.

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China and India will not become sources of home-grown innovation overnight. In India, 86 per cent of companies do no R&D. Even the poster boys of corporate India prosper by servicing Western companies rather than creating their own products. China produces three out of every four photocopiers in the world and half of its DVDs. Yet just 0.03 per cent of Chinese firms own the intellectual property on the core technology in their products, in part because Chinese companies spend just 0.56 per cent of sales on R&D. And the biggest issue is whether innovation can thrive without the open debate provided by democracy.

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