STRATEGIES IN TECHNOLOGICAL GLOBALISATION

Transcription

1 MOHAMMAD ISHTIAQ MOUHAL KAWTAR-MONA R&D IN MULTINATIONALS STRATEGIES IN TECHNOLOGICAL GLOBALISATION ILLUSTRATED BY KONINKLIJKE PHILIPS ELECTRONICS N.V. Based on the article: Technological globalisation and innovative centres: the role of corporate technological leadership and locational hierarchy written by John Cantwell and Odile Janne PROFESSOR: CINCERA MICHELE ACADEMIC YEAR :

2 0. Table of content 1. INTRODUCTION SUMMARY OF THE ARTICLE INTRODUCTION BACKGROUND HYPOTHESES METHODOLOGY The RTA index Clusters analysis Regression analysis ELECTRICAL EQUIPMENT AND COMPUTING INDUSTRY LOCATIONAL HIERARCHY IN EUROPE CLUSTERS ANALYSIS RESULTS FOR THE NETHERLANDS REGRESSION ANALYSIS RESULTS FOR THE NETHERLANDS KONINKLIJKE PHILIPS ELECTRONICS N.V PHILIPS COMPANY PROFILE COMPETITION R&D EXPENDITURES PHILIPS R&D STRATEGY PHILIPS PATENTING ACTIVITIES APPLYING THE ARTICLE TO PHILIPS CONCLUDING REMARKS BIBLIOGRAPHY

3 1. Introduction Globalisation is nowadays unavoidable. Multinational corporations (MNCs) have to internationalise their R&D activities in order to get access to the latest technologies and thus stay competitive. The report is based on the article Technological globalisation and innovative centres: the role of corporate technological leadership and locational hierarchy written by John Cantwell and Odile Janne and published in the Research Policy Vol. 28 in The strategy of technological globalisation depends on whether a firm comes from a higher or a lower innovative centre. In the paper, innovative centres are defined as geographical centres of technological agglomeration. The authors examine two related propositions. First, that MNCs emanating from the most important location in their industry are more likely to evolve towards technological strategies of geographically differentiating their innovative activities abroad. Second, that MNCs from weaker centres in the same industry tend rather to evolve towards a strategy of replicating in the profile of their technological development abroad the pattern of their home country specialisation. The authors focus on firms in three broad industrial groups: chemical and pharmaceuticals, metal products and mechanical engineering, and electrical equipment and computing. Since we have chosen to analyse the R&D activities of the Dutch Koninklijke Philips Electronics N.V., we will concentrate our report on the third industry. The first section will summarise the article and the methodology adopted by the authors. The second section aims at giving an oversight based on the article of the electrical equipment and computing industry as far as the third section will examine the R&D activities of the Dutch company, operating in this industry. 2. Summary of the article 2.1. Introduction The purpose of the article is to consider the impact of MNCs on the location and the characterisics of innovatory capabilities across national boundaries within Europe. The article investigates in greater depth the precise geographical and sectoral dispersion of technological activity in Europe by multinational firms, and by 2

4 implication the potential of those MNCs to access, transfer and use knowledge in cross-border networks in Europe. MNCs may pursue various strategies towards the international organisation of their technological activity. On the one hand, their research activities in foreign centres can be based in similar fields to their domestic research. In that case, a company would build a local market-oriented affiliate. On the other hand, their research activities become more focused in their fields of technological development, according to locally specific knowledge in the host country. In this latter case, firms may utilise foreign technological activities as a means of complementing home country technological strengths. Such MNCs would need to construct internationally integrated corporate networks rather than a series of local market-oriented affiliates in order to coordinate their activities Background Some background from other related studies can be useful for understanding the purposes of this article. The nature of technology is cumulative and context-dependent, and hence it is firmand country-dependent. Geographical proximity is important to the extent to which different lines of innovative activity influence one another, because of the existence of knowledge spillovers that are geographically bounded. Innovation is expected to concentrate geographically in areas that provide agglomeration economies that enhance and facilitate the innovation process. There is an empirical evidence for a general tendency for innovations to cluster geographically. States that contain concentration of innovative inputs in some field of production will develop a comparative advantage in the industries in question. Since knowledge is cumulative, this advantage is self-reinforcing and may lead to further geographical agglomeration (this may result in an emergence of geographical areas locked in by historical events or chance to a particular pattern of technological specialisation, and encourage the technology gaps between countries to remain or even widen). With the economies of agglomeration, while remaining within a paradigm, the leading countries or regions in any field or international centres of excellence in research and innovation will tend to maintain their position over time. Within the EU, the trend towards a geographical concentration of technological activities sector by sector may become stronger still with the further progress of economic integration. 3

5 The ability of MNCs to develop integrated technological networks, to coordinate geographically diversified activities, has become an important research in International Business (this contrasts with the product cycle model: technology is diffused outwards from a single central location). A change in the attitude of MNCs has led, in some industries, to something similar to a programme of near simultaneous innovation in several major markets. The role of the supply-side factors has therefore started to be emphasised as a reason in multinational firms for the decentralisation of R&D. If knowledge diffusion is geographically bounded, MNCs could effectively have an important source of competitive advantage by locating in the technological centres of excellence to obtain access to differentiated streams of new knowledge. In addition, the geographical dispersion of research to gain access to new lines of innovation may be related to technological diversification. As a result of the complexity of new technologies, the firm may be obliged to broaden its technological activity through an international strategy if it wants to improve technological development even in its own primary field of interest. Given its focus on particular branches of technological development, a company may choose to concentrate its efforts on each area of activity in certain international locations rather than others. Finally, the globalisation phenomenon tends to increase the ease with which knowledge flows between countries but also the national differentiation and technological specialisation. Countries have tended to narrow their technological specialisation and become more focused on areas of historical competitive advantage. A country becomes therefore an attractive location for foreign-owned R&D in its sector of specialisation. Simultaneously, the major firms, as a result of a shift towards global strategies, have tended to geographically disperse research facilities to gain access to complementary paths of technological development. In this sense, globalisation makes the understanding of locational specificity more important, and the nation state remains a potent force in the competitive advantage of nations Hypotheses MNCs emanating from the higher centres in any industry tend in recent years to have developed a more complex international division of labour, by geographically separating alternative fields of technological development These firms are more likely to adopt strategies of differentiating their technological activity abroad to support their core strengths at home. They would be better able to 4

6 tap into the locally based technological expertise of their host countries and thereby be more likely to develop a more complex network of intra-firm cross-country specialisation in innovative activity. Their foreign research is increasingly home-base augmenting rather than home-base exploiting. MNCs from lower order centres, when investing in a higher order centre for their industry, are more prone to simply extend their efforts in what are already their principal fields of technological endeavour, thus treating the higher order centre as a source of general expertise and skills, rather than a source of more specific or specialised capability in some other particular fields The authors suggest that leading MNCs emanating from the higher order centres of their industry are more likely to evolve in the direction of the international integration of increasingly geographically differentiated activity, while the affiliates of MNCs from lower order centres which are themselves located in higher order centres are more likely to evolve in the direction of the closer replication of the pattern of home country technological specialisation. According the first assumption, MNCs from higher order centres tend to have the highest degree of technological competence among firms in their industry, and hence have the resources available and the expertise needed to be capable of managing and organising an international network of more independently creative affiliates with a greater differentiation of technological paths, and to be better able to strategically integrate such diverse lines of development at the corporate group level. In opposition, according to the second proposition, firms from lower order centres tend to have a more restricted and narrowly focused sphere of technological competence, and so are less ambitious in their foreign research. In most foreign locations their objective continue to be confined to the adaptation of products and processes originally pioneered at home Methodology With the help RTA index (which will be defined below) a hierarchy across European location can be defined industry by industry. Then, the clusters analysis that consists in a statistical technique used for finding groups in data will determine differences in the geographical technological strategies of firms from higher order centres when operating in foreign centres below them, by comparison with those of firms from lower centres when engaged in research in foreign centres above them in the hierarchy. Finally, multiple linear regressions are used to study the distribution of technological specialisation which different national groups of firms are inclined to carry out in particular foreign centres, identifying particular firms where appropriate. 5

7 The RTA index The authors use data on European-owned and located firms patents granted in the United States for the period The patent database distinguishes both corporate ownership and the location of inventive activity, as well provides a classification of the types of technologies being created. The corporate patenting was divided into 14 broad industrial groups. The Revealed Technological Advantage (RTA) index is used to explain firms sectoral patterns of technological specialisation. The authors identified group of European firms, in which within a selected industry each group has a common European country of origin and is defined in each case with respect to their technological activity in a common European host country. The authors take into consideration 14 European countries (all countries except Portugal, Belgium and Luxembourg are denominated as a single country) and the EFTA countries Switzerland and Norway. The RTA index is defined as a group s share of all US patenting in a technological field, relative to its share of all US patenting in all fields all large firms patenting in the US, irrespective of their country of ownership or of where technological development is located. Values of the RTA index greater than unity suggest that a given group of firms being located in a given host country is positively or comparatively advantaged in the industrial activity in question, and a value lesser than one shows comparative disadvantage. Due to economies of agglomeration in the geographical location of innovation, some countries have been able to attract the research-related investments of large firms through the presence of reserves of local scientific and technological experience, and appropriate methods of work in the given industry. On the one hand, industries of national technological specialisation will attract the investments of foreign MNCs as they wish to gain access to the local innovative capacity in those industries. On the other hand, domestic firms abroad build on their inherited national strengths to develop related ones through internationally integrated strategies, which may feed back to benefit their home base. Nevertheless, the limited scope of the hierarchy as defined should be recognised. Firstly, difficulties can be created when constructing a RTA index that relies on small numbers of patents. Some small countries have been granted only low numbers of patent in the US. Consequently, they show substantial inter-industry variation in the RTA index and some very high or low values that may be misleading for the 6

8 purposes of cross-country comparisons in any industry. Secondly, relatively small countries are in any case typically more internationalised and specialised in their technological activities than large ones. Small and open economies are to some extent forced to specialise in selected niches due to relative lack of resources and technological expertise to carry out relatively expensive contemporary R&D that entails many risks and uncertainties. In such a setting, a small open economy can be only superior in a limited rang of technologies within a given industry. Technological advantages or disadvantages, measured by value of a broadly defined RTA index, will therefore be more neatly contrasted for small countries than for large ones. As a result of their technological specialisation, some small countries may be represented among the highest order centres in a hierarchy for a particular industry, even though they are not overall the most important centres in the industry in question. Finally, a locational hierarchy as defined within each industrial group should not be interpreted too strictly but considered in a broader context, allowing for a more qualitative assessment of our countries as described in the literature. Therefore, it is reasonable to expect that leading, higher order centres in a given industry are those that have the highest comparative technological advantages, measured by the RTA index (and inversely for lower order centres). However, it is admittedly often difficult to rank locations precisely, as more information is needed in order to evaluate the actual significance of slightly different values of the RTA index for different locations Clusters analysis The patent data were sorted into 18 broadly defined technological sectors derived from the US patent classification. In the three broad industrial groups, important technological sectors were selected on the criterion of possessing at least 100 patents from European-located research over The firms were selected on the basis of both European location and ownership. These large firms were further aggregated into (1) domestic national groups with respect to their operation at home, and (2) national groups in each other non-domestic European location. The selected group of firms were required to possess a minimum of 50 patents for each period. The sectoral patterns of technological specialisation of the different are examined through the RTA index. This technique of analysis is useful to summarise the data and, in an explorative way, to group the different categories of firms into clusters according their similarities or dissimilarities in term of technological specialisation (cross-sectoral distribution of RTAs). 7

9 The clusters solution provide a good overview of whether or not the patterns of technological specialisation in affiliates in foreign locations are similar to the equivalent for their parents and other companies located in their home domestic environment. When the technological specialisation pattern of a national group of firms originating from some given European country, and operating in a given foreign European location, is clustered away from its home country specialisation pattern, it suggests that this group has tended to adopt an internationally integrated strategy between differentiated lines of development carried out in geographically dispersed sites. Conversely, when the group of affiliates is clustered with its home country s operations, it is likely that those affiliates have continued to develop their home technological strengths in the foreign location in question Regression analysis This part aims to analyse and explain the extent to which the degree and the composition of specialisation in technological activity in affiliates in foreign centres is similar or dissimilar to that in their parent companies, and to that of indigenous firms in the relevant host country. The hypothesis is that for firms from the leading centres or centre in an industry, their geographically dispersed technological activities have tended to become more specialised (and perhaps also diversified) in accordance with the pattern of local comparative advantage in innovation in each host country. In contrast, it is expected that firms from less important centres in the same industry have tended to focus upon and extend (in depth rather than breadth) their home technological strengths in their foreign research. To test this proposition, crosssection regressions were run using the selected groups of firms. In all regressions, the dependent variable measures the technological specialisation pattern of foreignlocated research n a particular centre that is carried out by a particular national group of firms. The explanatory variables are those of both the corresponding domestic (parent company) and foreign (indigenous firm) patterns of technological specialisation. The regression equations are as follows: RTA ij = α + ß i RTA ii + ßj RTA jj + ε ij Where RTA ij represents the RTA index or technological specialisation pattern of the foreign-located research of the national group of firms i in the foreign location j, RTA ii signifies the RTA index or technological specialisation pattern of the domestic national group of firms i in their own country i and the RTA index or technological specialisation pattern of the foreign national group of firms j in their own country j. 8

10 3. Electrical equipment and computing industry 3.1. Locational hierarchy in Europe For the electric and computing industry, the Netherlands and Ireland are first in the hierarchy. Only these two countries register a value of the RTA index greater than the unity. This means that they have a significant advantage in this industry. Other countries present value of the RTA index less than the unity and show thus comparative disadvantage. The Netherlands and Ireland are thus the two most important European higher order centres. The chart below allow us to appreciate the value of the of the RTA index across the 14 European selected countries. Source: J. Cantwell, O. Janne, 1999 As there were no data for Ireland and other countries (except the Netherlands) were not relevant regarding the RTA index, we only consider the electrical equipment and computing industry in the Netherlands. Moreover, the selected company is evolving in this country and the lower centres did not seem to conduct their activities in the Netherlands, according to the article Clusters analysis results for the Netherlands Among the electrical equipment and computing group, the Netherlands appears clearly as a dominant centre, due to the exceptional position of its domestic firm Philips. The strong position of the Netherlands as a major centre in Europe corresponds with a relative Dutch technological advantage in electrical-related 9

11 activity. In addition, the Dutch large firms exceptionally conduct on average more of their technological activities abroad than within their home country. Dutch firms have tended to adopt a strategy of technological differentiation when they were settled in Switzerland or Sweden. They specialise in different field from their home base when they are established in those countries that are lower order centres in comparison with the Netherlands, which proves the hypothesis. Doing that, Dutch firms could concentrate themselves on the particular expertise of the host countries. Indeed, subsidiaries in Switzerland and Sweden had comparable sectors of technological specialisation, especially in the development of other manufacturing and non-industrial technologies that are not a Dutch specialisation. Meanwhile, Dutch-owned research located in France, Belgium, Austria, Germany and in the UK continued to develop their home technological strengths in these foreign locations or (considering Philips) when the host technology is not a Dutch specialisation, the Dutch affiliates follow the pattern of locally based expertise in a way that it is still complementary with their home based expertise. None of these countries are higher order centres than the Netherlands in this industry, according to the value of the RTA index Regression analysis results for the Netherlands Due to fact that the Netherlands is the highest European order centre in the electrical and computing industry, Dutch-owned affiliates seem to source locally-based technological expertise throughout their foreign technological activity. 4. Koninklijke Philips Electronics N.V. In this section, we will present a brief overview of The Dutch company Royal Philips electronics business activities. After that, we emphasize the facts and figures of Philips global R&D activities Philips company profile Koninklijke Philips Electronics N.V. is a Dutch multinational corporation, headquartered in the Netherlands. It was founded in 1891 and was to become one of the world's biggest electronics companies. The company is a global leader in healthcare, lighting and consumer lifestyle, delivering people-centric, innovative products, services and solutions. The company s mission is to bring sense and 10

12 simplicity" to consumers with advanced, easy to use products that are designed specifically to meet their needs, wherever in the world they may be. In 2007, Philips activities were organized on a divisional basis: Medical Systems, Domestic Appliances and Personal Care, Consumer Electronics, Lighting, Innovation & Emerging Businesses, and Group Management & Services. Its more famous products include the Sonicare toothbrush and the Senseo coffee maker, its electric razor, Philips light bulbs, the FlatTV, and its medical imaging systems (ie MRIs and more). Philips is #1 in both light bulbs and male electric shaving. At the end of 2007, Philips had approximately 100 production sites in 29 countries, sales and service outlets in approximately 150 countries, and some 123,801 employees in more than 60 countries worldwide. Moreover, Philips established its subsidiaries in over 60 countries. Philips shares are listed on the stock markets of Euro Next Amsterdam and the New York Stock Exchange. It paid a dividend of 0.60 per share in In 2007 the global turnover reached in millions of euros, more than what has registered in the previous year, being millions of euros. The group sales grew by 5% comparing to the previous year. The turnover of Philips can be broken on a regional axis based on the following market, giving emerging market 1 turnover of millions of euros, other emerging markets 2 turnover of millions of euros, Western Europe turnover millions of euros, North America turnover millions and for other mature markets 3 in The figure below shows sales of the Dutch company per market clusters, in Source: Philips annual report, including China, India and Latin America 2 including emerging markets in Central and Eastern Europe, Russia, Ukraine and Central Asia, the Middle East and Africa, Turkey and the ASEAN zone 3 Japan, Korea, Australia and New Zealand 11

13 Philips serves its markets through three core sectors: 1) Healthcare The Healthcare Sector employs approximately 33,000 people worldwide and operates in the business areas: Imaging Systems, Home Healthcare Systems, Customer Services, Healthcare Informatics and Ultrasound & Monitoring Solutions. It maintains sales and service organizations in more than 60 countries and runs manufacturing operations in the Netherlands, Germany, Finland, Israel and the USA. 2) Lighting The Lighting sector employs approximately 55,000 people worldwide and operates in the business areas: Lamps; Professional Luminaires & Systems; Home Luminaires & Systems, Lighting Electronics; Automotive, Solid State Modules, Lumileds and Special Lighting Applications. It maintains sales and service organizations in over 60 countries and runs manufacturing operations in the Netherlands, Belgium, France, Germany, the United Kingdom, Poland, the USA, Mexico, Brazil, India, Indonesia, Thailand, China and South Korea. 3) Consumer Lifestyle The Consumer Lifestyle sector employs approximately 25,000 people in 49 countries and operates in the business areas Connected Displays, Video & Multimedia, Audio & Multimedia, Home Networks, Peripherals & Accessories, Domestic Appliances, Shaving & Beauty and Health & Wellness. It runs manufacturing operations in the Netherlands, Belgium, France, Hungary, Austria, Poland, the USA, Brazil, Argentina, Mexico, China and Singapore. The two figures below show sales per operating sectors and number of employees per sector in Source: Philips annual report, Competition 12

14 The three major competitors of Philips Electronics are Sony, Matsuchita Electric and General Electric. They registered net sales of 48.61, in million and in million respectively. Moreover, The R&D investment accounted for 7.1%, 3.8% and 6.7% of the annual net sales, respectively. The table below summarises key figures of Philips competitors. Key Numbers Matsushita Sony General Electric 2007 Net Sales (in million of euros) 10,71 48,61 44, Year sales growth 9.6% 10.5% 8.7% 2007 net incomes (in million of euros) 0,28 811,5 16, R&D expenditures 0,39 3, , R&D intensity 3.8% 7,10% 6,70% We computed these data from each companies annual report R&D expenditures Philips has a strong focus on research and development and has substantially invested in it over the past few years. It is critical for Philips to have a strong performance in innovation in order to increase its market competitiveness and lead to value creation through future spin-offs. In 2007, the Philips R&D expenditures amounted to million of euros, or R&D intensity ratio was 6.1% of sales, in research and development, slightly less than the percentage registered the previous year. Higher investments in Medical Systems, Lighting, Domestic Appliance & Personal care and Innovation & Emerging Businesses were more than offset by lower expenditures in Consumer Electronics, largely due to the divestment of Mobile Phones in According to EU R&D investment scoreboard, Philips Electronics is one of the world s 50 most innovative companies in It jumped from 35 th on the ranking to 46 th 4. The following chart shows the R&D intensity in value and the R&D expenditures as percentage of sales during the last five years. We see along five years a decreasing in R&D expenditures amount. A variety of factors impact Philips R&D expenditures. 4 Ranking of the world top 50 R&D Companies by their total R&D Investment 13

15 It s due to huge change at Philips. Firstly, in 2006, in order to streamline its operations and lower operating costs, it sold off 80% of semiconductors units, despite the fact that it was among the worldwide top 20 semiconductors sales leader. The goal is to invest in high growth areas such as medical device and personal-care Company. Secondly, Philips outsources roughly 70% of its manufacturing business to a second or a third party. Finally, it conducts business in more than 50 currencies and fluctuation in currencies exchange rate impact on sales and R&D expenditures. Source: Philips annual report, Philips R&D strategy Philips strategy is to conduct market focused R&D, to control inherent risk in research, to share knowledge in technology partnerships, and to make full use of Philips research campuses. The R&D expenditures are based clearly on market knowledge. Philips R&D activities are shared across corporate technologies. Corporate Technologies give strong contribution to the innovation in Philips and to the development of new markets. These technologies also create and license Intellectual Property (IP), provide R&D services and incubate new businesses. Corporate technologies consist in four laboratories: Philips research, Philips incubator, Philips applied technologies and the Philips Intellectual Property and Standards (IP&S). 14

16 Philips research is one of the world s major private research organizations that create through innovations and successive innovations in order to establish innovation leadership. The main laboratories are located in the Netherlands, Germany, the United Kingdom, the United States, China and India. It employs approximately 1800 professionals around the world. The role Philips incubator is to identify new growth opportunities, in the areas of Healthcare, Lifestyle and Technology, in order to turn them into successful businesses by matching unmet markets with a unique value proposition. It can be done by sourcing internally (based on Philips capabilities), or acquiring externally (e.g. in the start-up community). It employs close to 200 professionals Philips applied technologies supports its customers in the areas of healthcare, lighting and consumer lifestyle by providing technology and developing new products and applications. Approximately 850 highly skilled professionals are employed at six locations across Europe, Asia and the US. Philips IP&S pro-actively pursues the creation of new Intellectual Property (IP) in strategic areas and supports their sustainable competitive development. IP&S thereby ensures the continued growth of the Philips IP portfolio and manages that portfolio, which by now consists of more than 60,000 patent rights, 29,000 trademarks, 43,000 design rights and 2,000 domain name registrations. By participating in the creation of new standards, IP&S also facilitates the market adoption of new innovations. In total, Corporate Technologies employs around 4,200 professionals at some 20 locations worldwide. The Philips open innovation strategy 5 Philips adopts an open innovation strategy, creating company-wide technology synergies through its shared labs and competencies. In 1999, Philips opened the High-Tech Campus in Eindhoven (HTCE). This site of Philips research has over 40 (external) technology-based companies and institutes employing several thousand people in developing technologies and products through the open innovation model. Its facilities are opened to universities, research institutes

17 and Philips suppliers such as start-up companies and other companies. Moreover, innovations are developed in close interactions with end-user and partners (i.e. institutes, academia and industrial partners) in order to bring more innovations to market faster and more effectively, as well as via European and regional project. The goal that Philips wants to achieve is to increase internal collaboration by bringing different R&D centres together in one campus. Moreover, Philips wants to open up the campus to external parties, facilitating R&D cooperation. What is a corporate open innovation (COI)? An open innovator is a company that employed external collaborators to generate or develop innovations. This is different from traditional 'closed' innovation, where in-house research and development, production engineering and marketing departments collaborate to produce new products and services. Why corporate innovation is essential? First, Philips wants to increase efficiency because it invests more in R&D. It is difficult to justify increasing R&D costs when revenues decrease in shorter product lifecycles. COI allows sharing origination costs and also increasing potential revenue market through joint ventures. Indeed, Philips tries to create an environment and structures that promotes knowledge-sharing and networking, leading to joint projects and joint ventures among HTCE companies. For Philips this means that the company can spin in ideas and innovations from outside, enriching the services it can offer Philips business divisions. It can also spin out technologies from its own extensive IPR portfolio to high-tech companies in the HTCE, which can bring innovations to market more quickly. For the companies on the campus, networking and co-operation on ideas is reinforced by shared facilities and technology - for example, through the MiPlaza, a microsystems and nanotechnology facility including a world-class clean room with laboratory and materials-analysis services. In most cases, start-ups can make free use of those facilities. This case clearly shows how Philips can create a stimulating environment for cooperation and open innovation Philips patenting activities Philips has a strong R&D activity that has generated many patents and invention over the years. Indeed, according to WIPO, Philips was the most active user of international patent system. 16

18 In the year 2006, the number of patent registered at the World Intellectual property Organization was Philips was the largest applicant. In the year 2007, the number of patents registered was only of The diminishing of number of filings by Philips is not representative of a negative R&D intensity. However, we had to take into account that Philips is dependent on its ability to obtain and retain licenses and other intellectual property (IP) rights covering its products and its design and manufacturing processes. The IP portfolio results from an extensive patenting process that could be influenced by, amongst other things, innovation. The value of the IP portfolio is dependent on the successful promotion and market acceptance of standards developed or co-developed by Philips. This is particularly important for Consumer Electronics where third-party licenses are important and a loss or impairment could negatively impact Philips results. The table below shows the number of patent that have been granted at the USPTO for Philips and its major competitors since Philips Matsushita Sony General Electric Source: USPTO 5. Applying the article to Philips R&D activities of Philips are concentrated in Eindhoven, Netherlands. Philips is located in a very high order centre of the electrical and computing industry. Philips and its high concentration of R&D activities in the Netherlands explain why this country registers a high value of the RTA index for this industry. The company brings the Netherlands at the top of the European centre in the concerned industry. Philips seems to have developed a still more integrated technological strategy. The majority of Philips foreign affiliates seemed to have engaged in a complementary but differentiated set of technological activities, in accordance with the specialisation of their host locations. For instance, the company when located in France relied on some of its technological strengths in pharmaceuticals and electrical equipment (but also on other manufacturing and non-industrial technologies which are not Dutch specialities), but represent the pattern of locally based French expertise. 17

19 6. Concluding remarks A large literature has pointed out the limits as well the significance of patent statistics as an internationally comparable indicator of technological activity. Indeed, it is very difficult to analyse R&D activities and structures exclusively based on patent data. Besides, the authors only take into consideration the patents granted in the United States. Consequently, the results represent only European R&D structure in a limited extent. Then, the cluster analysis may be unclear due to the fact that sectors boundaries are themselves unclear. Some important companies such as Philips or Solvay induce high level of the RTA index in their home country. Applying the theoretical methodology of this article concerning higher or lower order centres can sometimes provide results that are mismatched. When applying the article to the Philips Company, only the first hypothesis could be partly verified due to lack of data regarding foreign firms emanating from lower centres conducting their activities in the Netherlands. This lack of information could come from the fact that the article considers patent data from 1969 to Moreover, in 1999, Philips opened the High-Tech Campus in Eindhoven. One of the goals of the open innovation strategy was indeed to open the campus to external parties. Nevertheless, we doubt that no foreign firms have conducted research in the Netherlands. 18

20 7. Bibliography Patents filed by Philips: EU industrial R&D investment Scoreboard Ranking of top 100 European Union Companies by R&D Investment in 2007: Philips Company general information: Philips annual report 2007 Competitors information Matsushita electric: annual report 2007 Sony corporation: annual report 2007 General Electric: annual report 2007 Open innovation: - Chesbrough H (2006), Open Business Models: How to Thrive in the New Innovation Landscape, Boston MA: HBS Press. - Kux Barbara (2008), Universities and Open Innovation: a New Research Paradigm, Royal Philips Electronics. 19