Drivers and organization of R&D location in wireless telecom A case for non-globalization? International Network seminar, Hotel Arthur 31.5. 2007 Alberto Di Minin & Christopher Palmberg* Berkeley Roundtable on the International Economy (BRIE), University of California & In-Sat Lab, Scuola Superiore Sant Anna (Pisa, Italy) *Etlatieto/ETLA, the Research Institute of the Finnish Economy
18.6.2007 Etlatieto Ltd. / ETLA 2
Structure of presentation 1. The broader issue: globalization of R&D? 2. The research setting: location of inventive activity in the wireless telecom industry 3. The empirical analysis (qualitative and quantitative) 4. Conclusions 18.6.2007 Etlatieto Ltd. / ETLA 3
Our definition of globalization The high and increasing interdependency and interrelatedness among different and geographically dispersed actors. (Archibugi & Iammarino, 2002) [ in our interpretation, researchers and inventors involved in R&D increasingly tend to be located outside the domestic HQ country of firms ] 18.6.2007 Etlatieto Ltd. / ETLA 4
The case for R&D globalization 18.6.2007 Etlatieto Ltd. / ETLA 5
Changing division of labour in manufacturing will R&D follow? Asia (China, India, Japan) 50% Share of Global Manufacturing Output Europe (8 countries) N. America (Canada & US) 1750 1800 1850 1900 1950 2000 Source: Bairoch 1982 (updates: ETLA). 18.6.2007 Etlatieto Ltd. / ETLA 6
Foreign locations of R&D (UNCTAD World Investment Report -05) Current Prospective 2005-09 US UK China France Japan India Canada Germany Singapore Italy Brazil Spain Belgium Sweden Switzerland Australia Finland China US India Japan UK Russia France Germany Ne the rlands Canada Singapore Taiwan Belgium Italy Malaysia Korea Thailand 0 20 40 60 80 0 20 40 60 80 % of respondents % of respondents 18.6.2007 Etlatieto Ltd. / ETLA 7
UNCTAD 2005 report concludes: R&D still among the least internationalized functions of MNEs but R&D globalization is a recent phenomenon and appears to be increasing over time Limitations of UNCTAD report Limited number of obs. (returned survey from CTOs of 68 companies) R&D is treated as a black box, an ON or OFF activity A finer-grained analysis by type of R&D activity, country or company probably gives a different picture! 18.6.2007 Etlatieto Ltd. / ETLA 8
Three drivers of R&D globalization ( based on extant research) Demand factors Adapting R&D, products and processes to local demand Providing technological support to off-shored mfc. plants Supply factors Monitoring scientific and technological developments Obtaining access to scientists, engineers and designers Generating entirely new products and core technologies Intermediating factors Facilitating the efficient coupling of demand and supply factors Aligning activities with local cultures and norms Source: Ali-Yrkkö & Palmberg, 2006 18.6.2007 Etlatieto Ltd. / ETLA 9
The case for R&D non-globalization? [in wireless telecom ] 18.6.2007 Etlatieto Ltd. / ETLA 10
[These large companies] have a long way to go before their technology activities become anywhere nearly globalized. Patel, P & Pavitt, P. 1991. Large Firms in the Production of the World s Technology: An Important Case for Non-globalization Journal of International Business Strategy. 18.6.2007 Etlatieto Ltd. / ETLA 11
We expect to see greater internationalization of large firms technological activities in the future Patel, P & Pavitt, P. 1991. ibid. 18.6.2007 Etlatieto Ltd. / ETLA 12
Wireless Telecom as an interesting case: all signs of globalization Demand factors Deregulation and break-up of national monopolies, new regional markets with local players demand and tastes Supply factors Technological convergence, emerging/new centers of excellence (Eastern Europe, China, India etc.), supply of both high skilled and low cost engineers Intermediating factors? Interoperability and modularization, integration of technologies developed worldwide, but home country efficiencies might still be superior 18.6.2007 Etlatieto Ltd. / ETLA 13
Empirical analysis 18.6.2007 Etlatieto Ltd. / ETLA 14
Patent data as an indicator for location of inventive actitvity Discrepancy of assignee and inventor addresses as a proxy ETSI system of notification of patents as an analytical lens to single out more significant inventive activity The 4 largest assignees of ETSI essential patents: Ericsson, Qualcomm, Motorola, Nokia: 64% of all essential patents SAMPLE (ES): 537 USPTO PATENTS USPTO (US) Patents Assigned to the 4 Companies* Essential Patents Int. Prot. Patents in the same technology classes CONTROL GROUP (CG): 4,358 USPTO PATENTS * For US companies solely US patent families excluded from analysis 18.6.2007 Etlatieto Ltd. / ETLA 15
Types of ETSI Standards mainly covered by the empirical analysis DVB V5 Interface DECT GSM GPRS UMTS GSM/AMR-NB 3GPP/AMR-WB TETRA 1980 1990 2000 18.6.2007 Etlatieto Ltd. / ETLA 16
Distribution of patents across the 4 companies Total Patents (assigned between 1985-2005) Ericsson Nokia Motorola Qualcomm Essential Patents 537 241 72 85 139 Control Group Patents 4 358 1 752 1 012 1 160 434 2Years Fwd Citations / Patents 4.02 (ES) 2.31 (CG) 3.31 (ES) 2.12 (CG) 3.36 (ES) 2.15 (CG) 3.01 (ES) 2.47 (CG) 6.21 (ES) 3.03 (CG) 18.6.2007 Etlatieto Ltd. / ETLA 17
Domestic Collaborative Foreign Patents DO (Domestic) patents: all inventors located in H.Q. country CO (International Collaboration) patents: at least one inventor in H.Q. country and at least one inventor in foreign country FO (Foreign) patents: all inventors located in foreign countries 18.6.2007 Etlatieto Ltd. / ETLA 18
FO-CO-DO distribution of Control Group patents (n=4 358) No. of granted US patents 1000 900 800 700 600 500 400 300 200 100 0 FO CO DO 1985 1987 1989 1991 1993 1995 1997 1999 2001 18.6.2007 Etlatieto Ltd. / ETLA 19
FO-CO-DO distribution of patents Essential Patents Control Group CO 11% FO 11% FO 29% DO 78% CO 7% DO 64% Pearson Chi-Square for DO * Essential : 41.5 (.01 significant) Pearson Chi-Square for FO * Essential : 77.5 (.01 significant) 18.6.2007 Etlatieto Ltd. / ETLA 20
Where are the offshore inventive activities located? Essential Patents Control Group SEA_INV 0.0% JP_INV 3.3% R.O.W. Canada 3.3% 15% EU_INV 25% R.O.W. 3.3% SEA_INV 1.2% Canada 14% EU_INV 23% JP_INV 0.9% US_INV 54% US_INV 58% 18.6.2007 Etlatieto Ltd. / ETLA 21
ERICSSON Essential Patents Company level NOKIA Essential Patents FO 19% CO 8% FO 6% CO 18% DO 63% DO 86% Control Group Patents FO 54% DO 37% Pearson Chi- Square for DO * Essential : 59.4 (.01 significant) Pearson Chi- Square for DO * Essential : 6.4 (.01 significant) CO 18.6.2007 9% Etlatieto Ltd. / ETLA 22 CO 7% FO 21% DO 72%
MOTOROLA Essential Patents CO 7.1% CO 4.4% FO 8.2% FO 7.9% DO 84.7% TX 10.3% DO 87.7% FL 4.6% MA 2.3% OTH_US 2.3% MA OTH_U 4.3% S AZ 5.7% 10.5% NC 0.1% FL 18.8% TX 12.8% IL 80.5% CA 3.1% CA 88.7% CO 2.2% CO 6.9% FO 2.2% FO 3.2% 18.6.2007 Etlatieto Ltd. / ETLA 23 AZ 0.7% MA 2.4% IL 44.6% Other 10.6% Other 9.8% QUALCOMM Essential Patents P Chi-Square P Chi-Square P Chi-Square DO * Essential : N.S. (.01) IL_st * Ess : 39.6 CA_st * Ess : N.S. P Chi-Square DO * Essential : 4.48 * Control Group Patents Company level CA 87.6% DO 95.7% DO 89.9%
Findings and limitations so far The paradox remains! In a very globalized industry we still see strongly homebound inventive activities once R&D is dissected by economic/technological/strategic content Limitations of the analysis Well-known objections to using patent data as an indicator Patent data lags behind in this dynamic industry Upstream vs. downstream R&D (e.g. alliance capitalism)? Generalization of the results beyond wireless telecom? 18.6.2007 Etlatieto Ltd. / ETLA 24
Why R&D non-globalization? - Insights from the company interviews Demand and supply factors highlighted for offshored (FO patents) inventive activity In-house R&D (DO patents) still remains important due to intermediating factors : Accumulated sticky knowledge at HQ, organizational inertia Maturation effect and steep learning curves in R&D internationalization Importance of centralized IP management in this particular industry (or is this a selection bias ) 18.6.2007 Etlatieto Ltd. / ETLA 25