THE INTERNATIONALISATION OF INNOVATION
Much of the literature on the internationalisation of business research has adopted a relatively narrow approach by focusing on MNEs’ R&D investments abroad. As markets open up, MNEs have become more mobile and increasingly shift activities, including R&D, across borders within their global value chains, in reaction to differences in countries’ location factors.
However, the internationalisation of business research is complex, involving many actors and multiple channels, and a broader approach may be useful.
The internationalisation of business research is part of a larger innovation process in which MNEs indeed play a large role but so do small high- technology start-ups, universities and research institutes, science and technology researchers, innovation intermediaries and government institutions.
The internationalisation of business research is affected by related processes such as the internationalisation of science, the international mobility of researchers, the increasing amount of international collaboration in R&D and innovation, and the international exploitation of technology through licensing/royalties and exports of high-technology products and services.
These processes are examined here in terms of some key indicators and reveal two major trends: the increasingly worldwide supply of S&T resources and capabilities, notably in emerging countries, and the increasing interdependence and interconnectedness of S&T actors across borders.
The changing landscape for R&D investment
R&D investments remain highly concentrated in a small part of the world. Of the USD 771.5 billion (current purchasing power parity – PPP) OECD expenditure on R&D, the United States accounted in 2005 for 42%, the EU for 30% and Japan for 17%. R&D investments have increased steadily in the OECD area in recent years, although more slowly than during the second half of the 1990s, and R&D spending has grown at a similar pace in the United States, Japan and the EU (around 2.9% a year in real terms).
Sweden, Finland and Japan were the only three OECD countries in which the R&D-to-GDP ratio exceeded 3%, well above the OECD average of 2.2%. The EU and the United States report R&D intensities of 1.74% and 2.62%, respectively, for 2005 (Figure 2.1).
Figure 2.1. World investments in R&D R&D in the OECD and non-OECD area, 20051
GERD as a percentage of GDP and in billions of current USD PPP, and researchers per 1 000 persons employed2
324.46
230.98
130.75
115.20 23.68
16.67
13.75 4.49
0 2 4 6 8 10 12
0 1 2 3 4
GERD as % of GDP Japan United States
Russian Federation
China South Africa
Brazil India
EU27
1. The size of the bubble represents R&D expenditure in billions of current USD in purchasing power parities (PPP).
Data for Brazil, India and South Africa are for 2004.
2. For researchers per 1 000 persons employed: India 2000 and EU27 2004.
Source: OECD (2007c).
Non-OECD economies account for a growing share of the world’s R&D. In 2005, the non-OECD countries for which data are available accounted for 21.4% of the R&D expenditure (expressed in current USD PPP) of OECD and non-OECD economies combined, up from 17% four years earlier. China made by far the largest contribution, accounting for 55%
of the non-OECD share. It ranked third worldwide, behind the United States and Japan, ahead of individual EU member states. However, the conversion from national currency into USD PPP may overestimate China’s R&D effort; China ranks sixth globally when its investment is converted at exchange rates.
Figure 2.1. World investments in R&D (continued) 2005
R&D expenditures in billions of current USD PPP
0.9 2.6 0.4 0.2 1.3 0.0 23.7 0.4 1.9 4.5 13.7 0.2 16.7 0.7 0.6 115.2 771.5 3.1 16.2
0 1 2 3 4 5
Romania Argentina Bulgaria Latvia Chile (2004) Malta India (2004) Lithuania Hong Kong, China South Africa (2004) Brazil (2004) Estonia Russian Federation Croatia (2004) Slovenia China OECD Singapore Chinese Taipei
%
See notes on preceding page.
In most of the non-OECD economies covered, growth rates were well above the OECD average. Growth of R&D expenditure in China has been particularly rapid at an annual average of 18.5% during 2000-05. China has set the ambitious target of raising R&D intensity to 2% of GDP by 2010 and to 2.5% or more by 2020. Double-digit growth rates were also reported by the small new EU countries.
Business enterprise expenditure on R&D (BERD) accounts for the bulk of R&D activity in OECD countries in terms of both performance and funding. In 2005, R&D performed by the business sector reached USD 524 billion (in current PPP), or close to 68% of total R&D. In China, BERD has increased strongly and in 2005 China became the fourth largest spender, after the Triad, on business R&D. In 2005, BERD in China reached USD 78.7 billion (in current PPP), a figure likely to be an overestimate, as noted above.
The changing landscape for global R&D can also be observed in the growing importance of R&D sources abroad (whether private business, public institutions or international organisations). These are quite important for the funding of business R&D. In EU countries, finance from abroad represented an average of about 10% of total business R&D in 2005. In most countries, financing of business enterprise R&D from abroad primarily comes from other business enterprises, notably other MNEs. More than half of the funding from abroad concerns intra-company funding (for the countries for which data are available); in 2005 it represented more than 80% in the Netherlands and Denmark and 50% in Sweden and Norway. At the same time 20% of funding from abroad originates from non-affiliated foreign companies in these countries, which may suggest that companies are increasingly “opening” their innovation process to other companies (Figure 2.2).
Figure 2.2. Funds from abroad as a percentage of business R&D, 2005
0 10 20 30
United King dom Austria (2004)
Greece (2003 ) Hungary Sout
h Africa (2004 ) Canada Netherlands (2003)
Belgium (2004) Iceland Denmark (2003)
New Zealand (2003) Italy (2004)
Franc e (2004)Norway
EU27 (2004)Ireland Russian Federation
Luxembourg (2 003) Sweden (2003)
Switzerland (2004) Portugal (2003)
Slovak Republic Finland
Spain (2004) Czech Republic
Australia (2004)Poland Germany (2004)MexicoChina
Korea Japan Turkey (2004)
%
Source: OECD (2007c).
The internationalisation of R&D and technology collaboration
Rising international competition pressures companies to enhance the efficiency of their spending on innovation. Many large international companies have supplemented their internal R&D efforts with collaboration with external suppliers, competitors, customers, research institutes and universities. The main motivations for such “strategic technology partnering” include the sharing of costs and risks, the pooling of resources, savings on mutual transfers of technology and transfers of knowledge about new markets and customer niches (Hagedoorn, 1993).
Chesbrough (2003) calls increased co-operation on R&D and higher reliance on external sources “open innovation”.1 Companies commercialise their own ideas and innovations from other entities, with academic research occupying a major place. The growing mobility of skilled workers, stronger capabilities in external suppliers, more options for using ideas not developed within the firm and a dynamic venture capital market all facilitate this development. In this more open way of innovating, MNEs link up to start- ups, spin-offs and the public R&D system. In a world where knowledge seems to be ubiquitous, there has been a shift towards a business model in which the use by others of the firm’s intellectual property can help to advance a firm’s own goals. For firms engaged in open innovation, sustaining long-term competitiveness requires strategies that build capacity in core technologies and access to emerging technologies.
International co-operation has become more important for companies’
R&D activities in the past decades. In parallel with the rise in foreign investment in R&D, companies (particularly MNEs) engage more and more in international co-operative arrangements, such as cross-border strategic R&D alliances (Dunning, 2005). Such co-operation has helped them access foreign technologies and markets, minimise risks and overcome the (often high) costs of technology development. Unfortunately, information about such innovation networks is fragmented and uncertain.
1. A follow-up project on open innovation is currently under way at the OECD and will be finalised in 2008.
Data from the MERIT Co-operative Agreements and Technology Indicators (MERIT-CATI) database2 on R&D partnerships and technology alliances show that these are becoming more international than in the past.
From 1991 to 2001, new international technology alliances nearly doubled from 339 to 602. US-based firms continued to participate in a large majority of strategic alliances, although their share in the overall total declined from 80% in 1991 to 73% in 2001. At the same time, the participation of non- Triad firms increased from 4% to 14%. Between 1991 and 2001, the industry composition of alliances shifted from information technology (which dropped from 54% to 28%) to pharmaceuticals and biotechnology (which increased from 11% to 58%). For the latter, there is a strong incentive for MNEs to establish strategic alliances, as the development of a new drug requires excellence in many R&D areas (UNCTAD, 2005 based on the MERIT-CATI database).
Data on EU-based high-technology MNEs partnering in R&D between 1996 and 2001 in five industries (computers, drugs, electronics, instruments and the plastics industry) show that European companies consider North American high-technology firms as their preferred research partners. At more than 55%, this kind of R&D partnership dominates newly established partnering activity over the period. R&D partnerships between companies based in the EU and in Asia (Japan, China and Korea) represent more than one-tenth of the cross-border collaborations. Collaboration with Australia and New Zealand represent a rather small share of the partnering activity (Roijakkers et al., 2004).
Table 2.1. International distribution of newly established R&D partnerships by EU- based high-technology companies, 1996-2001
Computers Drugs Electronics Instruments Plastics
Intra-EU 15% 23% 40% 28% 48%
EU-Asia 30% 6% 20% 7% 10%
EU-North America 55% 63% 40% 63% 41%
EU-Others 0% 8% 1% 2% 1%
Source: Roijakkers et al., 2004.
2. This database is a systematic collection of inter-firm partnerships which contains information on nearly 10 000 co-operative agreements, involving some 3 500 parent companies. It started in 1987. In the CATI database, only agreements that involve either technology transfer or some form of jointly undertaken R&D are recorded. Co-operative agreements are defined as mutual interests between independent industrial partners that are not linked through majority ownership. It should be noted that the database is biased towards high-technology firms and thus misses the collaborative activity carried out in less visible ways in low- and medium-technology sectors.
Refining the results by sector of activity reveals the importance of inter- firm R&D partnerships of EU-based MNEs with North American companies in the fields of computers, drugs and instruments (Table 2.1). Collaboration with Asia is relatively strong in computers and electronics but weaker in drugs and instruments. Intra-EU collaboration is most frequent in the plastics and electronics sectors. However, in computers, intra-EU collabora- tion accounts for only half as much as collaboration with Asia and roughly one-quarter of collaboration with North America.
The fourth Community Innovation Survey (data for 2002-04) also reveals the importance of technology collaboration for companies’ innovation process, but shows that companies still seem to prefer R&D partners that are geographically close. In the case of European firms, the share of those collaborating with partners in a different country within Europe ranges from less than 2% (Italy, Romania, Spain and Bulgaria) to more than 12%
(Denmark, Luxembourg, Finland and Belgium). Collaboration with partners outside Europe is much less prevalent, concerning between 2 and 6% of all firms in most European countries. The propensity to collaborate on innovation with partners abroad varies widely between countries in other regions, ranging from less than 2% of all firms in Korea, Japan and Australia, to more than 8% in Canada and New Zealand (Figure 2.3).
Figure 2.3. Firms with foreign co-operation in innovation, 2002-041 As a percentage of all firms
0 2 4 6 8 10 12 14 16
Denmark Luxembour
g Finland
Belgium Sweden
Czech Republic Norway
Netherlands Slovak Re
public France
Austria Poland
Portugal Greece
Hungary Germany
Spain Italy Canada (2)
New Zealand Korea Japan
Australia
Within Europe Outside Europe Abroad
1. Or nearest available years.
2. Manufacturing sector only.
Source: OECD (2007c).
Figure 2.4. Scientific articles in S&E, 2003 Number of scientific articles, 2003
220002 211233
60067 48288
44305 31971
29186 24803 24696 16826
15809 15782 13746 13475 12774 10237
9270 8684 8542 6941 6770 6604 6224 5291 5202 4906 3770 3747 3339 3122 3034 2950 2625 2503
EU-15 United States Japan United Kingdom Germany France China Canada Italy Spain Australia Russia South Korea Netherlands India Sweden Chinese Taipei Brazil Switzerland Israel Poland Belgium Turkey Denmark Finland Austria Greece Mexico Norway Singapore New Zealand Czech Republic Portugal Hungary
Source: OECD (2007c), based on National Science Foundation, Science and Engineering Indicators 2006.
Figure 2.4. Scientific articles in S&E, 2003 (continued) Scientific articles per million population
1993 Country share in total
world scientific articles, 2003
Source: OECD (2007c), based on National Science Foundation, Science and Engineering Indicators 2006.
4.2 0.5 0.1 0.4 0.9 0.0 2.3 0.1 1.0 0.4 0.4 2.0 0.4 0.5 2.4 1.3 3.5 0.3 72.9 8.6 0.1 4.6 6.3 31.5 0.7 0.9 0.0 30.2 0.5 0.4 0.4 3.5 2.3 6.9 1.9 0.8 0.7 1.0 1.5 1.2
100.0
0.3
0 200 400 600 800 1 000 1 200 1 400
China Mexico Romania South Africa Argentina Turkey Luxembourg Russia World Slovak Republic Poland Hungary Portugal Korea Czech Republic Greece Spain Chinese Taipei Italy Ireland OECD Japan Slovenia France Germany EU15 Austria Belgium Iceland United States Norway Singapore New Zealand Canada Australia United Kingdom Netherlands Denmark Finland Israel Sweden Switzerland
Firms tend to engage in more co-operation with a variety of public and private partners. The scarce data available reveal that European companies have developed a good deal of co-operation for their research strategy with American universities (Miotti and Sachwald, 2003). Based on the results of the third Community Innovation Survey, collaboration between large companies and universities and public research institutions is often mainly a national matter. Collaboration with such institutions outside Europe is rather limited.
The internationalisation of science
The internationalisation of R&D is also affected by the growing inter- nationalisation of science and the growing scientific capabilities in some emerging economies. Like investments in R&D, scientific publications are highly concentrated in a few countries. Almost 84% of the 699 000 scientific articles in science and engineering (S&E) published in 2003 were released in the OECD area, and nearly two-thirds came from the G7 countries. The EU15 and the United States lead, with over 210 000 articles each. R&D expenditures seem largely to determine the geographical distribution of publications.
Scientific publication has intensified worldwide, and the increasing importance of emerging countries is reflected in their (absolute) number of S&E publications (Figure 2.4). China is among the top ten in scientific publications, but the distance from the Triad remains significant. Scientific articles from Latin America more than tripled since 1993 and those of Southeast Asian economies (Indonesia, Malaysia, the Philippines, Thailand and Vietnam) expanded almost as much (NSF, 2006).
Indicators of international co-authorship, i.e. the number of articles by two or more authors from different countries, point to increasing scientific collaboration across borders. Domestic and international co-authorship have grown in importance equally in the past decade; in 2005 over 20% of scientific articles had international co-authorship, three times more than in 1985. Domestic co-authorship remains the most important form of collaborating in science, especially in larger countries. Increased domestic and international co-authorship indicates the crucial role of interaction among researchers with different backgrounds for diversifying their sources of knowledge (Figure 2.5).
The degree of international collaboration varies. Large European countries (France, Germany and the United Kingdom) conduct more collaborative work than the United States and Asian countries. In most countries, the share of international co-authorship has been increasing in the past decade, but in China it has been almost constant. Glänzel et al. (2006) show that the share of internationally co-authored papers has increased except in China, Brazil, Chinese Taipei, Korea and Turkey.
Figure 2.5. Trends in the ratio of internationally co-authored scientific articles by country1,2 1995, 2000 and 2005
0 20 40 60
France
Germany
United Kingdom
Canada Italy Russia
United States China Japan Total
2005 2000 1995
1. Refers only to scientific articles in natural science.
2. Data are available only for reporting countries.
Source: OECD (2007c).
Patents are another output of innovative activity and triadic patents in particular offer interesting insights as they are based on information from different patent offices. Triadic patent families are defined at the OECD as a set of patents taken at the European Patent Office (EPO), the Japan Patent Office (JPO) and US Patent & Trademark Office (USPTO) to protect the same invention. Analysis has shown that there is a strong positive correla- tion between the number of triadic patent families and industry-financed research and development (R&D) expenditure (R2 = 0.98). The more a country spends on R&D (e.g. the United States, Japan, Germany and France), the higher its propensity to patent (OECD, 2007c).
In 2005, the United States accounted for 31% of triadic patent families with more than 16 000 (Figure 2.6a). Japan and the European Union were the other two regions responsible for the majority of triadic patent families.
The surge in innovative activities in Asia is clearly reflected in the data, although in absolute numbers the distance with the Triad remains considerable. Nevertheless China gained 16 positions from 1995 and entered
the top 15 countries. Chinese Taipei, India and Korea also rose significantly in the rankings. Patent families from these economies increased notably in the late 1990s and after 2000.
When normalised against total population, the importance of emerging countries is less clear (Figure 2.6b). China, for example, has less than 0.4 patent families per million population. One reason is the continuing orienta- tion of most R&D in these economies towards adaptation.
Figure 2.6. Triadic patent families a. Number of triadic patent families,1 2005
16368 15239
14988
6266
3158 2463
1588 1184
820 801 716 652 433 414 395 333 301 264 220 201 135 132 111 95 64 59 59 49 37 33 27 24 20 15 1311
United States Japan European Union Germany Korea France United Kingdom Netherlands Canada Switzerland Italy Sweden China Australia Israel Belgium Austria Finland Denmark Spain Chinese Taipei India Norway Singapore New Zealand Ireland Brazil Russian Hungary South Africa Turkey Luxembourg Mexico Czech Republic Greece Poland See notes on following page.
Figure 2.6. Triadic patent families (continued) b. Triadic patent families1 per million population2, 2005
1995
Note: Patent counts are based on the earliest priority date, the inventor's country of residence and fractional counts.
Data mainly derive from the EPO Worldwide Statistical Patent Database (April 2007).
1. Patents filed at the European Patent Office (EPO), the US Patent & Trademark Office (USPTO) and the Japan Patent Office (JPO) that protect the same invention. Data from 1998 onwards are OECD estimates.
2. Only countries/economies with more than ten patent families in 2005 are included.
Source: OECD (2007c).
0 25 50 75 100 125
Japan Switzerland Germany Netherlands Sweden Korea Israel United States Luxembourg Finland OECD Denmark France Austria EU25 Belgium United Kingdom Canada Norway Singapore Australia New Zealand Ireland Italy Chinese Taipei Slovenia Spain Hungary Hong Kong China Czech Republic Greece South Africa Turkey Russian Federation China Brazil Poland Mexico
India %
Figure 2.7. International co-invention in patents a. Patents with foreign co-inventors1, 2001-03
1991-93
Note: Patent counts are based on the priority date and the inventor’s country of residence, using simple counts.
1. Share of patent applications to the European Patent Office (EPO) with at least one foreign co-inventor in total patents invented domestically. The graph only covers countries/economies with more than 200 EPO applications over 2001-03.
2. The EU is treated as one country; intra-EU co-operation is excluded.
3. Patents of OECD residents that involve international co-operation.
4. All EPO patents that involve international co-operation.
Source: OECD (2007c).
0 10 20 30 40 50 60 70 80
Japan Korea Total (4) OECD (3) EU25 (2) Italy United States Germany Chinese Taipei Finland Israel Sweden France South Africa Netherlands Slovenia Australia Denmark Spain Norway United Kingdom New Zealand Austria Brazil China Turkey Greece Canada India Switzerland Ireland Belgium Hungary Poland Czech Republic Singapore Russian Federation Mexico Luxembourg
%