Firms are continuously innovating in order to sustain their competitive edge in the globalizing economy. The United States stands apart in its record of sustained innovation over decades, across industries, and through economic cycles, in large part because it has always encouraged and rewarded risk takers (1).
With respect to innovation, two opposing tendencies have been observed. First, the knowledge required to compete in technology markets is becoming more diverse as markets converge and industries collide (2). Second, firms are narrowing their knowledge base in an effort to specialize and focus (3). This is inducing firms to use distributed innovation models so that they can meet the simultaneous demand of focus and variety.
Apart from this, there is the need to implement low-cost innovation models so as to enhance innovative efficiency (4). There is also a need for a continuous flow of new ideas that can be leveraged (5). GM, for example, has been working on the "idea assembly line" concept (6). As a result, firms are increasingly shifting to distributed innovation models that can leverage knowledge and products from a variety of sources, including:
* Corporate in-house R&D.
* Academic research.
* Acquired entrepreneurial firms.
* In-licensing of innovations.
* Outsourcing through contract research.
In this way, the R&D boundaries of firms are broadening. Amid faster product rollouts, even powerhouses like Procter & Gamble have to look outside for innovation (7). Evolution of the Internet is supporting Web-enabled innovation in new product development (8). Increasingly firms are acknowledging that it is difficult for them to create and exploit technological innovations on their own (9).
Because of the emergence of distributed innovation, measuring the innovativeness of firms has become of R&D indicators. The emergence of e-engineering and e-design will make it more difficult to measure innovativeness at the firm level (10). In a proprietary context, expenditure on R&D and patents granted (internal ones plus the assigned ones) are reasonable measures of revealed competitive advantage. As product life cycles become shorter, the pressure on corporations to monitor technological trends will increase. It is within this context that this paper examines the innovativeness of the 320 top global firms.
Justification for R&D Scoreboards
A scoreboard relating to innovation should present three aspects of innovativeness.
* Trends on innovativeness so that other firms can benchmark their efforts against the top R&D-spending firms.
* The number and classes of patents a firm has (since intellectual property is becoming a key corporate asset).
* Research partners outside the firm, such as patent assignees (universities or research institution or other firms). This element gives an indication of a firm's knowledge-creating partners.
The principal R&D Scorecards (11-14) are largely devoted to R&D spending data, with the Technology Review scorecard (12) presenting total patent numbers only. We need to devise ways in which a scoreboard can provide information about the knowledge-creating processes used by a firm, using the data available in the public domain. Patents could be a rich resource for providing such information (15).
This article seeks to portray the innovative behavior of top global firms by analyzing their R&D spending patterns and patenting behavior. This complements the Industrial Research Institute's Annual R&D Leaderboard (14), as well as the R&D spending patterns of global firms reported here in 1999 and 2000 (16). R&D spending gives the magnitude of investments a firm makes in R&D, but it does not give any idea of the fields in which a firm is active. This paper attempts to give a clearer picture of the current scale and nature of innovative activities of global firms.
How the Firms Were Selected?
The 320 firms were selected from five categories on the basis of sales turnover (revenues) and R&D spending. First, we selected all the 500 firms from the Fortune Global 500 for 2003 reported in 2004. Then, we added firms from the Industry, Week 1,000. Then we examined the following firms:
* The 300 international firms in the UK R&D Scoreboard 2004.
* Top 20 R&D-intensity foreign companies in the "European R&D Firms" list (13).
* Top 20 R&D-intensity EU firms.
Finally, we eliminated all banking, trading and service firms whose annual reports did not report any R&D spending and all firms that spent less than US$ 80 million annually on R&D. The top 320 R&D spending firms from this list are covered here. The R&D expenditures for the major firms were compiled from their annual reports and the Edgar Database of the U.S. Securities and Exchange Commission, www.see.gov
Next, we classified the firms by industry group according to the Standard Industrial Classification (SIC) System and the source of the major share of their business income. For example, NEC comes under electronics whereas Canon is classified as a computer business firm.
The patents granted to these firms were obtained from the Delphion patent database. The totals include patents granted to subsidiaries and the parent firm. Next, an analysis of patents by UPC code is made to find the dominant class in which a firm has patents. This can be broadly called the firm's revealed competitive advantage. This study thus complements other R&D Scoreboards by the inclusion of factors that can provide additional dimensions of knowledge intensification apart from R&D spending.
Table 1 presents the sales, R&D expenditures and R&D expenditure as a percentage of sales (R&D intensity) for the major firms in each industry category in 2004.
Table 2 displays the patents granted for the top five firms in R&D-intensive industry segments, and the number of patents per million US$ R&D spending. There is considerable variation in the number of patents generated per unit R&D spending, even within the same industry segment. Table 2 also indicates the three dominant classes in which a firm has the largest share of patents. The classes are three-digit U.S. patent classes, and represent a firm's areas of focus. Table 2 also lists the major knowledge-providing firms and universities that have assigned patent rights to the firm.
R&D Spending Trends
R&D spending by 320 global firms continues to increase in most of the industry segments. Biotechnology, computers, personal products, and metals reported an increase in R&D spending but a decrease in R&D intensity. Electronics, food processing, pharmaceuticals, and telecom are the segments in which the intensities increased in 2004. R&D spending as a percentage of sales is the highest in the case of biotechnology; pharmaceuticals and networking are the next highest.
Patents per million US$ R&D spending is the highest for Hitachi, followed by Applied Materials, Canon, Agilent, and Fujitsu (Table 2). The dominant classes are also shown in Table 2. When one compares the dominant classes of patents, one sees major shifts in the areas of focus of global firms. The areas reported in 1998 are given in an earlier study (16).
The earlier observation that firms are increasingly acquiring knowledge from sources outside the firm is becoming more evident, except in software, although the acquisition may represent a small proportion of the total intellectual assets.
The number and share of patents assigned by various sources for six selected firms are presented in Table 3. In the case of Toyota, about 35 percent of patents are sourced from outside the parent firm. Amgen and Pfizer are similar, whereas Hewlett Packard, GM and DuPont source only a small share from external sources.
Pharmaceuticals, chemicals and biotechnology firms have been increasingly using distributed innovation systems. It has been reported that of the 691 drugs approved by the U.S. Food and Drug Administration since 1963, 38 percent of the new chemical entities approved were developed through alliances (17).
Intense competition will induce firms to acquire knowledge …