R&D Spending Patterns of Global Firms: Analysis of the R&D Spending and Patenting by 320 Global Firms Reveals the Continued Dominance of U.S. Firms along with a Shift toward Distributed Innovation Systems

Article excerpt

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. …