Safe Nests in Global Nets - Innovation and IP
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Safe Nests in Global Nets - Innovation and IP

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This presentation and related paper contributes to research providing a new interpretation for the appropriability of critical industrial R&D, and in general to the literature on internationalization ...

This presentation and related paper contributes to research providing a new interpretation for the appropriability of critical industrial R&D, and in general to the literature on internationalization and maturation of R&D off shoring.
Critical R&D projects and technologies remain home-bound even in very large multinationals. Why? I was able to discuss the result of my quantitative empirical analysis directly with the managers involved in key decisions relating to the development of some of these technologies.
Their viewpoint suggests the presence of what I have defined “Safe R&D nests”. I will discuss that such “safeness” derives by a close coordination between scientific and technological research and management of intangible assets.

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  • A presentation based on a collaborative paper and ongoing work between Alberto di Minin, presently at Sant ’ Anna School of Management, and myself as part of a joint project between the Research Institute of the Finnish Economy and University of Berkeley in California. Project focusing on changing terms of competition in the ICT industry. Partly also funded by Tekes and Nokia.
  • Taking a long-term viewpoint on structural changes in the world economy…
  • Provoked by one of the last remarks of the Patel and Pavitt work: “we expect to see greater internationali[z]ation of large firms’ technological activities in the future”, this study replicates in part the empirical approach of the two scholars, and contributes to update the case for non-globalization and to apply this to an industry, such as the wireless telecommunication, that shows all the symptoms of a rising level of internationalization, for both demand and production. We will ultimately try to answer the question, if indeed something is moving offshore, what does stay and what does go?
  • Turning to the background drivers for R&D globalization (when R&D is treated as a black box). First, emphasis on demand factors and home-based exploiting strategies. Thereafter also supply factors stressed and home-based augmenting strategies. Recently shift towards various ‘ softer ’ factors relating to the efficiency that specific locations provide to companies for coupling demand and supply factors to their competitive advantage. These might, for example, relate to creative environments, cultural issues etc.
  • … by the face of it the wireless telecom industry is one where all the hallmarks of globalization are present by the face of it
  • Patent data as an indicator of location of IA – a long tradition in the literature, validated and assessed in various articles European Telecom Standardization Institute (ETSI). An independent, non-profit organization, whose mission is to produce telecommunications standards for today and for the future. ETSI systems of notification of patents to secure cross-licensing and avoid deadlocks if one company gains a dominant technological position vis-à-vis a particular standard Strong incentive to notify in order to avoid litigation cases further downstream when new products are introduced and in order to lobby in favor of a particular technological solution in a standard ES patents thus have a higher strategic significance and most likely also a higher economic value as they create (i) royalties due to cross-licensing once the standard is adopted, and (ii) become part of products for a new market once the standard is adopted Focus on these 4 companies as the top owners of ES patents, covering altogether 64% of all ES patents
  • The essential patent data mainly covers standards related to the GSM, GPRS and UMTS path of second and third generation standardization prevailing in Europe. These standards have been major ones in the industry although new solutions and standards also are entering, sometimes referred to as beyond 3G or 4G standards
  • Breakdown of ES and CG patents by companies. Qualcomm stands out here with a relatively much higher share of ES compared to the left. Reflects their specific business model focusing on developing enabling technologies for other companies in order to earn on licensing and royalty fees In the table also the forward citations to patents of these companies across ES and CG patents. Forward citations capture the number of subsequent citations to these patents as a very rough indicator of their technological/economic value. These findings partly validate the use of ES patents as an indicator to differentiate between different types of R&D. … and again note the different nature of Qualcomm in this industry as reflected in higher citation values
  • Definition of the degree of globalisation of R&D through patent data…
  • … these results remain even when weighting patents by their significance measured by forward citations…
  • … the story is also true especially for the case of Ericsson and Nokia…
  • … although not as striking for the US companies Motorola and Qualcomm when looking at the US as one entity … however, when the data is broken down by US states we also see the importance of the ‘ home states ’ by HQ of these two companies, namely Illinois for Motorola and California for Qualcomm
  • Our multivariate analysis confirms the discussion presented so far. The probit models that we used allow us to control for a number of characteristics of the invention and the patent. The models summarized in Table 3, suggest that inventive activity related to essential patents tends to be relatively more homebound than that related to non-essential patents. In other words, the essentiality of a patent is a significant predictor for the domestic location of inventors. This holds true both when we use county-level, and state-level specifications of homeboundness. When compared with the control group, essential patents have a 10% to 20% higher probability to result from inventive activity performed in the headquarter country (model a) or state (model c) only. In the model we use the priority year as a basis in defining a set of annual time dummies. Consistently with general understanding of R&D internationalization in wireless telecom, the coefficients show greater internationalization over time. In particular, patents since the late 1990s have a 10%-20% higher chance to be authored by a not exclusively domestic team, than patents whose priority is in the early 1980s. See appendix 1 for the full model specification and appendix 2 for the descriptive statistics. In models (a) and (c) we looked at homeboundness of essential patenting in general. In models (b) and (d) we interact firm dummies with essentiality, to better interpret the firm-specific homeboundness of essential patenting. When we define domesticality at the country level (model b), the coefficients for the two American companies in the samples appear not to be significant. If we use state-level specification, as in model (d), the interactive coefficient for Motorola becomes significant. In the Qualcomm case, the data does not allow us to conclude that inventors’ location related to essential patents is more homebound, but this is consistent with the fact that Qualcomm up to 2001 had little R&D activity outside California. Finally, if we compare the coefficients for the four companies in model (d), we can infer that the domestic bias is similarly strong for Ericsson and Motorola, and significantly weaker (but still present) for Nokia. Nearly all of Qualcomm’s R&D was homebound and thus the non-significance of the coefficient is driven by the lack of the comparison group.
  • The literature discusses about two dimensions of maturation of an R&D subsidiaries: -growing local know how, creating the “critical mass” to get the lab started and productcitve -making sure that the lab is connected to the other centers of the network, and there are efficient flows of communication between the various labs -When we look at the inventive activities in the wireless industry, mangares suggested us to look at a third dimension and in particular the level of coordination between local R&D activities and IP strategies at the company, which usually is centralized. Patents developed in the peripheral labs, far from the supervision of IP managers, with little coordination between IP and R&D managers have a lesser chance to make R&D results more appropriable, than say patents developed domestically. This results into a bias, when it comes to key strategic R&D activities to favor a local sourcing for the technological development of these projects

Safe Nests in Global Nets - Innovation and IP Safe Nests in Global Nets - Innovation and IP Presentation Transcript

  • Innovation and IP Management Safe Nests in Global Nets How do multinationals invest in R&D Alberto Di Minin Istituto di Management Scuola Superiore Sant’Anna & BRIE (Berkeley Roundtable on the International Economy) U.C. Berkeley Content of this presentation is published as: Di Minin, A., & Bianchi, M. 2011. Safe Nests in Global Nets: Internalization and Appropriability of R&D in Wireless Telecom. Journal of International Business Studies, 42(7): 910-934. http://dx.doi.org/10.1057/jibs.2011.16
  • The relevance of IP Management for Open Innovation• Open Innovation is connected to the concept of Appropriability• Opening without a clear IP strategy is dangerous• What do we know about IP Management?• Investigating large companies IP Management is not easy05.07.12 2
  • Changing division of labour in manufacturing…will R&D follow? Asia (China, India, Japan) Share of Global Manufacturing Output50% Europe (8 countries) N. America (Canada & US) 1750 1800 1850 1900 1950 2000 Source: Bairoch 1982 (updates: ETLA).05.07.12 3
  • “We expect to see greater internationalization of large firms’ technological activities in the future…” Patel, P & Pavitt, P. 1991. ibid. …this research project started from here 05.07.12 4
  • Empirical analysis: Research Question Can we find evidence of “Non Globalization”?05.07.12 5
  • 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 mfg. plantsSupply 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 norms05.07.12 6
  • 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 tastesSupply factors• Technological convergence, emerging/new ‘centers of excellence’ (Eastern Europe, China, India etc.), supply of both high skilled and low cost engineersIntermediating factors…?• Interoperability and modularization, integration of technologies developed worldwide…05.07.12 7
  • …but also an interesting area for Collaboration and Open Innovation practices! • Standardization of wireless communication • 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 USPTO (US) Patents Assigned to the 4 Companies*SAMPLE (ES): CONTROL GROUP (CG): 537 USPTO 4,358 USPTO PATENTS Int. Prot. PATENTS Patents in the same technology Essential classes Patents * For US companies solely US patent families excluded from analysis 05.07.12 8
  • 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 200005.07.12 9
  • Distribution of patents across the 4 companies Total Ericsson Nokia Motorola Qualcomm Patents (assigned between 1985-2005) Essential 537 241 72 85 139 Patents Control 4 358 1 752 1 012 1 160 434 Group Patents 2Years 4.02 (ES) 3.31 (ES) 3.36 (ES) 3.01 (ES) 6.21 (ES) Fwd Citations / 2.31 (CG) 2.12 (CG) 2.15 (CG) 2.47 (CG) 3.03 (CG) Patents05.07.12 10
  • Location Analysis• 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 countries05.07.12 11
  • FO-CO-DO distribution of patents Essential Patents Control Group FO 11% FO CO 29% 11% CO DO DO 7% 64% 78% Pearson Chi-Square for DO * Essential : 41.5 (.01 significant) Pearson Chi-Square for FO * Essential : 77.5 (.01 significant)05.07.12 12
  • ERICSSON Company level NOKIA Essential Patents Essential Patents FO CO FO 19% 8% 6% DOCO 86%18% DO 63% Control Group Patents FO 21% DO 37% DO Pearson Chi- Pearson Chi- 72% COFO Square for DO * Square for DO *54% 7% Essential : 59.4 Essential : 6.4 (.01 significant) (.01 significant) CO05.07.12 9% 13
  • Company level MOTOROLA QUALCOMM Essential Patents Essential Patents FO MA Other CO OTH_US 10.6% CO FO 8.2% FL 2.3% 7.1% 2.3% AZ 2.2% 2.2% 4.6% 0.7% IL DO 80.5% DO 84.7% 95.7% TX 10.3% CA P Chi-Square 88.7% P Chi-SquareP 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 MA OTH_U 4.3% S Other MA FO AZ 5.7% 9.8% CO FO 2.4% CO 7.9% 10.5% 6.9% 3.2% 4.4% NC IL 0.1% 44.6% DO FL DO 18.8% 89.9% 87.7% TX CA CA 12.8% 3.1% 87.6% 05.07.12 14
  • Multivariate AnalysisDependent variable: All inventors from the All inventors from the All inventors from the All inventors from the headquarter country headquarter country headq. country/state headq. country/state (a) (b) (c) (d) W/o Ess. × Firm With Ess. × Firm W/o Ess. × Firm With Ess. × Firm Coeff. Sig. Coeff. Sig. Coeff. Sig. Coeff. Sig.An ETSI essential patent .132 *** .201 ***An essential patent × Ericsson .173 *** .221 ***An essential patent × Qualcomm .063 .027An essential patent × Motorola -.066 .290 ***An essential patent × Nokia .126 ** .164 **The patent assignee is Qualcomm .348 *** .354 *** .361 *** .386 ***The patent assignee is Motorola .356 *** .368 *** .002 -.004The patent assignee is Nokia .256 *** .262 *** .322 *** .326 ***McFaddens pseudo R2 .204 .206 .127 .129Count R2 .761 .760 .681 .680Note: Estimated with Stata 9.2 for Windows.The reported coefficients are marginal effects for discrete change of the dummy variable in question from 0 to 1.Control variables are: years dummy, technology classes, number of claims, See the appendix for th complete regression results.**=5% significance and ***=1%significance.Observations: 4,895. 05.07.12 15
  • Findings• The Patel Pavitt paradox remains! – In a very globalized industry we still see strongly homebound inventive activities once ‘R&D’ is dissected by economic/technological/strategic content – Concentration in the headquarters• Why is this happening?05.07.12 16
  • 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 industry05.07.12 17
  • Conclusions: Developing and Managing Islands of Appropriability Maturation of R&D SubsidiaryDEVELOPMENT OF LOCAL R&D AND IPLOCAL EXPERTISE MANAGEMENT PLUG INTO THE GLOBAL NETWORK Centers of Appropriable Excellence Int.l R&D Safe Nests Organization
  • To be continued Special issue on California Management Review “IP Management: in search of new practices, strategies and business models” Supported by the European Patent Office05.07.12 19
  • Grazie per l’attenzione Di Minin, A., & Bianchi, M. 2011. Safe Nests in Global Nets: Internalization and Appropriability of R&D in Wireless Telecom. Journal of International Business Studies, 42(7): 910-934. http://dx.doi.org/10.1057/jibs.2011.16 www.diminin.it05.07.12 20