the globalization of r&d: china, india, and the rise of...
TRANSCRIPT
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The Globalization of R&D: China, India, and the Rise
of International Co-invention
Lee Branstetter, CMU and NBER
Guangwei Li, CMU
Francisco Veloso, Catolica, CMU
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In conventional models, innovative capability takes time to develop
Agriculture
Light manufacturing
Time
Per capita GDP
(Vernon, 1966; Stigltz,1970;Grossman & Helpman, 1989)
New technology creation
Complex manufacturing
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China and India are still at an early stage in the development process…
$46,860
$42,783 $40,274
$20,756 $18,558
$10,816 $9,522
$7,274
$4,382
$1,371
United States Japan Germany Korea Taiwan Brazil Mexico South Africa China India
GDP per capita 2010
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But China and India are already innovating
Total number of USPTO patent grants
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Experts have pointed to the rise of innovation in China and India as a potential challenge for our models…and for the U.S. and other advanced economies
Daniel Trefler and Diego Puga (2010) – “Wake up and smell the ginseng!”
Richard Freeman (2006) – Rapid convergence of China/India to U.S. patterns of comparative advantage could
create new competition for U.S. high-tech exports
Paul Samuelson (2004) – The same textbook models that illustrate the benefits of U.S. trade with China and
India also illustrate how those benefits could vanish if the convergence in comparative advantage is complete
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A careful look at patents granted by the USPTO to inventors based in China
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China and India differ from Taiwan and Korea in the composition of their innovation surges
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The innovation surges in China and India are driven by MNCs
Majority of patents are owned by MNCs
About half are co-invented
The important role of MNCs in the international invention explosions of China and India may help explain why they are occurring at a early stage of economic development.
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Agenda
Using U.S. patents to map out innovations in China
Insights from a field study
Regression analysis of China-generated U.S. patents
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Chinese domestic patent data suggest an explosion of innovation…
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But the numbers of “true” patent grants (invention patents) are much smaller…
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A significant fraction of Chinese invention patents are awarded to foreign inventors…
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US firms aggressively patent their inventions in other major markets…
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5
10
15
20
25
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U.S. Europe Japan Two Triadic
Markets
Three Triadic
Markets
U.S. applicants
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But the top 100 indigenous Chinese applicants patent only a small fraction of their inventions outside China
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5
10
15
20
25
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U.S. Europe Japan Two Triadic
Markets
Three Triadic
Markets
U.S. applicants Chinese applicants
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We are not the only ones who question the value of Chinese patent grants
Brian Wright and his students have found that Chinese indigenous inventors inflate their patent applications to meet local government targets…
…And to benefit from local government subsidies
Domestic patents of low quality can also be an asset in an evolving legal system that struggles to distinguish between a good patent and a bad patent
The number and growth rate of domestic patenting may (substantially) overstate the true innovation of indigenous Chinese firms
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Breakdown of USPTO patents assigned to Chinese inventors by assignee nationality and technology field
Assignee Nationality Technology Field
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China’s “Special Innovation Zones”
Guangdong �
“Greater Shanghai” �
Beijing �
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Agenda
Using U.S. patents to map out innovations in China
Insights from field study
Regression analysis of China-generated U.S. patents
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Interviews of China-based (and India-based) multinational R&D personnel
Time: December 2009
Locations: Beijing, Shanghai
Main interviewees: researchers or directors including inventors listed on U.S. patents from six multinational R&D subsidiaries
– 4 research facilities affiliated with U.S .firms
– 1 industrial university cooperative research center fully sponsored by a Taiwanese firm
– 1 European chemicals and pharmaceuticals firm
Discussions with China-based academic experts
Telephone conversations with high-level multinational managers in China and India.
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Lessons from interviews
International “co-invention” is a real phenomenon, not just an artifact of patent data
MNCs see China- (and India-) based engineers as an essential resource for their global R&D operations
MNC operations in China (and India) are re-engineering Western products for local markets AND creating new technology for global markets
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Agenda
Using U.S. patents to map out innovations in China
Insights from field study
Regression analysis of China-generated U.S. patents
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Model: Poisson Quasi Maximum Likelihood Estimation
C is the total number of non-self citations China-based patent i receives as of the end of 2010.
Coinv, MNC are dummies indicating the patent was created by an international team and/or assigned to a multinational
PatStock is the assignee f’s three-year patent stock before the date of application.
TeamSize is the total # of inventors on the patent.
H = technology fixed effects and T = time fixed effects.
Are co-invented / multinational sponsored patents are of higher quality within China?
Baseline of comparison: USPTO patents owned by indigenous firms �
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Cross-firm Comparison within China
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How does team composition affect the quality of patents produced by the same multinational in different countries?
Coinv, Domestic are dummies denoting whether or not a patent is created through co-invention or by a purely Chinese team.
f denotes firm. F controls for firm fixed effects.
Baseline of comparison: USPTO patents created by inventor teams entirely resident in the MNC’s home country �
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Cross-border Comparisons within MNCs (China)
• Consider only patents assigned to MNCs from 1996-2009. • Match with comparable patents created solely by inventors in MNC home county. • Same firm assignee, three-digit technological class, grant year.
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Over time, the relative quality of MNCs’ China-generated patents has increased substantially
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How does the “invention quality” gap between MNCs and indigenous firms change over time?
Divide data into 3 periods according to grant year: – <2000
– 2000-2004
– 2005-2009 Model: add interaction terms to cross-firm model
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China: the gap b/w co-invention and purely Chinese invention is disappearing; the gap b/w MNCs and Indigenous firms remains
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Observations Within the border, across firms
Co-invented patents are of higher quality (as measured by forward citations) than patents created by indigenous inventors, both for China and India.
Patents under the sponsorship of MNCs are of higher quality than those under the sponsorship of indigenous enterprises in China.
A patent quality gap b/w MNCs and indigenous firms persists in China and India, a quality gap b/w co-invented and indigenous patents persists in India
Within the same MNC, across borders
Aggregating over time, co-invented and purely Chinese-invented patents are equivalent in quality to patents generated in the home country.
China-generated patents have risen sharply in relative quality over time
India-generated patents are of lower quality than patents generated in the home country.
Evidence of relative quality improvement in India is weaker than in China.
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Conclusions and implications
Our research suggests that R&D processes can now be disaggregated into multiple stages, which are then located where they can be undertaken most effectively.
China’s (and India’s) rise in international patenting surge is driven largely by multinational firms based in advanced economies.
Simply counting Chinese patent grants significantly exaggerates real innovation by indigenous Chinese firms.
Can China and India breathe new life into the Western innovation machine?
– Jones (2009) suggests diminishing productivity in R&D as the “burden of knowledge” rises.
– But this can be offset by plugging enough new scientists into a globalized innovation process.
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Cross-firm Comparison within India
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Cross-border Comparisons within MNCs (India)
• Consider only patents assigned to MNCs from 1996-2009. • Match with comparable patents created solely by inventors in MNC home county. • Same firm assignee, three-digit technological class, grant year.
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The relative quality of MNCs’ India-produced patents has not grown like their China-produced patents
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India: the gap b/w co-invention and purely Indian invention persists
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And this helps drag patent renewal rates in China well below those of any other major patent jurisdiction
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Lessons from interviews (1)
“Vertical specialization” exists in the R&D process (Krugman, 1995; Hummels, Ishli & Yi, 2001; Yi, 2003); there is an international division of research labor
The division of labor is not always simply “high-end in the West, low-end in China (or India)”
The main reason for going to China (or India) is to tap the local talent pool
Re-engineering products for the Chinese market (and the Indian market) is a source of co-invention
Modern telecommunications technologies play a critical role in international R&D collaboration
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Lessons from interviews (2)
MNC executives tended to regard the innovative capacity of indigenous firms as well behind that of the leading MNCs
This was confirmed by an indigenous Chinese engineer who left a multinational to work at a local firm … then came back!
The managers and engineers working in the local firms are quite capable…
But the iron law of comparative advantage leads them to focus on being low cost manufacturers rather than product innovators