Innovation in Global Industries U.S. Firms Competing in a New World (Collected Studies) (2008) / Chapter Skim
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2 Software
2 Software
Pages 53-100
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From page 53... ...
Moreover, evidence from software patents suggests that inventive activity in software continues to be concentrated in the United States. In the short run, the United States will continue to enjoy a significant lead over other countries in the stock of highly skilled programmers and software designers that provide it with an advantage in the production of new software products.
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From page 54... ...
First, there is a supply value chain in which software creators develop software artifacts that provide value for the end user. This part of the software value chain consists primarily of design and development activities that can be thought of as software "production." In the past this role had been played primarily by independent users, third-party programmers, or independent software vendors creating custom software, but over the past 20 years this role has passed increasingly to independent software vendors creating software products.
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From page 55... ...
Such firms create custom software products for their customers and include firms like CIBER, Inc., Intergraph Corp., and xwave Solutions. The total value created in custom programming and design services was $115,834.6 million in 1997 while total employment was 675,000 in 1997, indicating that both revenue and employment in this sector are greater than that in the packaged software industry.
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From page 56... ...
However, this estimate is likely a lower bound, because it includes only software services conducted through market transactions and excludes software development activities within IT-using firms themselves. The importance of the software requirements value chain has two implications for the measurement of where inventive activity in software takes place.
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From page 57... ...
countries. The figure shows that among OECD countries the United States continues to be the leader by a wide margin in the export of software products, accounting for 21.7 percent of total software exports.
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From page 58... ...
We explore why other countries have not been more successful in developing software products in further detail in the next section. Software Services Figure 3 shows data from the OECD Economic Outlook (2006)
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From page 59... ...
Belgium Spain Austria Singapore Sweden India (1) Canada Denmark Switzerland Korea Indonesia Israel Norway Saudi Arabia Luxembourg Brazil Russia Thailand Australia Lebanon FIGURE 3 Top 30 country shares of reported exports of other business services and computer and information services, 1995 and 2004 (2004 data not yet available for all countries)
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From page 60... ...
. Other analyses report similar difficulties in tracking Indian software services exports to the United States.
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From page 61... ...
... Israel 51 24 32 56 38 13 51 7.96 –13.94 –1.55 China 17 29 46 75 48 51 99 8.76 1.73 4.74 India 9 38 17 55 227 29 256 34.70 9.31 29.21 Imports All countries 286 1,494 498 1,992 2,002 589 2,591 5.00 2.84 4.48 Canada 34 589 9 598 1,189 12 1,201 12.42 4.91 12.32 Europe 122 259 449 708 400 562 962 7.51 3.81 5.24 Japan 20 41 26 67 15 1 16 –15.43 –41.90 –21.23 Asian Tigers 6 18 … … 31 … … 55.98 … … Underdogs Brazil 1 1 1 2 1 ...
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From page 62... ...
In this section we discuss some regional trends that are partially responsible for the geographic variance in economic activity in packaged software and services. Software Producers in Europe and Japan In Western Europe, the software industry has long been dominated by custom software development and software services (Malerba and Torrisi, 1996; Steinmueller, 2004)
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From page 63... ...
Growth for All U.S. Establishments, Selected Industries, 1999-2002 1999 2002 AAGR Information services and data processing services Foreign affiliates of U.S.
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From page 64... ...
argues that weakness in Japanese PC software production was due historically to a fragmented standards environment, while Anchordoguy (2000) argues that the aforementioned proximate reasons were ultimately caused by Japan's economic system of "catch-up capitalism."12 12 particular, she argues that some of the key elements of the Japanese economic system -- includ In ing state targeting policies, its keiretsu industrial groups, bank-centered financial system, and weak intellectual property system -- have been benefited by its development of successful industries in steel, semiconductors, and IT hardware but have hindered the development of its IT software industry.
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From page 65... ...
As this makes clear, the Indian software industry has largely been built around software services rather than products. Athreye (2005a)
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From page 66... ...
. Software product sales are a lagging indicator of inventive activity in software: Could inventive activity in software be picking up in other areas of the world but not yet reflected in product sales?
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From page 67... ...
Graham and Mowery (2003) show that over this period the number of granted software patents has increased dramatically while the propensity of firms to copyright has declined.15 Recent research has shown that the stock of patents is correlated with firm success in the software industry 13 Note that not all inventions also meet the criteria for patentability for the European Patent Office (EPO)
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From page 68... ...
A second issue in using software patents to measure inventive activity in software is identifying exactly which patents are software patents.16 Software patents are not assigned to a particular class or subclass in either the USPTO or International Patent Classification (IPC) schemes.
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From page 69... ...
As we will see, software patenting outside of the United States is relatively rare, so we utilize a conservative definition that includes as many such patents as possible in hopes of achieving an "upper bound" on the stock of software patents invented outside of the United States. However, we recognize that, if the rate of patenting in related technologies outside of software is higher than that inside and if the share of inventive activity in these other technologies is higher in the United States than abroad, then our measure may artificially inflate the gap in software patenting between the United States and other nations.
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From page 70... ...
patents invented in the United States, Japan, other G-7, and all other nations (based on inventor address) by year of patent grant.
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From page 71... ...
We address this potential concern in two ways. First, we look at the location of inventive activity for patents assigned to firms from outside of the United States.
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From page 72... ...
patents assigned to Japanese and Israeli firms were more likely to be invented in the home country than U.S. patents assigned to U.S.
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From page 73... ...
firms are invented in the United States) , then the graph suggests that, even using European software patent data, a large share of the inventive activity in software takes place in the United States.
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From page 74... ...
No other country has had more than 20 patents in any one year, though the number of patents invented in India has risen slightly in recent years, from an average of 0.5 throughout the 1990s to 16 in 2004. Figure 9 shows the number of patents invented in the East Asian Tigers based on inventor location.20 The number of patents invented in these countries is significantly higher than that of the underdogs.
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From page 75... ...
SOURCE: software-9.eps USPTO data and authors' calculations. Assignee Location for Patents Invented Abroad As noted earlier, multinational firms have played a major role in the devel opment of software industries in other countries such as India and Ireland and may be driving the patenting activity by overseas inventors.
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From page 76... ...
software patents assigned to U.S. firms; note that these trends, because they only examine the site of inventive activity for patents assigned to U.S.
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From page 77... ...
Two major facts emerge. First, as noted earlier, the top patenting firms in software are usually not packaged software producers.
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From page 78... ...
1965 IT Hardware 8,800 $2.4 billion United States 3 Richmount Computers Limited 3 Hitachi Ltd. 1920 IT hardware, electronics 323,072 $80.5 billion Japan 3 IBM 1888 IT hardware, software, services 330,000 $91 billion United States 3
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From page 79... ...
1982 Hardware 31,000 $11 billion United States 2 JAPAN Hitachi Ltd. 1920 IT hardware, electronics 323,072 $80.5 billion Japan 1,403 Canon 1937 Imaging 100,000 $35 billion Japan 1,286 Fujitsu 1935 Hardware 158,000 $40 billion Japan 1,127 NEC Corporation 1899 Electronics 148,540 $41 billion Japan 976 Toshiba 1904 Electronics 165,000 $60 billion Japan 820 SOUTH KOREA Samsung 1938 Electronics $80 billion South Korea 460 LG Electronicsc 1958 Electronics 66,614 $23.5 billion South Korea 100 Electronics and Telecommunications 1976 South Korea 55 Research Institute Hyundai Electronics (now Hynix Semiconductors 13,000 $5.6 billion South Korea 49 Semiconductor)
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From page 80... ...
TABLE 7 Continued 80 Year Company was Number of Number Name Founded Industry Employees Revenue Home Country of Patents UNITED STATES IBM 1888 IT hardware, software, services 330,000 $91 billion United States 4,981 Intel 1968 Electronics 99,900 $39 billion United States 1,648 Microsoft 1975 Software 71,553 $44 billion United States 1,136 Sun Microsystems Inc. 1982 Hardware 31,000 $11 billion United States 1,088 Hewlett-Packard Inc.
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From page 81... ...
software industry any time soon. Moreover, though there is some evidence that some inventive activity by U.S.
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From page 82... ...
. One major challenge to offshoring software product development work will result from the difficulty of coordinating software development activity across a globally distributed team.
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From page 83... ...
Despite the considerable work that has been done in examining the challenges of software project management in a distributed environment, there has been heretofore relatively little systematic widespread empirical evidence on how distance from software suppliers impacts firm decisions to offshore software development. Arora and Forman (2007)
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From page 84... ...
This evidence, combined with that on the costs of distributed software development described earlier, suggests that proximity to users is an important determinant of inventive activity in software. The contrast with other products and industries in this volume is informative.
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From page 85... ...
Thus, as long as the United States remains the major market for software products, and the locus of the vast majority of lead users, it is unlikely to lose its technical leadership. SOME RECENT TRENDS AND PROJECTIONS FOR THE FUTURE Trends in Computer Science Education Continued success in any innovative industry like software requires a talented and highly educated workforce.
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From page 86... ...
Figure 14 also shows the number of doctoral degrees granted in mathematics and computer science in selected countries other than the United States. The number of doctoral degrees in computer science and mathematics has recently been increasing in Asian countries such as China, Korea, and Taiwan.
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From page 87... ...
FIGURE 13 Newly declared computer science majors. SOURCE: Computing Research Association and Globalization and Offshoring of Software: A Report of the ACM Job Migration Task Force (2006)
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From page 88... ...
Figure 15 shows that the number of degrees awarded in engineering by India and the United States are roughly similar. Although the numbers of engineering graduates in China are much larger than that of either the United States or India, Gereffi and Wadhwa (2005)
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From page 89... ...
. Overall, the data show that the United States continues to maintain a lead in the production of computer science graduates at all levels.
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From page 90... ...
Figure 17 shows that the annual growth rate in the production of all mathematics and computer science degrees averaged 4.2 percent during the period 1980-2000, significantly less than the average annual growth of 9.3 percent in occupations directly associated with these fields.29 In comparison, over the same period, growth of all science and engineering graduates (including math and computer science) averaged 1.5 percent while growth in all science and engineering occupations averaged 4.2 percent (Table 10)
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From page 91... ...
SOURCE: Science and Engineering Indicators 2006. software-16.eps Employment Doctoral Master's Bachelor's All 0 1 2 3 4 5 6 7 8 9 10 FIGURE 17 Average annual growth of degree production and occupational employment in mathematics and computer science, 1980-2000.
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From page 92... ...
and those with doctoral degrees (18.6 percent AAGR, second only to graduates in engineering and physical sciences among science and engineering graduates)
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From page 93... ...
software industry in the relatively short term, and recent changes in the environment outside the United States can potentially affect immigration flows. The rapid growth in the software industries of countries like India and Ireland has increased the attractiveness of those countries to highly skilled indigenous workers.
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From page 94... ...
CONCLUSIONS AND IMPLICATIONS Public Policy Implications The trends that we have described in this paper have several public policy implications. First, our results have provided evidence of a sizable export-driven software services sector in countries like India and Ireland, though there is less evidence of substantial inventive activity in software going on outside of the United States.
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From page 95... ...
The production of IT services is quite dispersed globally, and this dispersion will only increase over time. In contrast, both sales and inventive activity in packaged software are localized in the United States and undertaken primarily by U.S.
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From page 96... ...
There is already some evidence that improving educational systems and employment opportunities in the underdog countries is causing some skilled software professionals to remain at home or to return. Nonetheless, there are powerful forces at work that are likely to keep the development of new software products and software innovation concentrated in the United States for some time to come.
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From page 97... ...
. The Indian Software Industry: The Human Capital Story.
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From page 98... ...
. R&D in Indian software industry.
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From page 99... ...
. From software services to R&D services: Local en trepreneurship in the software industry in Bangalore, India.
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