Assessing the Impacts of Changes in the Information Technology R&D Ecosystem Retaining Leadership in an Increasingly Global Environment (2009) / Chapter Skim
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4 A Globalized, Dynamic Information Technology R&D Ecosystem
4 A Globalized, Dynamic Information Technology R&D Ecosystem
Pages 106-148
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From page 106... ...
Most U.S.-based technology companies are now global from birth, driving innovation through collaborations with foreign technologists. For example, Figure 4.1 shows the significant increase from 1990 to 2005 in joint patenting by Silicon Valley inventors working with global teams.
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Finally, this offshoring initially was for the manufac ture of goods, but recently it has extended to the production of software and IT services. The Offshoring of U.S. IT Jobs According to a recent study by the McKinsey Global Institute, the offshoring of work is more prevalent in the IT sector than it is in any of the other U.S.
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The Case of Apple's iPod," Personal Computing Industry Center, University of Cali fornia, Irvine, June 2007.
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The McKinsey report concludes that although the potential talent pool in low-wage companies is large and growing rapidly, only 17 percent of the potential engineering talent supply is suited for work with international companies. The report explains the reasons for its conclusion, which was based on interviews with 83 human resource managers in multinational companies: the reasons are McKinsey Global Institute, The Emerging Global Labor Market, June 2005, available at http://www.mckinsey.com/mgi/publications/emerginggloballabormarket/index.asp; accessed August 27, 2007. As this report was being prepared for publication, a continued weakening of the U.S.
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See Rafiq D ossani, India Arriving: How This Economic Powerhouse Is Redefining Global Business, American Management Association, New York, N.Y., 2007, for a discussion of how institutions of higher education in India are responding to this shortage. McKinsey Global Institute, The Emerging Global Labor Market, June 2005, available at http://www.mckinsey.com/mgi/publications/emerginggloballabormarket/index.asp; accessed August 27, 2007.
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Continued Strong Demand for IT Workers According to data collected by the U.S. Department of Commerce, there are more professional IT workers in the United States today than ever before; "IT professional workers" in this case are defined as computer support specialists; computer programmers; computer systems analysts; computer software engineers; applications, computer, and information systems managers; computer software engineers; systems software, network, and computer systems administrators; all other computer specialists; network systems and data communications analysts; database administrators; computer hardware engineers; computer and information scientists; and computing researchers.
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For computer/information scientists, the overall unemployment rates were 2.5 percent in 2006 (down from 4.0 percent in 2003) .12 Also, according to a 2006 survey from NSF, the median salary level for computer and information science graduates with bachelor's degrees was $45,000 (the median for all science and engineering fields was $39,000)
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of those intending to major in computing and information sciences averaged 478, far lower than the mathematics scores for those intending to major in other scientific and mathematical disciplines. These statistics not only point to a sharp decline in the number of students entering the IT educational pipeline, 15 but also raise a concern about the skill sets of those attracted to the discipline.
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From page 114... ...
Gates, Chairman, Microsoft Corporation and CoChair, Bill & Melinda Gates Foundation, Before the Committee on Science and Technology, United States House of Representatives, March 12, 2008," available at http://democrats. science.house.gov/Media/File/Commdocs/hearings/2008/Full/12mar/gates_testimony_ 12mar08.pdf; accessed March 17, 2008.
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Lack of leadership on high school computer science education at the highest legislative and policy levels has resulted in insufficient funding for classroom instruction, resources, and profes sional development for computer science teachers. In addition, complex and contradictory teacher certification requirements as well as salaries that cannot possibly compete with industry make it exceedingly difficult to ensure the availability of exemplary computer science teachers.
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For an entrepreneur seeking to build a globalclass IT firm, it was necessary to come to the United States -- and many entrepreneurs did. It was in the 1990s that venture capital industries in Taiwan and Israel began growing, with the Taiwanese venture capitalists funding manufacturing firms such as Quanta Computer Incorporated and AsusTek Computer; in Silicon Valley they funded start-ups particularly 24Computer Science Teachers Association (CSTA)
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For both countries, strong relationships with the United States and U.S. venture capitalists were important for their growth.28 Changing Patterns in Global Venture Capital For at least the past three decades, the U.S.
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U.S. venture capitalists began building linkages with venture capital firms in other nations and, if and when there was a sufficient deal flow, contextual understanding, and relationships, they developed more permanent foreign operations abroad.
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Such investments require relatively little technological innovation but can be very successful, as the Chinese market and online population are already very large and growing 30Martin Haemmig, Martin Haemmig International, presentation to the committee, data on cumulative capital invested in IT by region and sector, based on Ernst & Young data, Mountain View, Calif., February 23, 2007. 31Ernst & Young, Acceleration: Global Venture Capital Insights Report 2007, 2007, available at http://www.indiavca.org/upload/library/29_E&Y_Global_VC_Insight_Report_2007.pdf; accessed November 17, 2008.
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As long as the U.S. venture capitalists retain their edge in the soft skills required to build successful start-up companies, they will remain at the center of gravity of the global start-up deal flow and will likely retain their centrality despite this globalization.
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From page 121... ...
venture capitalists continue to invest more than those of any other nation in the IT fields: in the first half of 2006 they invested $7.15 billion in IT, with the software and communications segments receiving the most capital. In the first half of 2006, the rest of the world's venture capital investment in IT firms was not even one-third that of the United States.33 Nevertheless, the percentage of venture capital investment in IT declined from 66 percent of the U.S.
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ecosystem -- particularly given its increasingly global nature. Symptoms of these frictions can be found by examining the data on technology company initial public offerings, technology company mergers and acquisitions (M&As)
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page=notice&iden=B; accessed August 28, 2007. Data on initial public offering and merger and acquisition transactions from Paul Deninger, Jeffries and Company, presentation to the committee, Boston, Mass., April 19, 2007, citing data from Ernst & Young.
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IT R&D ecosystem. Moreover, there are indications that older laws and regulations have not been fully adapted to the chang 39Paul Deninger, Jeffries and Company, presentation to the committee, citing data from Jeffries Broadview Global Mergers 7 Acquisitions database, Boston, Mass., April 19, 2007.
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19. 42According to Bessen and Meurer, the number of patent lawsuits filed annually in the United States doubled during the 1990s, from almost 800 in 1990 to almost 1,600 in 1999; their research also "suggests that patent litigation can affect innovation incentives." James Bessen and Michael Meurer, "The Patent Litigation Explosion," paper presented at American Law and Economics Association Annual Meeting, 2005, p.
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• It costs more to defend oneself. It is possible for companies that never produce or commercialize a product to extract relatively high 47American Intellectual Property Law Association, 2003 Report of the Economic Survey, Arlington, Va., 2003; and American Intellectual Property Law Association, 2005 Report of the Economic Survey, Arlington, Va., 2005.
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Key elements of a successful reform of the U.S. patent litigation system might include the following: • Clear standards for forum selection that curtail the ability of plaintiffs to file infringement actions in jurisdictions most likely to favor plaintiffs; • Reforms that direct courts to calculate the royalty or damages awards on the basis of a consideration of the proportionate value of the patentee's contribution to the product in question rather than on the full value of the entire product; • Provisions of current law that have never been interpreted to permit the recovery of worldwide damages in U.S.
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It was not a typical high-growth, sub-$100 million technology company led by creative entrepreneurs and technologists and funded by U.S. venture capitalists.
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Yet even as many firms in the IT industry reduced the size of their research laboratories, Microsoft and Intel established and greatly expanded their own industrial research activity. out into start-ups and enter by way of acquisition or merger.
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The strategic question of whether not having a laboratory to develop new business opportunities places a firm in danger of being outflanked in the rapidly changing IT industries has not yet been satisfactorily answered. The wisdom in Silicon Valley prior to the 1990s was that purchasing start-ups was futile.
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4See "Intel Research Network of Labs," available at http://techresearch.intel.com/articles/ None/1475.htm; accessed August 22, 2007; and "Network of Labs Home," available at http:// www.intel-research.net/; accessed March 27, 2008.The U.S. lablets are in Berkeley, California; Pittsburgh, Pennsylvania; and Seattle, Washington.
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From page 132... ...
Yet the size and scale of the systems and applications that they are building place them at the research frontier in many areas. Even here, however, competitive pressures and time to market make it difficult to come up with the sustained investments necessary to tackle truly fundamental research problems.58 The Funding and Organization OF information technology r&d Federal Versus Industrial R&D The principal reason for the dramatic advances in information technology and the subsequent increase in innovation and productivity is the "extraordinarily productive interplay of federally funded university research, federally and privately funded industrial research, and entrepreneurial companies founded and staffed by people who moved back and forth between universities and industry."59 This flow of ideas and people, stimulated by investments in research, is a critical element of the IT R&D ecosystem.
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research and development funding across all fields of Figure 4-2.eps science and engineering, 1954-2004, by source. Source: Computing Research Association.
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As Litan, Mitchell, and Reedy have found, the type of technologytransfer organization (TTO) established by a university, as well as the metrics chosen for evaluating the TTO's effectiveness and the incentives offered for entrepreneurial activity by the university community, can foster or impede technology transfer to industry.60 One common arrangement is a centralized TTO (which receives all faculty invention disclosures and negotiates all licenses)
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In its 1999 report Information Technology Research: Investing in Our Future,62 the President's Information Technology Advisory Committee (PITAC) argued in great detail for a doubling over a period of 5 years of the federal investment in IT R&D, noting that "critical problems are going unsolved, and we are endangering the flow of ideas that has fueled the information economy," and describing the level of investment at that time as "dangerously inadequate." Comparing the targets for annual increases set in the PITAC report (Table 4.5)
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As Figure 4.4 clearly shows, not only does the federal investment in IT R&D included in "Math and Computer Science" pale in comparison with the investment in "Biomedical Sciences," but it is smaller than the investment in "All Other Life Science," "Engineering," "Physical Sciences," and "Environmental Science" -- exceeding only the investment in "Psychology" and "Social Science"! Table 4.5 Funding Increases for IT R&D Recommended by the President's Information Technology Advisory Committee, FY 2000 FY 2004 ($ millions)
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Source: Computing Research Association. Figure 4-5.eps Indeed, America's public investment in civilian (nonmilitary)
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. One leg consisted of modest grants provided by the National Science Foundation67 and the Defense Science Offices (Office of Naval Research, Army Research Office, and Air Force Office of Scientific Research)
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Howells III and Kevin B Barefoot, "Annual Industry Accounts -- Advance Estimates for 2006," Survey of Current Business, Table B, May 2007, Bureau of Economic Analysis, Washington, D.C., available at http://bea.gov/scb/pdf/ 2007/05%20May/0507_annual_industry_accounts.pdf; accessed August 28, 2007.
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One dimension of the data not made obvious in this table is the increas ing level of support from foreign firms for MIT's research. Quanta Computer, a major manufacturer of personal computers based in Taiwan, has entered into a long-term, $20 million research agreement with MIT to investigate what will come "beyond the notebook computer."2 Nokia, a major manufacturer of telecommunica
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With DARPA's shift away from its traditional support for university-based information technology research in this decade, this third leg of the stool, critical for the field's success in the past, has largely been lost. In 2007, however, the NSF Directorate for Computer and Information Science and Engineering (CISE)
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The mid-1980s saw the emergence of DARPA's Strategic Computing Program (SCP) to apply artificial intelligence (AI)
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The program laid the foundation for today's scalar cluster-based processors and storage systems on which virtually every major Web site depends. By the mid-1990s, DARPA deemphasized its in vestment in high performance computing, with the technical leadership shifting to the Department of Energy Accelerated Strategic Computing Initiative (ASCI)
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The university HPCC community found it increasingly difficult to receive critical funding to sustain the project teams that had been formed during the earlier stages of HPCC, particularly in areas of computer architecture, parallel software, and internetworking. In 1998 the Next Generation Internet Research Act (Public Law 105-305)
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From page 145... ...
McKersie, The Transformation of American Industrial Relations, Basic Books, New York, N.Y., 1986; Peter Cappelli, Laurie Bassi, Harry Katz, David Knoke, Paul Osterman, and Michael Useem, Change at Work, Oxford, New York, N.Y., 1997; Paul Osterman, Broken Ladders: Managerial Careers in the New Economy, Oxford University Press, New York, N.Y., 1996; Paul Osterman, Securing Prosperity: The American Labor Market: How It Has Changed and What to Do About It, Princeton University Press, Prince ton, N.J., 1999; and Paul Osterman, Thomas A Kochan, M
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From page 146... ...
The shift from permanent to contingent employment became particularly widespread in IT centers and among high-technology firms.73 The Bureau of Labor Statistics reported that, by 1995, 40 percent of all programmers and 29 percent of other IT workers were either contingently employed or worked through outsourcing firms.74 In Silicon Valley, contractors often comprise between 15 and 30 percent of the labor force.75 Data on employment turnover are consistent with the demise of employment security and stable relations between employers and employees. Between 1983 and 2004, average tenure with one's current employer fell by 2.1 years (from 7.3 to 5.2 years)
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The employment relationship thus became the cornerstone of America's social safety net, but as the health care costs and pension obligations have risen and as job security has fallen, an increasing number of employers have ceased providing either benefit to workers. Between 1979 and 2004, the percentage of Americans with employer-provided health insurance fell from 69 percent to 56 percent.
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148 assessing the impacts of changes in the it R&D ecosystem benefit plan fell from 62 percent to 20 percent. Conversely, during the same period the percentage of the workforce covered only by a definedcontribution plan grew from 12 percent to 63 percent.
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