Global teams for inventive work

Sari Pekkala Kerr, William Kerr

The globalisation of innovation is proceeding at a fast pace. This column argues that the ethnic composition of a firm’s US-based inventive work force is an important factor in whether the firm engages in international collaborations. Collaborative patents are often utilised when a US public company is entering into a new foreign region for innovative work. This is especially notable in markets with weak intellectual property protections.

The increasingly important role of global inventor teams

The increased globalisation of innovative activities by US multinational companies over the last several decades is striking. Based on data from the Bureau of Economic Analysis (BEA), the share of R&D for US companies conducted by their foreign operations rose from 6% in 1982 to 14% in 2004. Patent data also reveal this trend. The share of patents for US public companies with foreign inventors (using the locations listed on patents to place inventors) jumped from 6% in 1982 to 13% in 2004. In equal measure, foreign firms are placing more of their innovative work in the US.

Several studies dive into this trend, and they are increasingly pointing towards an important role of global inventor teams. For example, Branstetter et al. (2015) carefully dissect the central role of cross-border co-invention teams among multinationals for the sharp rise of patenting in China and India. Surprisingly, these teams can explain at times the majority of patenting observed in these locations. This work also establishes the importance of the cross-border nature of the teams, compared to potentially correlated factors, through interviews of researchers. More broadly, Miguelez (2014) uses World Intellectual Property Organisation inventor records to show how high-skilled diaspora communities enable global inventor teams. Foley and Kerr (2013) study related issues using operating data at the Bureau of Economic Analysis and matched patents. They find higher employment of ethnic inventors in the US by multinationals enables overseas R&D and the formation of new affiliates abroad without the support of local joint venture partners.

Collaborative patents for US public companies: New research

In recent work (Kerr and Kerr 2015), we systematically explore the prevalence and traits of global collaborative patents for US public companies, defined to be where the inventor team is spread across locations both within and outside of the US. We analyse data from the US Patent and Trademark Office (USPTO) for all patents from 1979 through 2009 to compare the global collaborative patents with those where the team is located entirely abroad or entirely in the US. These global teams are becoming surprisingly common – they rise from 1% of US public firm patents in 1982 to 6% in 2004, thereby accounting for a substantial portion of the observed overall growth in global inventive activity. Where are these collaborative teams more likely to be observed? What type of workers in the US are used on these teams? Do they produce weaker or stronger innovations?

Some core findings

A key starting fact is that global teams are quite common for US firms as a share of their overseas activities, as hinted above when comparing the shares listed.

To facilitate analyses described later, we restrict our sample of overseas countries to those of non-Anglo-Saxon origin (thus excluding the UK and Canada, for example) and possessing ethnic naming patterns that we can identify with ethnic name databases. The second restriction is very minor and the sample retains almost all patents made in non-Anglo-Saxon countries by US companies.

Figure 1 shows the shares of these patents that feature a cross-border team with the US. This share mostly rises from about 30% of the patents by the firms in 1985 in these foreign regions to 50% by 2005. Global inventor teams are clearly an important and growing component of the organisation for innovation in these US companies, equal in contribution by 2005 to situations where all inventors are residing abroad at the time of the innovative work.

Figure 1. Collaborative share of patents in region

Notes: Trend depicts the share of patents that are collaborative in nature made by U.S. public companies in regions identifiable with the ethnic-name matching algorithms. Collaborations are defined to be cases where at least one domestic U.S. inventor coauthors the patent with at least one foreign inventor working in the region.

Using the names on the patents and their probable ethnicities – for example, that the surnames Banerjee or Patel likely signal Indian origin, while Wang and Ming are very common for Chinese origin – we identify that about half of this growth in collaborative patents directly connects to an own-ethnicity team, where the ethnicity of the inventor(s) in the US matches the foreign region where the rest of the team is located.

Figure 2 shows a striking time pattern that exists within firms with respect to collaboration. We identify situations where a firm is entering into a foreign region for the first time for inventive work, after previously patenting in the US (and, in some cases, other long-term foreign sites that exist already by 1975 and are excluded). Figure 2 organises patents by how long the US public company has been conducting innovation in the ethnic region, from the year it first enters up to ten or more years after entry.

Figure 2. Elapsed time since foreign entry by firm

Notes: Trend depicts the share of patents that are collaborative in nature made by U.S. public companies in regions identifiable with the ethnic-name matching algorithms. The horizontal axis depicts the elapsed time since the firm first filed a patent with an inventor residing in the ethnic region.

Over 70% of the initial patents made by US companies into developing and emerging economies are collaborative, compared to about half when entering into Europe or Japan for innovative work. These differences across countries diminish over time after entry, and both groups have less than 45% of the patents being collaborative by the seventh year of the firm's operation abroad.

Our study conducts a number of regression analyses to characterise places where these cross-border teams are more frequent. The most consistent and important factors are intellectual property rights protection and rule of law, with additional factors including English language proficiency also playing a role.

In terms of firm-level traits, formal econometric analyses consistently confirm the patterns shown in Figure 2 regarding the importance of time since entry. Our empirical analysis also shows that the employment of ethnic inventors by a firm in its US-based operations is tightly linked to its generation of collaborative patents. In many cases, these observed collaborations also exhibit a specific match between the ethnicity of the US-based inventor and the foreign region in which the other members of the inventor team are located. We also study the role of cross-border mobility of inventors in facilitating these collaborations. We find that a firm's choice to use an internal transfer connects in intuitive ways to its size and the attributes of the foreign location (e.g. how well English is typically spoken in the overseas location).

Thus, to summarise and reflect:

Collaborative patenting appears to provide a way for a US firm to learn about a new location and match its needs to the R&D abilities in the region.

Collaborative patents can also help minimise the entry costs into a region and can help facilitate foreign activities.

Global innovation and collaborative patents create opportunities for long-term collaborative work. It is becoming more common for firms to divide work based on a location’s abilities and employee skill sets. The different legal and cultural issues in any given location dictate whether long-term collaboration is the best option. Other location-specific limitations, such as weak intellectual property rights, may prompt firms to keep key information and technology in different geographic locations.

The second half of our study compares the quality of global collaborative patents to other inventions produced by the firm.

Using the large battery of metrics developed in the patent literature to assess quality, we find cross-border patents to be strong innovations, equal to and sometimes exceeding the strength of the innovative work done by the same firm using inventor teams exclusively based in the US.

Even more striking is the extent to which both of these groups outperform the patents developed by the firm abroad with exclusively foreign inventor teams. Global collaboration and inventor teams appear to reduce underperformance associated with the foreign innovation by US public companies. The one potential caveat to this assessment is that global teams are larger, and we are not able to fully separate different inputs into the various patent types from other features of global teams.

Looking forward, collaborative patents are better cited within and outside of the firm. The main exception to these superior patterns is that exclusively foreign teams are better integrated into the future foreign-based innovations of the firm. Thus, some trade-off exists in where and how internal knowledge is developed and its subsequent use. Perhaps the biggest message that comes out of these forward-use analyses is the clear evidence of pockets of knowledge in multinationals. The geographic span of the inventor team strongly influences the future places where we observe evidence of the company building upon the work. This fact may help explain why some firms are disappointed with the returns from overseas inventive work despite potential cost savings – if they have not fostered the global team to support innovation, it tends to be isolated.

Conclusions

The globalisation of innovation is proceeding at an exceptionally fast pace. Many US public companies conduct significant overseas R&D, and global inventor teams are becoming surprisingly prominent. The ethnic composition of a firm’s US-based inventive work force in an important factor in whether the firm engages in international collaborations, and collaborative patents often are utilised when a US public company is entering into a new foreign region for innovative work. This is especially notable in markets with weak intellectual property protections. These patterns articulate a mechanism by which knowledge is transferred globally, and these results inform a growing body of work that analyses firm decisions about whether to locate innovative activity in a single place or in multiple locations.

References

Branstetter, L, G Li, and F Veloso (2015), "The Rise of International Co-invention", in A Jaffe and B Jones (eds.) The Changing Frontier: Rethinking Science and Innovation Policy (Chicago, IL: University of Chicago Press), 135-168.

Foley, C F, and W Kerr (2013), "Ethnic Innovation and U.S. Multinational Firm Activity", Management Science 59:7, 1529-1544.

Kerr, S P, and W Kerr (2015), "Global Collaborative Patents", Economic Journal, forthcoming, NBER Working Paper 21735.

Miguelez, E (2013) "How Does Geographical Mobility of Inventors Influence Network Formation?", WIPO Economic Research Working Paper No 7.