Innovation by big American firms is increasingly being done by cross-national teams – and much of this work is highly productive, according to research by Sari Pekkala Kerr and William Kerr, published in the July 2018 issue of the Economic Journal. Among the findings of their study of the prevalence and traits of global collaborative patents for US public companies:
• Over 70% of the initial patents made into developing and emerging economies are collaborative, compared with about half when entering Europe or Japan for innovative work.
• Cross-border patents are typically 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 United States.
• Global collaboration and inventor teams appear to reduce underperformance associated with foreign innovation by US public companies.
• The geographical span of the inventor team strongly influences the future places where there is evidence of the company building on the work.
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Multinational companies are increasingly conducting their innovation in multiple countries and using cross-border teams. Around 1975, only 1% of the US-based patents from large companies involved an overseas inventor, but today this share is 13%. In equal measure, foreign firms are placing more of their innovative work in the United States.
The new study systematically explores the prevalence and traits of global collaborative patents for US public companies, defined as those where the inventor team is spread across locations both within and outside the United States. The researchers analyse data from the US Patent and Trademark Office to compare global collaborative patents with those where the team is located entirely abroad or entirely in the United States.
For many foreign regions, global collaborative patents account for half or more of the innovative activity being conducted by US firms. Often, the inventor residing in the United States that is working on the team is of the same ethnicity as the foreign region where the rest of the team is located.
These teams are especially useful when a firm is entering into a foreign region for the first time for inventive work. Over 70% of the initial patents made by US companies into developing and emerging economies are collaborative, compared with about half when entering Europe or Japan for innovative work. These differences across countries diminish over time after entry.
Thus, collaborative patenting provides 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 help to facilitate foreign activities.
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 geographical locations.
Are these teams effective as well as prevalent? Yes. Using a large battery of metrics developed to assess invention quality, the study finds 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 United States.
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 foreign innovation by US public companies.
Looking forward, collaborative patents are better cited within than outside 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 geographical span of the inventor team strongly influences the future places where there is evidence of the company building on 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 the work, it tends to be isolated innovation.
‘Global Collaborative Patents’ by Sari Pekkala Kerr and William Kerr is published in the July 2018 issue of the Economic Journal.
