<p>US Innovation and Value Added Capture Business Week May 7, 2008 http://images.businessweek.com/ss/08/05/0508_global_sectors/index_01.htm</p><p>Is the U.S. Old News in Innovation? Although manufacturing and engineering are increasingly moving offshore, many other sectors remain strong</p><p>By Pete Engardio</p><p>First manufacturing went offshore, then software and electronics engineering. Is innovation next? Not necessarily, concludes a team of U.S. scholars that studied 10 key industries for the National Academies. While U.S. technology leadership is slipping in industries like lighting and digital displays, it has been remarkably resilient over the past decade in other things such as semiconductors and pharmaceuticals. Have a look at which U.S. industries still dominate their sectors, are strong innovation leaders, are slipping, or have a tenuous hold that could go either way.</p><p>Data: Jeffrey T. Macher and David C. Mowery, editors, Innovation in Global Industries: U.S. Firms Competing in a New World (Washington: National Academies Press, 2008)</p><p>Venture Capital U.S. Position: Dominant</p><p>While still based primarily in the U.S., venture capitalists are seeding more startups in Europe and Asia. The impact on U.S. high-tech competitiveness is negligible, though, because most capital in nations like China and Taiwan goes to IT startups that don't compete directly with U.S. firms. And the U.S. leads by far in number of VC-funded startups.</p><p>Logistics U.S. Position: Strong</p><p>Many of the world's biggest shipping companies are based outside of the U.S. But American strength in info tech and software keeps companies such as United Parcel Service (UPS) and FedEx (FDX) at the forefront in developing inventive ways of managing complex and far-flung global supply chains. The U.S. generates five times as many logistical services patents as No. 2- ranked Germany.</p><p>Financial Services U.S. Position: Slipping</p><p>The U.S. still commands 62% of the world market for financial services. But that lead is gradually eroding, while European rivals such as ING (ING), HSBC (HBC), and Paribas (BNPQY) are finding innovative ways to grow over the Internet, in emerging markets, and in derivatives. Indian outsourcing companies, meanwhile, are becoming innovation leaders in managing financial processes.</p><p>Biotechnology U.S. Position: Dominant</p><p>Nations across Asia and Europe are racing to develop biotech clusters similar to those in San Diego and Cambridge, Mass., in this still nascent technology. But in terms of R&D spending and patents, it is no contest. The U.S.'s biotech industry also attracts more venture capital than the rest of the world combined.</p><p>Pharmaceuticals U.S. Position: Strong</p><p>Drug companies are outsourcing more R&D to labs in India, China, Russia, and Eastern Europe, but the share of R&D done in the U.S. (36.5%) and Europe (39%) changed little between 1990 and 2004. And the U.S. still accounts for the majority of new drug patents because it is the world's most lucrative market. Even with more clinical trials being done in India and China, few Asian pharmaceutical companies can manage entire drug discovery and development programs.</p><p>Lighting U.S. Position: Tenuous</p><p>General Electric (GE) as well as Philips (PHG) and OSRAM-Sylvania have dominated lighting for decades. But with the technology shifting from incandescent bulbs and fluorescents to solid-state products such as light-emitting diodes (LEDS), future leadership is up for grabs. The U.S. leads in LED patents, but Japan and Taiwan dominate manufacturing, while China makes most lamps and fixtures. So research and development is shifting to Asia.</p><p>Digital Displays U.S. Position: Nearly Extinct</p><p>The U.S. remains a surprisingly strong source of innovation in chips and plant equipment for new flat-panel technologies, even though no U.S. manufacturers remain. But as the domination of Asian companies such as Sharp, Samsung Electronics, and Toshiba grows—and China begins to target the industry—it will be hard for U.S. companies to remain at the forefront.</p><p>Software U.S. Position: Dominant</p><p>The huge shift of development work to low-cost sites in India, Eastern Europe, and Southeast Asia hasn't diminished U.S. domination of software, whether in global share of exports, services, or patents. Most innovation stays at home because the U.S. remains by far the biggest consumer of business software and has the world's largest workforce of leading-edge programmers.</p><p>Semiconductors U.S. Position: Dominant</p><p>With the exception of memory devices—a Korean and Japanese stronghold—the U.S. still reigns supreme. Intel, AMD (AMD), and Texas Instruments (TXN) are the big names in microprocessors. And even though most specialty chips now are fabricated in foundries in Asia, the U.S. remains the runaway leader in chip design and patents.</p><p>Personal Computers U.S. Position: Slipping Most computer hardware is made in China and Taiwan. But the real innovation and biggest profit margins belong to U.S. companies like Microsoft (MSFT) and Intel (INTC), whose software and microprocessors are the core technologies. And U.S. companies such as Apple (AAPL) and Hewlett-Packard (HPQ) hold 40% of the world PC market and do most conceptual design at home. But Asian and European companies are driving innovation in devices for the mobile Internet.</p>