“Assessing the Foreign Control of Production of Technology: The Case of a Small Open Economy” Cincera M., B. van Pottelsberge, R. Veugelers (2005) The case of Dupont Busana Pierre R&D in Multinationals Trekels Bruno M.Cincera 1 GENERAL INTRODUCTION 3 SECTION 1: SUMMARY OF THE STUDIED ARTICLE 4 INTRODUCTION 4 INWARD R&D-FDI: FOREIGN OWNERSHIP OF PATENTS INVENTED IN BELGIUM 5 OUTWARDS R&D-FDI: BELGIAN OWNERSHIP OF PATENTS INVENTED ABROAD 5 CONCLUSION AND MAIN FINDINGS 7 CRITICS 8 SECTION 2: DUPONT’S PROFILE 9 INTRODUCTION 9 HISTORY 9 STRUCTURE 10 RESEARCH AND DEVELOPMENT AT DUPONT 11 FACTS & FIGURES 11 R&D STRATEGY 12 SECTION 3: THE DUPONT’S CONTROL OF PRODUCTION TECHNOLOGY IN BELGIUM 14 INTRODUCTION 14 PATENT STRATEGY OF DUPONT 14 DUPONT’S PRESENCE IN BELGIUM 16 DUPONT’S OWNERSHIP OF PATENTS INVENTED IN BELGIUM 16 GENERAL FOREIGN OWNERSHIP OF PATENTS INVENTED IN BELGIUM 17 DUPONT’S OWNERSHIP OF BELGIAN INVENTIONS 17 CONCLUSION 21 SECTION 4: DEEPER ANALYSIS AND LINK WITH OTHER ARTICLES 22 1ST ARTICLE: NEW CONCEPTS AND TRENDS IN INTERNATIONAL R&D ORGANIZATION 22 2ND ARTICLE: DECENTRALISED R&D AND STRATEGIC COMPETITIVENESS: GLOBALISED APPROACHES TO GENERATION AND USE OF TECHNOLOGY IN MNE’S. 23 SECTION 5: GENERAL CONCLUSION 24 BIBLIOGRAPHY: 25 APPENDIX 27 APPENDIX1: PATENT SCORECARD™ 27 APPENDIX 2: PATENTING BY GEOGRAPHIC REGION (STATE AND COUNTRY), BREAKOUT BY ORGANIZATION 27 2 General Introduction The purpose of this report is to analyse the titled article, “Assessing the Foreign Control of Production of Technology: The Case of a Small Open Economy” written in 2005 by M. Cincera, B. van Pottelsberghe and R. Veugelers, in order to apply its developed concepts to the multinational, technology intensive corporation: DuPont. MNE’s1 like DuPont play an ineluctable role in the actual trend of R&D internationalisation because of their intensive R&D strategies and the impact on host countries research capabilities through their location decisions. Knowing the importance of R&D performed by MNE’s, our paper aims to quantify the impact of DuPont on R&D internationalisation in the Belgian context with a similar approach of the one used in the studied article. The paper is structured as follows: Section 1 presents a summary of the studied article in order to understand the key concepts used to assess R&D internationalisation; Section 2 introduce DuPont, a multinational technology-intensive corporation which has subsidiaries in Belgium, to understand the profile of a key player in the R&D internationalisation process; Section 3 analyses the application of the studied article’s ideas to DuPont in order to assess the impact of this company on Belgian R&D spillovers; Section 4 presents an deeper analysis of R&D at DuPont in the light of two other given articles; Section 5 presents our concluding remarks. 1 MNE = Multi National Enterprise 3 Section 1: Summary of the studied article Introduction International R&D activities, following the internationalisation of production, have grown significantly over the past 15 years and this article aims to measure this trend for the case of Belgium. For that, the authors analyse two main dimensions of internationalisation with two improved indicators based on EPO (European Patent Data) and USPTO (US Patent and Trademark Office) patent data between 1978 and 2001. The first dimension (reflected by the SHIA2) represents the extent to which patents invented in Belgium are assigned to firms based abroad (inward R&D-FDI). The second one (measured by SHAI3) is the extent to which domestic firms control foreign inventions (outward R&D-FDI). The approach of the authors allows an improvement of existing indicators of internationalisation: The existing literature typically uses information included in patent data, regarding only the country of residence of the applicant (or assignee) and of the inventor. This method provides an incomplete insight into the ownership of patent invention because there is no information about the ownership structure of the Belgian assignees. Thus previous indicators consider as “Belgian” the assignees which are based in Belgium BUT the country of residence of a firm is not automatically related to the nationality of the firm. For instance if a company, controlled by foreign multinationals (MNE’s), apply itself for a patent, it will be considered by current literature as a “local” assignee, whereas it should be considered as foreign controlled. This article provide thus a more relevant approach by the identification of Belgian applicants which are affiliates of foreign firms located in Belgium (for inward R&D-FDI) or the Belgian based firms with affiliate abroad (for outward R&D-FDI). The results suggest that taking into account the nationality of ownership of the firm changes substantially the measured degree of internationalisation. 2 SHIA is the share of patents invented by the residents of a given country and controlled by foreign researchers in the country’s total domestic invention 3 SHAI represents the number of patents invented by foreign researchers and controlled by residents of country with regards to the number of patents controlled by resident 4 Inward R&D-FDI: Foreign ownership of patents invented in Belgium Number of patent data applied With identification of nationality of or invented in Belgium ownership of patented invention EPO USPTO EPO USPTO Belgian inventor 12,301 7,871 Belgian inventor 12,301 7,871 Belgian inventor and 5,300 3,671 Foreign ownership 8,616 5,186 foreign assignee (direct and indirect[1]) % of foreign ownership 43% 47% % of foreign ownership 70% 77,1% With the method based on information in patent data, there are about 40% of patent applications invented in Belgium which are applied for a foreign firm outside Belgium. This level of internationalisation is quiet high (one of the highest for the OECD member countries). However if the patents applied for by Belgian subsidiaries of MNE’s are added to those that are directly controlled by foreign firms, the picture is even more striking : the ratio of domestic patented inventions made by foreign firms reaches a share of 70%. This share of patents invented in Belgium and owned by foreign companies has increased over the past 20 years. The extent of cross-border ownership varies across broad technological areas4 : the highest levels of foreign ownership are in the fields of Electrical Engineering, Instruments and Chemicals and Pharmaceutics. In each of these fields, almost 80% of all patents with Belgian inventor are owned, directly or indirectly, by foreign assignees. The geographical origin of assignees that applied for patents in Belgium is principally the US (50%) in all technological areas, except “Electrical engineering” which is more controlled by firms based in France. Outwards R&D-FDI: Belgian ownership of patents invented abroad As shown in the following table, a share of 26% of patents applied for by Belgian applicants is at least partially5 invented abroad. This share is significant but less pervasive 4 Electrical Engineering; Instruments; Chemicals and Pharmaceutics; Process Engineering and Mechanical Engineering 5 Partially means that patents are at least one foreign inventor 5 than the share of patents invented in Belgium and applied by foreign applicants (see below). This level shows an increase over the past 20 years. Number of patent data applied or invented in Belgium Measuring the Belgian ownership of patents invented abroad EPO USPTO Belgian assignee 8,954 4,623 EPO USPTO Belgian assignee and 2,364 788 Belgian assignee and 2,364 788 foreign inventor foreign inventor Belgian local assignee 780 88 Belgian MNE assignee 323 105 Belgian subsidiary of 1,192 485 foreign MNE as assignee 6 others 62 32 The group of Belgian assignees applying for a patent is a heterogeneous group of firm in term of ownership and can be split in three main subgroups: the local Belgian firms, Belgian multinational companies and Belgian subsidiaries of foreign multinationals. About the half of EPO patents invented abroad and with Belgian assignee is controlled by the subgroup of Belgian subsidiaries of foreign multinationals following by the Belgian local firms with a share of about 30% and the Belgian MNE’s with subsidiaries abroad. With USPTO patent data, local firms have a smaller share than Belgian MNE’s: that means that local innovative firms find more easily their way to file a patent application at the EPO than at the USPTO. The analyse of variation across the technological areas for SHAI shows a reverse picture in comparison with this of SHIA indicator: for instance, Belgian patent applications in the field of mechanical engineering (about 35%), chemicals and pharmaceuticals (30%) and process engineering (25%) tend to have at least one foreign inventor whereas mechanical engineering and process engineering have a lower SHIA indicator that reflect that Belgium has a stronger advantage in these fields than in the others. 6 That represents Belgian uni/res as assignee and Belgian state institution as assignee 6 SHAI indicator SHIA indicator 40 90 35 80 30 70 25 60 50 % 20 % 40 15 30 10 20 5 10 0 0 Process Process Electrical Electrical Mechanical engineering engineering engineering Instruments Mechanical engineering engineering engineering Instruments Chemics and Chemics Chemics and Chemics pharmaceuticals pharmaceuticals The major origin of the foreign inventions controlled by firms based in Belgium is Germany and it is followed by the US, France and Great Britain. Conclusion and main findings The approach of the authors allows an improvement of existing indicators of R&D internationalisation. Indeed, taking into account the nationality of ownership of the firm provides a more relevant approach than the typical literature to analyse the R&D internationalisation process. All these results are in accordance with those of a small open economy: indeed, relatively more knowledge generated by Belgian inventor’s flows out of Belgium towards foreign ownership of this technology, than knowledge generated by foreign inventors is owned by Belgian assignees.