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Apple Invents at Home, Other Tech Companies Need Overseas R&D

Say outsourcing, and most people think of contract factories. But in high tech, a growing percentage of research and development happens in other countries. It seemed like a good time to examine the degree to which this trend has caught hold in top high tech companies. Apple (AAPL) stands out as doing the vast majority of its work at home, but some companies such as IBM (IBM) and HP (HPQ) are highly dependent on foreign talent.

The analysis uses US Patent and Trademark Office data on the web. I took top tech companies and examined, over the years 2005 through 2010, which of their patent applications and patent grants had at least one listed inventor from another country.

Here's a table with the numbers:

Apple stands out as having the lowest percentage of foreign inventors at 4 percent in its patent grants and applications. The next closest is Dell, which had only half as much patent activity. On the high end are HP and IBM. Microsoft, which does extensive work in China, was below the overall 18 percent average of the group.

Oracle was an interesting case. Running the numbers both with and without Sun makes a significant difference -- not only to the percentage of foreign inventing, but also to the patent grant and application totals. Keep Sun's numbers out of the calculation and you see that Oracle has a hefty tendency to use foreign R&D.

Strategic issues of overseas research

The point of these numbers is to get beyond a "not invented here" syndrome and, instead, to understand the strategic implications of the trends. In a global economy, you might expect that companies use technical and scientific talent from overseas. But that raises a few questions:
  • What geopolitical forces now have influence over a company's future innovation?
  • At what point do multinationals essentially create their own innovative competitors in other countries?
  • Do companies move beyond seeing overseas talent as only capable of technical innovation and not as a source of understanding emerging markets?
  • As overseas innovation outsourcing continues, do companies run the risk of becoming figureheads with less and less to actually contribute to the business?
Some of these questions become more pointed when you examine where companies outsource their R&D. Microsoft, for example, makes heavy use of labs in China. HP tends more toward Singapore. The answers to the questions can vary greatly as a result.

Oh, and to put this group into greater perspective, over the same time period, the number of patent applications and granted patents with at least one inventor from the same countries is 837,754 and 289,860, respectively. High tech represents well under 2 percent of the trend.

Some data caveats

Limitations on the queries that the USPTO database allows meant that I had to choose 26 countries that were likely spots of R&D, rather than seeking all records with a non-U.S. inventor. In some cases, the interpretation can be misleading. For example, Apple had only one patent application with a Chinese inventor. Other patent records showed that the individual had worked for Apple for years in the U.S., so either the person returned home before the submission of that application or Apple is opening a research facility in China (or both).


Image: morgueFile user ppdigital, site standard license.