March 11, 2011

The new wealth of nations?

Borrowing the (in my mind bold) theme from CIP Forum 2011 and tying on Johan's previous post on patent filing, I'll try to give an my angle at this.

Johan touches upon a very interesting point, not only tied to IP but I assume business in general - when (or maybe if) will Asia (China) become the new epicenter. And that's of course where CIP Forum predicts that it will be the epicenter of intangibles rather than manufacturing. These are big question, but I'm a simple economist who likes graphs - so here's my stab at it.

Quantity - YES

Johan shows one strong indication of IP becoming more important to Chinese companies and this is probably another strong sign of China trying to move away from "made in China" to "invented in China". Two Chinese tigers are ZTE, now the worlds 4th largest handset company, and of course Huawei. But besides their business success, they are also the 2nd and 4th top PCT filers.

So it's clear - Chinese have understood IP and are going after it massively. And as Johan showed, so have the Koreans, while US, EU and Japan keep a fairly steady state.

Quality - Hmm.. let's find out

So let's try and look at whether this seems to be quality. And of course this is the million dollar question.
Trying to answer the modest "wealth of nations" question, I've at least found one proxy which feels objective, namely the World Bank. Diggin through their data I've found data for royalty and license payments and receipts, on an annual country basis.

As with any model or data - it's not perfect, but let's have a look at some results. I will present payments, income and balance for US, Germany, Japan, China and Korea. This will hopefully be a decent proxy for US, EU, "Old Asia", "Booming Asia", "Next Gen Asia".

Data Analysis - Royalty and License; payments, receipts and balance, 1997 - 2009.


This first picture will show us that all countries are receiving incomes but that it's very unevenly distributed with the US as the clear leader. With a very large order of magnitude, Japan (2nd largest) still 4x smaller than USA.




The second picture tells a slightly different story, showing that all count
ries have increasing payments. Again the US have largest payments.

Two interesting aspects of this would be that a) IP is a global asset b) the trade of IP is growing.


Looking closer at Japan, Korea and China we can see that the trends look quite similar. But let's take the analysis one step further and look at them on a country by country basis.


Starting with China - the outlook is quite dismal. Although there are some receipts, the annual licensing/royalty deficit is close to 10 Billion USD.


Looking now at Korea - seen as many as the real tiger and truly booming in the business space (especially in consumer electronics and telecom) lead on by Samsung ,LG, Hynix, Hyundai. Still the annual deficit is close to 4 Billion USD. And sure, royalty incomes are increasing fast, but payments even faster as the deficit is growing year-on-year.


Now ending on a hi-note with Japan currently with a positive balance of approximately 5 Billion USD. But although looking strong now, "break even" was reached less than 10 years ago.


Trying now to tie it all together, let's look at the all countries and perhaps the most important metric of all - payment balance.
This picture really says it all in my mind. The US are just miles ahead whereas the others are struggling and actually only Japan having an annual surplus.
I'd also like to highlight 2009 as an "odd" year in the data, where many changes happened. Maybe it's a freak thing or maybe it's tied to the financial climate, who knows. But before that the analysis was simple - everyone is paying Japan and US more and more money every year.

Closing thoughts
What I wanted to show with this exercise was that although Asian countries (mainly Korea and China) are booming in terms of patent filings and general corporate growth - they are still very much trailing in terms of IP royalty payments.

It could be tempting to draw the "simple" conclusions and say that their IP is worse or likewise saying that in terms of patent holdings - they are still miles behind the likes of Sony, Panasonic, Siemens, IBM, HP etc.
And maybe the truth is somewhere in between, i.e. that what you don't have in quality you make up for in quantity. I.e. when big IBM (with tens of thousands of patents) knocked on little ZTEs door - you'd pay up, regardless of quality.

I guess what you can say is that even if Asia seems to be catching up in the administrative arena (i.e. filing patents) they still seem to be losing the battle in the business arena.

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4 comments:

  1. China has indeed made strides, but competitiveness as a global leader in innovation will hinge as much on patent quality as on rate of patent issuance. Until the country manages to effectively address certain systemic issues, China's high patent volume alone will not serve as an accurate indicator of innovative activity or capability.

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  2. You said right that the indication of IP becoming more important to Chinese companies,and also the part of indication of the IP,is great and really important,so good to see some of the important details and the information,that indicating the knowledge and the strong point of views,graph is awesome.
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