Chapter 6: Industry, Technology, and the Global Marketplace


Changing Global Marketplace

High-technology manufacturing industries are key contributors to economic growth in the United States and around the world.

  • The global market for high-technology goods is growing faster than that for other manufactured goods.
  • Over the past 24 years (1980–2003), world output by high-technology manufacturing industries grew at an inflation-adjusted average annual rate of 6.4%. Output by other manufacturing industries grew at just 2.4%.
  • The European Union (EU) had the world's largest high-technology manufacturing sector between 1980 and 1995.
  • Beginning in 1996 and for each year thereafter, U.S. high-technology manufacturers generated more domestic production (value added) than the EU or any other single country. Estimates for 2003 show U.S. high-technology industry accounting for more than 40% of global value added, the EU for about 18%, and Japan for about 12%.

Asia's status as both a consumer and a developer of high-technology products continues to advance, enhanced by the technological development of many Asian economies, particularly Taiwan, South Korea, and China. Several smaller European countries (e.g., Ireland, Finland, and the Netherlands) also have strengthened their capacities to develop new technologies and successfully supply high-technology products in global markets. However, the technological competencies in these latter countries are in a narrower set of technologies.

  • Current data on domestic production by high-technology industries in Asia and in several smaller European countries reveal a capacity to compete successfully with high-technology industries operating in the United States and other advanced countries.
  • High-technology domestic production within Asian nations has grown over the past two decades, led first by Japan in the 1980s and then by South Korea, Taiwan, and China in the 1990s. Recently, China's high-technology industries have surpassed those of South Korea and Taiwan and may soon rival those of Japan in size.
  • In 2003, domestic production by China's high-technology industry accounted for an estimated 9.3% of global value added. In 1980, domestic production in China's high-technology industry accounted for less than 1% of global value added.
  • Although some smaller European countries have become important sources for technology products, they tend to specialize more. For example, Ireland was the top supplier of biotechnology and life science products to the United States in 2004, as the source for 24% and 36% of U.S. imports in these categories.

From 1980 through 2003, market competitiveness of individual U.S. high-technology industries varied, although each sector maintained strong market positions.

  • In 1998, U.S. manufacturers replaced Japanese manufacturers as the leading producers of communication equipment and have retained that position. In 2003, the United States accounted for nearly 51% of world production (value added), Japan for 16%, and the EU for 9%.
  • In 1997, U.S. manufacturers also replaced Japanese manufacturers as the leading producers of office and computer machinery; by 2003, U.S. manufacturers accounted for an estimated 40% of global production while China's industry secured second place at 26%, with the EU in third place at 9%.
  • The U.S. aerospace industry has long maintained a leading if not dominant position in the global marketplace. In recent years however, the aerospace industry's manufacturing share has fallen more than any other U.S. industry. U.S. industry share of global aerospace production is estimated to have fallen to about 35% in 2003. At its highest level in 1985, U.S. aerospace accounted for 57% of global production.
  • The EU and the United States were the leading producers of drugs and medicines in the world market for the entire 24-year period examined, each accounting for about 32% of global production in both 2002 and 2003.
  • The EU and the United States were also the leading producers of scientific instruments. Led by Germany and France, the EU accounted for an estimated 38% of global production in 2003, while the U.S. share was nearly 35%.

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Shifting Export Trends

Historically, U.S. high-technology industries have been more successful exporting their products than other U.S. industries, positively contributing to the overall U.S. trade balance. Although U.S. high-technology industries continue to export a larger proportion of their total shipments than other U.S. manufacturing industries, their advantage has narrowed considerably.

  • Throughout the 1990s and continuing through 2003, U.S. industry supplied 12%–14% of the world's general manufacturing exports. By comparison, during the 1990s, U.S. high-technology industries accounted for 19%–23% of world high-technology industry exports.
  • The EU is the world's leading exporter, but if intra-EU shipments were excluded, the United States likely would rank above the EU. Estimates for 2003 show exports by U.S. high-technology industries account for about 16% of world high-technology industry exports. Japan accounts for about 9% and Germany for nearly 8%.
  • The gradual drop in the U.S. share was partly due to competition from emerging high-technology industries in newly industrialized and industrializing economies, especially in Asia. China stands out, with its share of global high-technology industry exports reaching 7% in 2003, up considerably from slightly more than 1% in 1990.

The comparative advantage in U.S. trade in advanced technology products, historically a strong market segment for U.S. industry, has turned negative.

  • In 2002, U.S. imports of advanced technology products exceeded exports, resulting in a first-time U.S. trade deficit in this market segment. The trade deficit has grown each year since. The U.S. trade deficit in advanced technology products was $15.5 billion in 2002; it increased to $25.4 billion in 2003 and to $37.0 billion in 2004.
  • The imbalance of U.S. trade with Asian countries (imports exceeding exports), especially with China, Malaysia, and South Korea, overwhelms U.S. surpluses and relatively balanced trade with other parts of the world.

Knowledge-intensive service industries are key contributors to service-sector growth around the world.

  • Global sales in knowledge-intensive service industries rose every year from 1980 through 2003 and exceeded $14 trillion in 2003.
  • The United States was the leading provider of knowledge-intensive services, responsible for about one-third of world revenue totals during the 24-year period examined.
  • Business services, which includes computer and data processing and research and engineering services, is the largest of the five service industries, accounting for 35% of global knowledge-intensive revenues in 2003.
  • Business-service industries in the EU and United States are close in size and the most prominent in the world; together they account for more than 70% of services provided worldwide. Japan ranked a distant third at about 12%.

The United States continues to be a net exporter of manufacturing technological know-how sold as intellectual property.

  • On average, royalties and fees received from foreign firms were three times greater than those paid out to foreigners by U.S. firms for access to their technology.
  • In 2003, U.S. receipts from the licensing of technological know-how to foreigners totaled $4.9 billion, 24.4% higher than in 1999. The most recent data show a trade surplus of $2.6 billion in 2003, 28% higher than the prior year but still lower than the $3.0 billion surplus recorded in 2000.

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New High-Technology Exporters

Based on a model of leading indicators, Israel and China received the highest composite scores of the 15 nations examined. Both nations appear to be positioning themselves for greater prominence as exporters of technology products in the global marketplace.

  • Israel ranked first in national orientation based on strong governmental and cultural support promoting technology production, and first in socioeconomic infrastructure because of its large number of trained scientists and engineers, its highly regarded industrial research enterprise, and its contribution to scientific knowledge. Israel placed second and third on the two remaining indicators, technological infrastructure and productive capacity.
  • Although China's composite score for 2005 fell just short of that calculated for Israel, the rise in its overall score over the past 2 years is noteworthy. China's large population helped to raise its score on several indicator components; this shows how scale effects, both in terms of large domestic demand for high-technology products and the ability to train large numbers of S&Es, may provide advantages to developing nations.

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Global Trends in Patenting

Recent patenting trends, a leading indicator of future competition for U.S. industry, show growing capacities for technology development in Asia and in a transitioning Europe.

  • Patents issued to foreign inventors have increased slightly since 1999. Inventors from Japan and Germany continue to receive more U.S. patents than inventors from any other foreign countries.
  • Although patenting by inventors from leading industrialized countries has leveled off or declined in recent years, two Asian economies, Taiwan and South Korea, have increased their patenting activity in the United States.
  • The latest data indicate that Taiwan (in 2001) and South Korea (in 2003) moved ahead of France and the United Kingdom to rank third and fourth as the residences of foreign inventors who obtained patents in the United States.
  • In 2003, the top five economies receiving patents from the United States were Japan, Germany, Taiwan, South Korea, and France.
  • Recent U.S. patents issued to foreign inventors emphasize several commercially important technologies. Japanese patents focus on photography, photocopying, office electronics technology, and communications technology. German inventors are developing new products and processes associated with heavy industry, such as motor vehicles, printing, metal forming, and manufacturing technologies. Taiwanese and South Korean inventors are earning more U.S. patents in communication and computer technology.
  • In 2003, more than 169,000 patents for inventions were issued in the United States, 1% more than a year earlier.
  • U.S. resident inventors received nearly 88,000 new patents in 2003, which accounted for about 52% of total patents granted.

U.S. patenting of biotechnologies accelerated during the 1990s, especially during the latter half of the decade. The effort to map the human genome contributed to this trend as evidenced by a surge in applications to patent human DNA sequences. Since 2001, the number of biotechnology patents has remained high, but the trend has turned slightly negative.

  • U.S. resident inventors accounted for more than 60% of all biotechnology patents issued by the U.S. patent office, a share about 10% higher than U.S. inventors hold when U.S. utility patents for all technologies are counted.
  • Foreign sources accounted for about 36% of all U.S. biotechnology patents granted, and the patents are more evenly distributed among a somewhat broader number of countries than is the case when all technology areas are combined.
  • Given the ongoing controversies surrounding this technology area, foreign inventors may be less inclined than U.S. inventors to file biotechnology patents in the United States.
  • Also evident is the more prominent representation of European countries in U.S. patents of biotechnologies than Asian inventors.
  • In the biotechnology area, universities, government agencies, and other nonprofit organizations are among the leading recipients of U.S. patents, although corporations are still awarded the most patents overall.

One limitation of patent counts as an indicator of national inventive activity is the inability of such counts to differentiate between minor inventions and highly important inventions. A database has recently been developed that counts triadic patent families (inventions for which patent protection is sought in three important markets: the United States, Europe, and Japan). This database may more accurately indicate important inventions than simple patent counts.

  • The United States has been the leading producer of triadic patent families since 1989, even when compared to inventors from the EU.
  • Inventors residing in EU countries produced nearly as many triadic patented inventions as did inventors living in the United States since the late 1980s, and from 1985 through 1988 produced more than U.S. inventors.
  • Estimates for 2000 show U.S. inventors' share of triadic patents at 34%, the EU's share at 31%, and Japan's share at 27%.
  • Inventors residing in Japan produced only slightly fewer triadic patents than inventors in the United States or the EU. Given its much lower population, however, Japan's inventive productivity would easily exceed that of the United States or the EU if the number of inventions per capita were used as the basis for comparison. Among the big three (the United States, the EU, and Japan), Japan clearly is the most productive when size is factored into the measurement.
  • Rankings change dramatically when national activity is normalized by population or by size of the economy as reflected in the gross domestic product. When data are normalized for size, smaller countries emerge, Switzerland and Finland in particular, and demonstrate high output of important inventions.
  • Counts of triadic patent families also can be used to further examine patenting in biotechnology. During 1998 and 1999, the most recent 2 years that complete data are available, biotechnologies accounted for a larger share of the U.S. triadic patent portfolio compared with that in the European Union or Japan.

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Venture Capital Investment Trends

The funds and management expertise provided by venture capitalists can aid the growth and development of small companies and new products and technologies, especially in the formation and expansion of small high-technology companies. Trends in venture capital investments also provide indicators of which technology areas venture capitalists view as the most economically promising.

  • Internet-specific businesses involved primarily in online commerce were the leading recipients of venture capital in the United States during 1999 and 2000. They collected more than 40% of all venture capital funds invested in each year. Software and software services companies received 15%–17% of disbursed venture capital funds. Communication companies (including telephone, data, and wireless communication) were a close third, receiving 14%–15% of dispersed funds.
  • The U.S. stock market suffered a dramatic downturn after its peak in early 2000, with the sharpest drops in the technology sector. Nonetheless, venture capital investments continued to favor Internet-specific companies over other industries from 2000–2003.
  • In 2003 and 2004, however, venture capital funds preferred other technology areas over Internet-specific companies for investments, in particular those identified as software and medical/health companies.
  • Software companies attracted the most venture capital in 2003 and 2004, receiving about 21% of the total invested each year, followed by companies in the medical/health field that received 16% in 2003 and 18% in 2004. Internet-specific companies fell to only about 13% of all money disbursed by venture capital funds during this period.
  • The decline in enthusiasm for Internet companies seems to have benefited other technology areas as well. Since 2000, biotechnology companies have gained steadily to receive 11% of total venture capital investments in 2003 and 2004—more than triple their share of 4% received in 1999 and 2000. Medical/health companies also have received higher shares: in 1999 and 2000, they received about 4% of total venture capital disbursements, rising to an average of 11% in 2001 and 2002 and to 17% during this period.
  • Contrary to popular perception, only a relatively small amount of dollars invested by venture capital funds ends up as seed money to support research or early product development. Seed-stage financing has never accounted for more than 8% of all disbursements over the past 23 years and most often has represented 1%–5% of the annual totals. The latest data show that seed financing represented just 1.3% in 2003 and less than 1% in 2004.
  • Over the past 25 years, the average amount invested in a seed-stage financing (per company) increased from a low of $700,000 in 1980 to a high of $4.3 million per disbursement in 2000. Since then, the average level of seed-stage investment has fallen steadily, to just $1.8 million in 2003 and $1.4 million in 2004.
National Science Board.