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Chapter 4. Research and Development: National Trends and International Linkages

Technology and Innovation Linkages

Increasingly, R&D and innovation are pursued in a collaborative and interactive environment, often embedded in global supply, production, and distribution networks (Dahlander and Gann 2007; Howells 2008; OECD 2008a). This section presents indicators on two types of innovation linkages: (1) business-to-business interactions in the form of contracted-out R&D, international transactions in R&D services, and global technology alliances, and (2) public-private collaborations. Overall, these indicators illustrate a variety of intra- and cross-organizational arrangements intended to absorb, manage, and exploit external and/or jointly developed knowledge (Chesbrough, Birkinshaw, and Teubal 2006; Ozman 2009). For ongoing development activities related to innovation indicators, see the sidebar "Recent Developments in Innovation-Related Metrics."

Business-to-Business Linkages

Technology and innovation linkages vary by type of partner or knowledge source and level of interaction (OECD/Eurostat 2005). Knowledge sources range from academic papers, conference proceedings, and reports from government laboratories to information from commercial sources, such as marketing and management consultants, patent licensors, R&D contractors, and technology vendors. This section examines indicators related to business transactions and organizational arrangements to acquire or jointly develop new knowledge.

Contract R&D Expenses Within the United States
Increasingly, companies that perform R&D in the United States contract out these activities. These companies reported an estimated $19 billion in R&D performed by external organizations located in the United States[43] in 2007, compared with $12.4 billion in 2006 (appendix table 4-39 and 4-40 ).[44] The all-industries ratio of contracted-out R&D to company-funded, company-performed R&D increased from 5.5% in 2006 to 7.8% in 2007.[45] For manufacturers, the ratio reached 8.5% in 2007, up from 5.7% in 2006 (figure 4-22 ).

Across R&D-intensive industries, pharmaceuticals had the highest ratio of contracted-out R&D (21%) in 2007. The ratio for automotive manufacturers was 7.3%, and for navigational, measuring, electromedical, and control instruments (a subsector of the computer and electronic products industry) was 3.8%. Within services, the contracted-out R&D ratio was 13.8% for scientific R&D services and 8.3% for telecommunications in 2007.

Exports and Imports of R&D Services
Across OECD countries, international trade in services, especially those involving intangibles and knowledge-based assets, presents unique measurement challenges for both business accounting and official statistics (OECD 2008b; Reinsdorf and Slaughter 2009; Yorgason 2007). An indicator in this area is international trade in research, development, and testing (RDT) services, including transactions among unaffiliated or independent companies (unaffiliated trade) and trade within MNCs (affiliated trade). These data are part of balance-of-payment statistics and complement other fee-based transactions (such as royalties and licensing), as well as performance and funding information from R&D surveys (Moris 2009). U.S. data for total RDT trade have been available since 2001 from BEA's international transaction surveys.[46]

In 2007, total U.S. exports (affiliated and unaffiliated) of RDT services reached a record $14.7 billion, compared with record imports of $11.4 billion, resulting in a trade surplus of $3.3 billion. Affiliated trade dominates these U.S. RDT statistics (table 4-21 )—which is not surprising, given the large role of MNCs (including U.S. parents and foreign-owned companies) in R&D performance. (See "R&D by Multinational Companies.") Affiliated trade in RDT has recorded between $4 billion and $4.5 billion in annual trade surpluses since 2001, compared with diminishing balances for unaffiliated trade (table 4-21). With affiliated transactions, U.S. trade surplus in RDT services is driven not by U.S. MNC parents but by the relatively high level of exports from U.S. affiliates of foreign MNCs to their foreign parents and other foreign affiliates of the parent companies (Moris 2009).

Newly available country detail shows that 62.8% of U.S. RDT exports in 2007 were purchased by European businesses and another 12.2% by Japanese businesses (appendix table 4-41 ). European countries accounted for virtually the same share of RDT import transactions (62.1%) in 2007, whereas Japan accounted for 5.6%. Several emerging markets appear as sources of U.S. RDT imports, namely Israel (6.2%) and India (5.3%).

International Technology Alliances
Interfirm R&D alliances, partnerships, and networks add an element of R&D co-production compared with R&D contracts or technology licensing.[47] R&D alliances may be defined as domestic or international cooperative arrangements that combine resources aimed at shared R&D objectives (Hagedoorn, Link, and Vonortas 2003).[48] U.S. restrictions on multifirm cooperative research were loosened by the 1984 National Cooperative Research Act (Public Law 98-462), followed by the 1993 National Cooperative Research and Production Act (NCPRA) (Public Law 103-42), as a way of addressing concerns about the technological leadership and international competitiveness of American firms in the early 1980s (Scott 2008).

This section features data from the Cooperative Agreements and Technology Indicators (CATI) database, which collects data on worldwide business technology partnerships. [49] It is based on public announcements and includes business alliances with an R&D or technology component, such as joint research or development agreements, R&D contracts, and equity joint ventures. The database contains counts dating back to 1980.[50]

According to CATI, in 2006 (the latest available year), about 900 new worldwide business technology alliances were formed, approximately two-thirds of which involved at least one U.S.-owned company regardless of location. Close to 60% of the worldwide total focused on biotechnology, and 23% focused on information technology (appendix table 4-42 ). Other areas include materials research and engineering, aerospace, automotive, and chemicals. In terms of ownership, the 2006 counts can be grouped into alliances involving only U.S.-owned companies (249), U.S. and foreign-owned companies (356), and only foreign-owned companies (293).

Since 1999, the proportion of U.S.-foreign alliances annually has surpassed U.S.-only alliances, driven by rapid growth in U.S. alliances with European-owned companies (figure 4-23 ). The U.S.-Europe alliances increased 141% from 1990 to 2006, compared with about an 80% increase in U.S.-only alliances. The predominance of U.S. and European companies in CATI technology agreements is consistent with rankings of global R&D by major pharmaceutical, biotechnology, software, and automotive MNCs (UK DIUS 2008). At the same time, the number of U.S.-Japan alliances in 2006 (54) effectively reached parity with U.S. alliances with other Asia-Pacific countries (50), (reflecting the rapid growth of the latter since 1990, albeit from relatively low levels (figure 4-23). The 50 U.S. alliances with Asia-Pacific companies, excluding Japan, were driven by collaborative agreements with companies headquartered in India (15), China (12), and South Korea (11). This pattern reflects the increasing if still modest role of these countries as hosts for U.S.-owned R&D discussed earlier in this chapter. Of course, noting simple frequencies of international collaborative agreements is only a first step in tracking the economic and policy relevance for participating companies and their home and host countries (Bozeman and Dietz 2001; Siegel 2003).[51]

Federal Technology Transfer and Other Innovation-Related Programs

This section reviews two sets of indicators on public-private collaboration supporting technology transfer and innovation (for academic patents and related knowledge diffusion indicators, see chapter 5).[52] The first set includes federal programs for technology transfer from R&D funded and performed by government agencies and laboratories. The second set includes federal programs that support new or small U.S. companies in R&D or technology deployment activities with R&D funds or technical assistance.

In the late 1970s, concerns about the strength of U.S. industries and their ability to be competitive in the global economy intensified. Issues included the question of whether inventions from federally funded academic research were adequately exploited for the benefit of the national economy and the need to create or strengthen public-private R&D partnerships. Since the 1980s, several U.S. policies have facilitated cross-sector R&D collaboration and technology transfer. One major policy thrust was to enhance formal mechanisms for transferring knowledge arising from federally funded and performed R&D (Crow and Bozeman 1998; NRC 2003). Other policies addressed federally funded academic R&D, the transition of early-stage technologies into the marketplace, and R&D and innovation by small or minority-owned businesses. For a brief overview of these initiatives, see the sidebar "Major Federal Legislation Related to Technology Transfer and Cooperative R&D."

Federal Technology Transfer
Federal technology transfer refers to processes through which the knowledge and capabilities of federal intramural laboratories and other research facilities can be directed to the R&D needs of outside public or private organizations—and through which the inventions and other intellectual assets arising from federal laboratory R&D can be conveyed to outside parties for development and commercialization (FLC 2006). Since the Stevenson-Wydler Act of 1980, all federal labs have been required to have technology transfer offices (Office of Research and Technology Applications [ORTA]) to assist in identifying transfer opportunities and establishing appropriate arrangements for relationships with external parties.[53] Indicators on these activities illustrate a diverse range of mechanisms used in federal technology transfer.[54]For background information, see the sidebar "Federal Technology Transfer: Activities and Metrics."

Table 4-22 shows total technology transfer activity statistics for FY 2007, as well as statistics for six agencies that account for the majority of this activity. In 2007, federal laboratories participated in 7,327 cooperative research and development agreements (CRADAs) with businesses and organizations, compared with 7,271 in 2006 and 5,949 in 2005 (appendix table 4-43 ). Federal labs also participated in 9,445 non-CRADA collaborative R&D relationships in 2007. Agencies issued more than 1,400 patents in 2007 and held 10,347 active licenses, including just below 4,000 invention licenses, based on their total stock of intellectual property. Appendix table 4-43 provides data for all agencies for FY 2000–07.

Small Business Innovation–Related Programs
This section reviews federal programs that support new or small U.S. companies in R&D or technology deployment activities. These programs include the Small Business Innovation Research (SBIR) program, the Small Business Technology Transfer (STTR) program, the Technology Innovation Program (TIP), and the Hollings Manufacturing Extension Partnership (MEP). The first three programs provide early-stage technology financing, whereas the last one provides technical assistance to small and medium-sized manufacturers.

The SBIR program was created by the Small Business Innovation Development Act of 1982. According to the SBIR statute, federal agencies with extramural R&D obligations exceeding $100 million must set aside a fixed percentage of such obligations for projects involving small business (those with 500 or fewer employees). This set-aside has been 2.5% since FY 1997. The program has multiple objectives, namely stimulating technological innovation, fostering the use of small business to meet federal R&D needs, encouraging participation by minority and disadvantaged persons in technological innovation, and increasing private-sector commercialization of innovation derived from federal R&D. SBIR's sister program, the STTR program, was created in 1992 to stimulate cooperative R&D and technology transfer involving small businesses and nonprofit organizations, including universities and FFRDCs. Both of these programs are coordinated by the Small Business Administration (SBA). In FY 2007, SBIR and STTR combined awarded $2.3 billion (SBA 2009).[55]

In FY 2006, 11 federal agencies awarded a total of $1.9 billion to about 5,900 SBIR projects (appendix table 4-44 and 4-45 ). Funded technology areas include computers and electronics, information services, materials, energy, and life science applications. DOD represented just below 50% of total SBIR funds, whereas HHS represented 30%, consistent with its large extramural R&D budgets.

The SBIR program is structured in three phases. Phase I evaluates the scientific and technical merit and feasibility of ideas. Phase II builds on phase I findings, is subject to further scientific and technical review, and requires a commercialization plan (NRC 2008). During phase III, the results from phase II R&D are further developed and introduced into private markets or federal procurement using private or non-SBIR federal funding.[56] Over the life of the program, the share of phase II funding has increased from about two-thirds in the mid-1980s to more than three-fourths (figure 4-24 ). Bridge funding and other support for startups beyond phase II were found to be critical for successful commercialization by a recent NRC study (NRC 2008, p 209). Some agencies have implemented "phase IIB" or "phase II+" matching funds and/or technical and business support for qualified awardees (NRC 2008, pp 209–16).

The STTR program is also structured in three phases and involves R&D performed jointly by small businesses and nonprofit research organizations. Federal agencies with extramural R&D budgets exceeding $1 billion participate in the STTR program. Starting in FY 2004, the required set-aside doubled to 0.3%, compared with the 2.5% set-aside for SBIR. In FY 2006, DHS participated for the first time, along with DOD, NSF, DOE, NASA, and HHS. From FY 1994 to 2006, STTR awarded $1.3 billion to about 6,000 projects, including $226 million to 878 projects in FY 2006 (appendix table 4-44 and 4-46 ).

According to SBA, small businesses interested in participating in the STTR program must find a research institution that meets the program's definition and develop a working agreement before competing for an STTR award. Universities are active as STTR partners. For example, in FY 2004, at least 200 universities, many with multiple awardees, partnered with small companies under STTR; 15 FFRDCs also collaborated with awardees (SBA 2005).

Established by the America COMPETES Act of 2007 and administered by NIST,[57] TIP was set up for "the purpose of assisting U.S. businesses and institutions of higher education or other organizations, such as national laboratories and nonprofit research institutions, to support, promote, and accelerate innovation in the United States through high-risk, high-reward research in areas of critical national need."[58] The new program replaces the Advanced Technology Program (ATP). From FY 1990 to 2007, ATP awarded funds for 824 projects with a combined funding of $4.6 billion, about equally split between the program and its participants (appendix table 4-47 ). The first TIP competition focused on advanced sensors to support monitoring and assessment of civil infrastructure, such as water pipelines, roads, bridges, and tunnels (appendix table 4-48 ).

A national system of affiliated manufacturing extension centers, MEP is also housed at NIST. It was established by the Omnibus Trade and Competitiveness Act of 1988 to enhance the productivity and technological performance of small and medium-sized U.S. manufacturers (15 U.S.C. 278(k)).

MEP centers receive federal funding on a competitive basis for their development and operations. Nonfederal funding is required for 50% or more of the centers' capital and annual operating funds. Companies receive technical and managerial assistance, generally on a reimbursable basis, but receive no direct federal funding (Schacht 2008). Federal funding for MEP reached $106.8 million in FY 2007 and $91 million in FY 2008 (appendix table 4-49 ). Activities included technology deployment and technical services involving advanced manufacturing systems and engineering services, as well as business services such as management and strategy development, marketing, and training. For nontechnical services, MEP centers generally partner with commercial and academic consultants and government agencies (Shapira 2001, pp 983–84).[59]


[43] Outside organizations include independent companies, universities, nonprofit organizations, and government, but the majority of this R&D is performed by companies. See appendix table 4-40 for industry-specific data.
[44] Data are for R&D contract expenditures paid by U.S. industrial R&D performers (using company and other nonfederal R&D funds) to other domestic performers. In this section, contract R&D refers to a transaction with external parties involving R&D payments or income, regardless of its legal form. Transactions by companies that do not perform internal R&D in the United States are excluded, as are R&D activities contracted out to companies located overseas.
[45] Company-funded is shorthand for "company and other nonfederal."
[46] RDT is part of the larger category of business, professional, and technical services. RDT services include commercial and noncommercial research as well as product development and testing services. The latter component includes non-R&D testing services. RDT covers services by all companies regardless of industry classification, not just activities of companies or establishments classified in NAICS 5417. Starting with 2006 data, new BEA survey forms BE-120 (benchmark) and BE-125 (quarterly) collect both affiliated and unaffiliated transactions. For further methodological information, see
[47] In practice, these activities may be part of a given business arrangement or innovation project. Furthermore, technology alliances may or may not be part of larger agreements involving manufacturing, marketing, and other business functions.
[48] Drivers for R&D collaboration include reduction in costs and/or time to market, sharing of instrumentation and other infrastructure, technology diversification (exploration and experimentation across multiple technology platforms), and long-term learning (Cantwell, Gambardella, and Granstrand 2004; Ozman 2009). The policy environment, especially antitrust regulation and intellectual property protection, is also critical to the incidence of these drivers and their economy-wide impact (Scott 2008).
[49] For data from the Cooperative Research (CORE) database, based on Department of Justice registrations required by NCRPA, see NSF/SRS (2006, p 4-34).
[50] CATI is a literature-based database that draws on sources such as newspapers, journal articles, books, and specialized journals that report on business events. Agreements involving small or startup firms are likely to be underrepresented. Another limitation is that the database draws primarily from English-language materials. Data on alliance structure, size, duration, or outputs are not available. For studies combining CATI and other data sources, see papers and references in Hagedoorn, Link, and Vonortas (2003).
[51] For an overview of indicator development in this area, see Jankowski, Link, and Vonortas (2001) and Hagedoorn, Link, and Vonortas (2003).
[52] Science or research parks, another example of public-private collaboration, may facilitate knowledge diffusion, technology development and deployment, and entrepreneurship by involving universities, government laboratories, and business startups. Two recent U.S. workshops focused on science parks. A December 2007 NSF workshop was aimed at fostering a better understanding and measurement of science parks' activities, including the role of science parks in the national innovation system. Participants identified a need for systematic studies on topics such as the social benefits of public investment in science parks, ways in which the university–science park interaction engenders entrepreneurial activity, and lessons that U.S. science parks can learn from comparative studies with European and Asian parks. For material from this workshop, see A subsequent workshop sponsored by the National Academies explored international models and best practices in science parks (NRC 2009). See also PCAST (2008) and chapters 8 and 9 in Link and Siegel (2007).
[53] Federal agencies frequently cited in government reports on federal technology transfer include the Departments of Agriculture, Commerce, Defense, Energy, Health and Human Services, Homeland Security, the Interior, Transportation, and Veterans Affairs; the Environmental Protection Agency; and the National Aeronautics and Space Administration. Data include both federal intramural laboratories and FFRDCs.
[54] Notably missing among these indicators are technical articles published in professional journals, conference papers, and other kinds of scientific communications; however, few labs regularly tabulate and report this information.
[55] FY 2007 figures are preliminary. As this volume was going to press, the House and Senate agreed to the latest in a series of short-term extensions of these programs.
[56] To obtain federal funding under this program, a small company applies for a phase I SBIR grant of up to $100,000 for up to 6 months to assess the scientific and technical feasibility of ideas with commercial potential. If the concept shows further potential, the company may receive a phase II grant of up to $750,000 over a period of up to 2 years for further development.
[57] See Section 3012 of the America COMPETES Act (Public Law 110-69), enacted 9 August 2007. Final rules prescribing TIP procedures were released 25 June 2008 (15 C.F.R. Part 296). The first competition was announced in July 2008, and the first awards were made in January 2009.
[58] Public Law 110-69, Section 3012.
[59] For example, beginning in 2006, MEP began collaborating to connect small manufacturers with trade promotion specialists of DOC's International Trade Administration and its export assistance centers in specific industry sectors, such as machinery and microelectronics (GAO 2007, p 20). For MEP impact studies, see

Science and Engineering Indicators 2010   Arlington, VA (NSB 10-01) | January 2010