vented outside the U.S. Among the underdog countries (Brazil, China, India, Israel, and Ireland) most commonly cited as having robust software industries, the fraction of patents assigned to U.S. firms has generally been increasing over time, ranging from 15.4% in 1990 to a high of 64.6% in 2002. This suggests that multinationals—U.S. software firms—can serve as a partial, though highly imperfect, conduit for the needs of lead users.

However, while U.S. software firms appear to be a potential conduit for user needs, they appear to be moving their innovative activity offshore much more slowly than they are moving some programming and maintenance activity. The percentage of U.S.-assigned patents that were invented in the U.S. fell from 94.3% in 1996 to 91.4% in 2007. This decrease in the share of U.S.-assigned patents invented in the U.S. is due in large part to the increase in offshore activity in the underdogs: the percent of U.S.-assigned patents invented in the underdogs rose from 1% in 1996 to 2.6% in 2005.

It will be a while before countries such as India become significant sources of software innovation. There simply are not enough highly talented computer scientists and software engineers in these countries. Moreover, the state of the science and technology infrastructure is weak. The firms we interviewed told us that supplies of fresh engineering graduates were plentiful in India, but

Conditions for
development of
innovative new
software products
(and software firms)
are propitious
when they occur
in proximity to
potential lead users.

it was much more difficult to find developers with project management experience and more difficult still to find those with critical business knowledge.

As of 2004 the number of engineering graduates in India and the U.S. were approximately equal, and the number of Indian engineering graduates is growing much faster than that in the U.S.—from 42,000 in 1992 to 128,000 in 2003.¹ Higher education growth in China has been similarly rapid. Yet, do not be misled by these numbers. Despite these improvements in educational infrastructure, R&D as a percent of GDP is only 1.44% in China compared to 2.68% in the U.S. (both 2004 data) and 0.85% in India (2000 data).

What will the future bring? First, it

does appear software product development and testing activities have become increasingly global. Firms continue to experiment with new methods of managing global software development, and such methods will likely increase the share of software work that can be modularized and produced away from the point of product design and architecture.

Second, these trends raise a big question. Entry- and mid-level programming jobs have frequently provided U.S. IT workers with the skills needed to perform more complicated activities such as product design and strategy. In other words, training by U.S. firms has traditionally bestowed an uncompensated benefit to entry-level workers by providing them with certain types of general training and skills, which are very valuable to the workers later in the careers. Indeed, our interviews suggest that lack of these skills has been a significant barrier to innovation in countries outside the U.S.

Many of these entry-level jobs are now going overseas. A declining demand today for entry-level programming jobs in the U.S. and increasing demand elsewhere could make it more difficult for U.S. workers—and relatively easier for those from other countries—to perform complex software design activity in the future. The implications of this would be a more globally dispersed pattern of innovation in software than we see today.

u.s. software patents invented in the u.s. and other countries.

U.s. other g- 7 Underdogs

Japan tigers all other

15,000

total number of Patents

10,000

5,000

References

11. arora, a. and bagde, s. the indian software industry: the human capital story. Working Paper, heinz school of Public Policy and Management, carnegie Mellon University, 2006.

2. arora, a., forman, c., and yoon, J. W. software. in J.t. Macher and d.c. Mowery, eds., Innovation in Global Industries: U. S. Firms Competing in a New World. national academies Press, Washington, d.c., 2008, 53–99.

3. organization for economic cooperation and development. Information Technology Outlook 2006. oecd Publications, Paris, 2006.

 

0

1989

1992

1995

1998

Year

2001

2004

2007

Ashish Arora ( [e-mail]) is h. J. heinz Professor in the heinz school of Public Policy and Management at carnegie Mellon University, Pittsburgh, Pa.

Matej Drev ( [e-mail]) is a Ph.d. student in the heinz school of Public Policy and Management at carnegie Mellon University, Pittsburgh, Pa.

Chris Forman ( [e-mail]) is the robert and stevie schmidt assistant professor of it management in the college of Management at georgia institute of technology, atlanta, ga.

the authors gratefully acknowledge funding from the software industry center at carnegie Mellon University. chris forman acknowledges funding from an industry studies fellowship from the alfred P. sloan foundation.

22 CommunICatIons of the aCm | feBRuaRY 2009 | vol. 52 | No. 2