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
(and software firms)
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
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.
other g- 7
total number of Patents
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
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,
3. organization for economic cooperation and
development. Information Technology Outlook 2006.
oecd Publications, Paris, 2006.
Ashish Arora ( firstname.lastname@example.org) is h. J. heinz
Professor in the heinz school of Public Policy and
Management at carnegie Mellon University, Pittsburgh, Pa.
Matej Drev ( email@example.com) is a Ph.d. student
in the heinz school of Public Policy and Management at
carnegie Mellon University, Pittsburgh, Pa.
Chris Forman ( firstname.lastname@example.org) 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