Skip to content
 

Emerging-Market Engineers Power Global Innovation

Recently, Thomson-Reuters published its latest list of the Top 100 Global Innovators honoring the leading organizations and companies most responsible for sizeable, influential patents worldwide. A quick scan of the list indicates that all 100 organizations are located in developed countries. The United States has 47 entries, Japan 25, Western Europe 21, and South Korea 7.

From this list, some readers may infer that innovation is largely the realm of engineers and scientists working in developed countries for large companies, assuming that innovators from countries such as India and China don’t matter after all. While we believe that Thomson-Reuters’ methodology is meticulous and logical, we warn against this faulty assumption. Here are three main reasons why.

Captive R&D Centers

First, many of the Top Innovators employ engineers in emerging countries such as India and China. The Lullaby Baby Warmer engineered and built by GE Healthcare engineers sells well in Europe—but engineers in India designed the device. Working at Google’s India labs, Lalitesh Katragadda and Manik Gupta conceived of and designed Map Maker, a popular online application that enables users to correct and enhance maps. (Even before the US government released photos of the site of Osama Bin Laden’s final hideout, users worldwide pinpointed the location using Map Maker.) We estimate that tens of thousands of engineers and scientists working for top innovators are actually located in their offshore technical centers in the BRIC countries (Brazil, Russia, India, and China); these are often called “captive” R&D centers or offshore R&D locations. And this estimate does not count legions of foreign-born and foreign-educated techies who populate R&D centers in hotspots such as Silicon Valley. Over the next decade such engineers from emerging countries will play an increasing role in global innovation. Some will continue to work for their current Western employers, while others may lead startups or help catapult Chinese and Indian companies to higher positions in the innovation value chain.

The Top 100 Innovators also benefit from combining the power of their brands with the patents and engineering skills of third parties. Until the early 1980s, most innovation was performed inside the four walls of large corporate central labs; AT&T’s Bell Labs in New Jersey, 3M’s Innovation Center in Minnesota, and the Skunk Works of Lockheed Martin are among the legends of innovative horsepower of large corporations. Our next two insights examine ways in which this lab-centric innovation model has changed.

Offshore Outsourced Product Development

Let’s examine one specific aspect of Otis Elevator, a unit of the Top 100 innovator United Technologies Corp. The 161-year-old Connecticut company is the world’s largest designer and builder of vertical transportation systems such as escalators and elevators. Its Gen2 “machine-room-less” product replaced woven ropes with flat polyurethane-coated steel belts for savings in noise, energy consumption, and space, eliminating the traditional rooftop “machine room.” (One critical element of high-capacity belt elevators is the load bearing termination assembly, which must withstand starting and stopping loads of up to six times the stated weight capacity of the device.) Six of the eight inventors of this Otis patent are Indian. In fact, these six Indian engineers were not employees of Otis at all, but rather on the payroll of an outsourced product development company headquartered in Andhra Pradesh, India. We are not saying that Otis’ American engineers are not innovative—the bulk of the breakthroughs of next-generation products originated inside the company—but forward-looking leaders at United Technologies recognize that engineers in faraway places and some who may work for third parties can also contribute brilliance to Otis’ product line.

We are suggesting that companies like Otis who embrace such external brilliance will have a compelling competitive advantage over those innovators who continue to look exclusively inward. Offshore outsourced product development gets less press than outsourced IT and call centers, but it has the ability to create additional revenues for nimble innovators. According to a Booz study, such external R&D in India alone will exceed $37 billion annually by 2020.

Original Design Manufacturers

Finally, much of the innovation currently marketed by the big brands originates in relatively quiet and often unnamed Original Design Manufacturers (ODMs). For example, many notebook computers are designed and built by Compal Electronics of Taiwan. The company’s clients include Top 100 Innovators such as Hewlett Packard, Fujitsu, Siemens, Sony, and Toshiba. Another Taiwanese ODM, Quanta Computer, serves innovators such as Apple.

Another ODM, Jabil Circuit, headquartered in Florida, is not exactly a household name. But the $16 billion company operates in 60 countries, including Shenzhen, China, and Pune, India, employing a large number of engineers. Jabil and its peers often simplify the work of design, engineering, and innovation for their clients by creating “reference designs” that can be tailored by the big brands. One such example is a rack-mounted storage server system for the “cloud computing” market. Known as Sandy Creek, the design combined the Intel Xeon enterprise chip with current storage technologies, and was intended to be sold by Jabil’s clients and not by Jabil itself. In another example, as illumination powered by light-emitting diodes (LEDs) has become mainstream, Jabil’s materials engineers created a novel heat sink made from conductive plastic to keep the LEDs from overheating. In both examples, Jabil created a new product capability.

Utilizing the ODMs has enabled many well-known innovative companies to magnify their power in the marketplace and conserve their own engineering talent for their most crucial projects that cannot be outsourced.

The number of patents awarded to an organization is seldom the sole measure of its home country’s level of innovation. American innovation is often powered by the willingness of many corporate and technical leaders to embrace good ideas from anywhere in the world. Whether good ideas originated inside a company or country, the ability to convert these ideas to market-shaping products in a globally competitive environment ultimately determines long term success. Innovators from emerging countries will increasingly play a larger role in all our lives.