Offshoring and Outsourcing of Innovation

A fascinating article over at the Wall Street Journal contemplates the demise of innovation in the United States. It’s no surprise where it’s heading — China.

[div class=attrib]From the Wall Street Journal:[end-div]

At a recent business dinner, the conversation about intellectual-property theft in China was just getting juicy when an executive with a big U.S. tech company leaned forward and said confidently: “This isn’t such a problem for us because we plan on innovating new products faster than the Chinese can steal the old ones.”

That’s a solution you often hear from U.S. companies: The U.S. will beat the Chinese at what the U.S. does best—innovation—because China’s bureaucratic, state-managed capitalism can’t master it.

The problem is, history isn’t on the side of that argument, says Niall Ferguson, an economic historian whose new book, “Civilization: The West and the Rest,” was published this week. Mr. Ferguson, who teaches at Harvard Business School, says China and the rest of Asia have assimilated much of what made the West successful and are now often doing it better.

“I’ve stopped believing that there’s some kind of cultural defect that makes the Chinese incapable of innovating,” he says. “They’re going to have the raw material of better educated kids that ultimately drives innovation.”

Andrew Liveris, the chief executive of Dow Chemical, has pounded this drum for years, describing what he sees as a drift in engineering and manufacturing acumen from the West to Asia. “Innovation has followed manufacturing to China,” he told a group at the Wharton Business School recently.

“Over time, when companies decide where to build R&D facilities, it will make more and more sense to do things like product support, upgrades and next-generation design in the same place where the product is made,” he said. “That is one reason why Dow has 500 Chinese scientists working in China, earning incredibly good money, and who are already generating more patents per scientist than our other locations.”

For a statistical glimpse of this accretion at work, read the World Economic Forum’s latest annual competitiveness index, which ranks countries by a number of economic criteria. For the third year in a row, the U.S. has slipped and China has crept up. To be sure, the U.S. still ranks fifth in the world and China is a distant 26th, but the gap is slowly closing.

[div class=attrib]Read the entire article here.[end-div]