Until fairly recently, business innovation activities were concentrated in the US, Europe and Japan. Now, the rising powers of Brazil, China, and India are encroaching on this ‘bastion’ of the old powers. A new research report by Hubert Schmitz and his collaborators explores how and why the global innovation map is changing, and how deep this change goes.

Listen to Hubert Schmitz explain the context and the findings of this research 

Analysts tend to explain the shift in innovation power by concentrating on factors within these countries, such as investment in high-level education, the return migration of engineers, big and expanding internal markets and so on. In contrast, this report concentrates on explanatory factors that emanate from the old powers, notably the organisational decomposition of the innovation process (ODIP).

We focused on global value chains that link Brazilian auto and Indian software suppliers with lead firms in the US and Europe. Our research shows that ODIP undertaken by US and European lead firms contributes direct and indirectly to the accumulation of innovation activities in Brazil and India. It also suggests that the build-up of innovation capabilities in countries like India and Brazil is accelerating ODIP in the US and Europe.

The report shows that subsidiaries and independent suppliers in Brazil and India were involved in advanced innovation capabilities: they engaged not only in ‘applied’ development, but also in ‘systemic’ development of products and services. The resulting build-up of innovation capability is only partially visible in conventional R&D indicators.

The research points to two possible scenarios for the future:

1. The first is one involves a co-evolution of the old innovating regions in Europe and the USA and the new innovating regions in Brazil and India. Changes in one bring about changes in the other and vice versa. The process is painful but the result is win-win.
2. The second stresses a similar intense interaction but the result is that one side loses and the other one wins: the loser is the old region which sees a decline in innovation jobs and economic prosperity; the winner is the new region which sees a rise in innovation jobs and prosperity.

It could be that neither prevails and that the outcome is highly differentiated, varying a great deal between sectors. What it is clear from this study, however, is that ODIP benefits the rising powers. What is not clear is whether the old powers suffer as a result.  Perhaps the biggest winners are the globalised firms which originate in the old powers but locate their innovation activities increasingly in the new powers. 

Hubert Schmitz is Professorial Fellow with the IDS Globalisation Team. Read more about his work. 

Image credit: Qilai Shen / Panos