OECD: Tech R&D, Innovation Hard-Hit By Economy, But May Be Turning Up28/07/2009 by William New, Intellectual Property Watch 1 CommentShare this Story:Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Google+ (Opens in new window)Click to share on Facebook (Opens in new window)Click to email this to a friend (Opens in new window)Click to print (Opens in new window)Much of our best content is available only to IP Watch subscribers. We are a non-profit independent news service, and subscribing to our service helps support our goals of bringing more transparency to global IP and innovation policies. To access all of our content, please subscribe now.Information and communications technology (ICT) industries have been hard hit by the economic crisis but vary in the degree to which they have been able to sustain spending on research and development, according to a new report by the Organisation for Economic Co-operation and Development (OECD). Now there are signs the worst may be over for the sector if it can benefit from innovation to address social challenges. The report shows that most recent economic data indicate a reversal of fortunes for the technology industry. The report, which compares the current period with the 2001-2002 “dot-com bust,” found that economic stimulus packages might be a contributor.The OECD report is available here [pdf]. The Paris-based group represents 30 of the world’s largest industrialised countries.“ICT R&D is declining, but it is performing somewhat better than employment and certainly better than production and revenues, as was the case in the last downturn,” the OECD report said. “Where R&D is declining it is with a lag compared with turnover and employment, as investments in R&D and innovation are clearly seen as necessary for future competitiveness and the development of new growth areas.”Generally speaking, it appears companies that retained access to capital sustained R&D as much as possible. OECD said typically in the medium-term of a recession there is a decrease in R&D and innovation, but that these drop more significantly as the crisis persists and priorities are abandoned.“A neglect of key R&D priorities would also mean that the ICT sector will be less able to deliver solutions to societal challenges,” it said.IP QuestionsSome questions arise regarding the impact in the ICT sector and intellectual property rights, particularly with regard to Asia. “Will the crisis have lasting effects on the global ICT production and innovation networks, significantly changing the balance of IP ownership between Asia and the West?” asked Sacha Wunsch-Vincent, an OECD economist and one of the report’s authors.“The question is how the significant downturn in Asia will influence the Asian ICT producers in the future,” he added. “As recovery seems to loom, will ICT firms in China, Singapore, Chinese Taipei (Taiwan), Malaysia and the like continue to operate as manufacturers for household brands such as HP, Dell, Apple, and others? Or will they be tempted to operate under their own brand name and with their own intellectual property as they prefer to build their own domestic market.”Wunsch-Vincent also said: “If designed well, the stimulus measures aimed at the ICT industry and implemented in the Asian economies – notably in Taiwan for semiconductor industry but also Japan and Korea – will have an effect on the future growth prospects of domestic ICT brands and with them their intellectual property portfolio.”Sectoral ImpactImpact of the crisis and response related to R&D has varied by sector. “Despite generally good industry R&D performance in Q1 2009 and continuing support for R&D in Q2, some hard hit sectors such as electronics and semiconductors were however beginning to perform worse in R&D than in 2001,” OECD said.For new firms, venture capital “slowed very markedly” from mid-2008, it said. “Nevertheless around one-half continues to flow into the ICT sector and ICT-intensive clean technologies, and surveys suggest that software, new media and particularly clean technologies will continue to attract a major share of venture investments.”In the information technology sector, US companies were not as hard hit as Asian firms, OECD found, and Apple continued to post positive revenues. IT firms generally reduced R&D spending. Among communications companies, Nokia increased its R&D spending slightly in first quarter 2009 by 2 percent, while R&D investment by Qualcomm was 9 percent. It was negative for some other leading firms.The electronics sector’s declines exceeded those of the dot-com bust in 2001, OECD said. “Falling revenues in combination with negative net cash have increased the pressure on R&D budgets in this sector,” it said.In software, the 10 percent increase in R&D by the top 10 firms slowed to a negative growth rate in 2009. Microsoft accounted for some 46 percent of R&D spending in 2008.For internet companies like Google and Yahoo, the factors are different. Among the top 10 companies, “total growth dropped to just below zero in the first quarter of 2009, indicating that internet businesses are not crisis-proof,” OECD said. This sector is “better placed” than it was in 2001-2002. R&D spending in this sector had been very high in the past year (65 percent increase in quarterly spending) but slowed to a slight positive increase in the first quarter of 2009.Telecommunications and internet services have been mixed. It said internet telephony has in some cases become a substitute for fixed-line telephony. There should be some benefit from stimulus packages targeting high-speed broadband outlay and other infrastructure, OECD said.“Top-10 telecommunications firms are deeply in debt with around negative US$350 billion net cash throughout 2008 and the first quarter of 2009,” OECD found. All but one telecom company, China Mobile, had negative net cash in the beginning of 2009. “With more than US$18 billion, China Mobile is one of the richest firms in the ICT sector after Microsoft with US$23 billion. In contrast, NTT had the lowest net cash with negative US$31 billion among telecommunication firms,” it said.Long-term prospects for ICTs are good, but investment is volatile, and consumer spending has dropped sharply. The report compares the current economic downturn, the longest in 50 years, with the technology crash of 2001-2002. Performance in the first sector of 2009, when the industry saw a sharp decline, compared with the earlier period.“In general, despite a very difficult first quarter large firms in the ICT sector were stronger at the end of Q1 2009 than following the 2001 dot.com bust,” the report said, though some hardware sectors continue to face tougher prospects.Semiconductors are a “bellwether” for ICT goods, OECD said, and dropped by some 50 percent from late 2008 to early 2009. They are expected to drop a further 20 percent by year’s end. The industry is healthier than in 2001, however. ICTs have fared better than some other industries, such as automobiles, it said.OECD said ICTs are contributing to an increased focus during the recession on social and public policy aspects of innovation, such as climate change, public health, education and energy efficiency. Investment in ICTs leads to increased innovation in other sectors and at different levels, it said.Key ICT-related policies need to be reviewed in light of the new conditions, OECD said. “There are huge and interesting questions about how the crisis will change industry structures which are originally globalised production networks,” said Wunsch-Vincent. “Will all stay as before? Will it all change? What role will stimulus packages and government strategy play?”Share this Story:Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Google+ (Opens in new window)Click to share on Facebook (Opens in new window)Click to email this to a friend (Opens in new window)Click to print (Opens in new window)RelatedWilliam New may be reached at email@example.com."OECD: Tech R&D, Innovation Hard-Hit By Economy, But May Be Turning Up" by Intellectual Property Watch is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.