Rise Of Global Value Chains Propels Intangible Capital Revenues, WIPO Report Says

A World Intellectual Property Organization report released today shows the growing global importance of intangible capital and its share in the value of end products. The report does not however provide a geographical repartition of this value, nor who actually owns the returns on intangible capital. Three case studies shed light on different production areas: coffee, smart phones, and solar panels.

New estimates provided by the report show that about one-third of the value of manufactured products sold worldwide is attributable to intangible capital, for a global value of US$5.9 trillion. This income has increased some 75 percent from 2000 to 2014 in real terms, according to a WIPO press release.

The 2017 World Intellectual Property Report [pdf], a biennial WIPO publication, focuses on the importance of intangible capital in global value chains this year. Intangible capital includes trademarks, patents, and industrial designs.

Intangible capital refers to non-material inputs that go into the production process, such as research and development, designs, and inventions, and is protected for example through branding, WIPO Director General Francis Gurry explained at a press briefing today.

Intellectual property plays an important role, as it protects those elements of intangible capital, he added. The report shows that intangible capital actually captures more value than tangible capital in manufactured products.

The internationalisation of production over the last 25 years has led to the emergence of global value chains spanning different economies around the world, he said, with a number of beneficial effects, such as price reductions, and the stimulation of economic growth, he said.

The report provides three case studies illustrating the growing importance of intangible capital: coffee, solar panels, and smartphones.

For every iPhone 7 sold for US$809, an estimated 42 percent of that value comes back to Apple, Gurry said.

China used a mix of strategies to take a leading position in the global solar panel market, he said. The report states that the success of China in the area depended on Chinese companies acquiring solar panel technologies by purchasing state of the art production equipment from international suppliers, and when entering the industry in the 2000s, Chinese solar panel companies benefitted from the arrival of skilled engineers and executives from abroad, bringing technological knowledge, capital and professional networks to China.

The coffee industry, for its part, has been shaped lately by change in consumers’ preference, who now pay greater attention to the origin of coffee and the way it is produced. Carsten Fink, WIPO chief economist, said at the briefing that this changing consumer preference had an effect on the supply chain, sometimes shortening it, and increased the relevance of branding and origin branding for the sector.

Fink said the novelty of the report is the estimates on returns on terms of capital. He also underlined how the role of intangible capital differs across manufacturing groups, giving the pharmaceutical, chemical, and electronic industries as examples of businesses with a high return.

He added that the manufacturing product groups with the highest income share are: food, beverage and tobacco products; motor vehicles and trailers; and textiles, apparel, and leather products. The press release says they account for almost half of global revenue of intangible capital.

No Sense of Who Most Benefits

Asked by Intellectual Property Watch if the global intangible capital value could be broken down geographically, Fink answered that it had not been possible in particular because of the difficulty to assign a location or an economy that harvests the intangible capital.

This on the one hand has to do with profit-shifting strategies, where companies using intangible capital and intellectual property shift profit as part as their tax minimisation strategy, Fink said. That means that the returns on intangible capital do not necessarily show up in the economy in which the intangible capital was created, he explained.

But that factor does not affect the overall estimate because it only leads to a redistribution of the value added along the supply chain.

When it comes to knowing who owns the returns from intangible capital, Fink said it is equally difficult since there is a lot of cross-border ownership of capital, which makes it difficult to tell exactly who harvests the return on intangible capital.

 

Image Credits: Catherine Saez