Dieter Ernst » The Emerging ‘Innovation Offshoring’ Threat

By Dieter Ernst

The contentious political debates over NAFTA (The North American Free Trade Agreement) in this year’s presidential race may miss the central point about the emerging international threat to the American economy.

The real threat is not the shift of manufacturing jobs to South America or Asia, the traditional concern of unions and those who court them. Rather, it is the possibility that the United States may lose its core economic strength in the 21st Century economy: U.S. dominance in research and development and innovation.

But with positive and creative thinking, the shift of intellectual work offshore may turn out to be less of a problem for the United States than a powerful catalyst to renew and restore America’s preeminent role as innovator in the global economy.

Until recently, there was general agreement that the center of technological innovation must remain in the United States as a pillar of our economy.

Silicon Valley cannot move overseas.

But that is precisely what is happening. Knowledge workers in Silicon Valley now work directly with colleagues in Seoul, Taiwan’s Hsinchu Science Park, Beijing, Shanghai, Bangalore, Delhi and Hyderabad.

Simply put, over the past decade the rise of Asia as an important location for such work, or “innovation offshoring,” has begun to challenge the notion that the U.S. will remain the innovation capital of the world.

Also lost is the complacency that goes with such a notion. For a long time, it was thought that while lower-wage service and manufacturing jobs might migrate overseas, high-end innovation work would remain at home. There was a belief that for some reason, innovation – as opposed to most other aspects of manufacturing – was “sticky.” It would remain close to home.

No more.

This profound shift has not happened in a vacuum. American companies are at the forefront of this trend as they experiment with new approaches to the management of global innovation networks as they strive to keep operations profitable and competitive.

And for their part, Asian governments have been active, promoting themselves as new sources of innovation. The trend is likely to accelerate because Asian governments know they can no longer rely on being the manufacturer of someone else’s idea.

For instance, the growth of U.S. patents issued for inventions from Asia has grown exponentially over the past decade.

Today, we have become accustomed to the idea of Global Production Networks. The new car you drive is likely to contain parts manufactured or assembled in factories and plants all over the world.

But now, we must begin to think of Global Innovation Networks, where part of the basic brainwork of bringing a new product or idea to market takes place overseas, often in Asia.

Sometimes, it will be an American company buying the completed work of bright, but lower-cost talent from overseas. But it might also be a decision by a company to outsource some stages of innovation to specialized Asian suppliers within its own firm.