The latest World Intellectual Property Report examines the role of intangible capital in global value chains. What exactly does that mean and why is it important?
Let’s start with global value chains. These days, products are manufactured all over the world and production is global. Your smartphone, for example, includes lots of different components made in factories in different parts of the world. Some microprocessors may be made in the Republic of Korea, the screen may be made in the United States, other parts elsewhere, and then they may all be sent to another factory in China for assembly and packing before being shipped off to retailers and, ultimately, consumers.
The idea of the global value chain basically relates to the production process, from the conception of a product through to its delivery to the consumer. It means looking at the product supply chain in its broadest sense and measuring the value that is contributed at each stage in that chain.
And what about intangible capital?
Going back to our example of the smartphone, the value of different components of a phone consists of far more than its physical parts. A huge amount of the value comes from intangibles – things like the design of the phone, all the technology behind it, including the skills and knowledge of those who make it, and the way it is branded. Even the design of the box the phone comes in may be a valuable asset for the phone manufacturer, helping to distinguish their phone from that of competitors.
Intangibles can be hard to measure – they are, after all, things that you literally can’t put your finger on – but they are crucial to the look, feel, functionality and appeal of smartphones and the other products we buy. In this edition of the World Intellectual Property Report, we seek to shed some light on just how much these intangibles are worth, in their various forms, and the role they play in the production process.
That sounds challenging. How did you go about it?
There were two main strands to our research. First, we sought to calculate the value of intangibles at the macroeconomic level to put a figure on their overall worth. It was technically challenging but we worked with a team of researchers at the University of Groningen who assembled data on global value chains for manufactured products covering around one-quarter of global output.
In particular, the Groningen team estimated the value added within the global value chains of 19 different...