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Leveraging America's Enormous Deep Tech Advantage
Technology Briefing |
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TranscriptAt the same time that America’s ability to manufacture and build have atrophied, it’s advantage in so-called “Deep Technologies” has exploded. Today, the United States plus Canada dominates these strategically important industries to an extent that is rarely appreciated. That’s based on a careful assessment by Nordic Capital, an EU-based financial firm. For purposes of our discussion, Deep Tech industries are defined as “those industries in which extensive multi-disciplinary research and development is required to remain viable and for which intellectual property constitutes the primary barrier to entry.” Why is US hegemony across these Deep Tech industries so important? During the 20th century global prosperity was concentrated where technological development was happening. And that pattern has continued in the initial decades of the 21st century. Nordic Capital launched its Deep Tech Index as a way to map out where the top 500 companies across the ten deep tech fields are located. The benefits are two-fold. First, this provides substantial insight into the relative competitive potential of these regions, both economically and geopolitically. Second, looking at the location of each Deep Tech industry and the characteristics of those places gives us a better idea of what it takes to nurture winning companies in Deep Tech fields. According to Nordic Capital, the ten Deep Tech industries are 1) Artificial Intelligence, 2) Clean Energy, 3) Clean Tech, 4) Biotechnology, 5) Photonics & Electronics, 6) Robotics & Communications, 7) Quantum & Computing, 8) Pharmaceuticals, 9) Fintech, and 10) Space & Advanced Materials. Let’s consider each of these Deep Technologies. 1. Artificial Intelligence development is about replicating “intelligent processes” in computer systems and machines. Speech recognition, machine vision, and natural language processing are some applications of Artificial Intelligence. Out of the globally leading companies that are developing this deep technology, fully 80 percent are found in North America. The remaining leading technology companies in Artificial Intelligence are split evenly between 10 percent in Europe, and 10 percent in Asia. 2. Clean energy solutions play a key part in the world economy, during a time when there is great demand for energy and a desire to shift towards more environmentally sustainable energy production. Amongst those companies that develop this deep technology, 16 percent are found in Asia, a higher share than Europe, where 10 percent of the globally leading firms in Clean Energy are found. The remaining 74 percent are localized in North America. As we’ll discuss in trend #5, Clean Energy is the Deep Tech sector most in need of reform and redirection. 3. Internationally, there is growing public demand for environmental sustainability. An important part of this development occurs through Clean Tech solutions, which are about fostering a cyclical economic model where goods, components, and materials are increasingly recycled. Amongst those companies that develop this deep technology, 28 percent are found in Europe, a higher share than for any other form of deep technology. Additionally, 50 percent of the world´s leading technology companies in Clean Tech are found in North America, with the remaining 6 percent found in Asia. 4. Progress of Biotechnology already offers many solutions for human health and longevity, with significant further progress on the way. For the first time in human history, scientists are able to understand the core foundation of aging, leading to various Biotechnology solutions for longevity and health. Amongst those companies that develop this deep technology, 20 percent are found in Europe, a higher share than most areas of technology. Out of the remaining leading deep technology companies in Biotechnology, fully 78 percent are located in North America, while Asia has only one of the top-50 globally leading companies in biotechnology. 5. Photonics & Electronics are a couple of closely related fields of technology, which have significant impact on global development. While in an electronic chip, electron flux passes electrical components such as transistors and resistors, photonic chips are based on photons passing through optical components. Amongst those companies that develop this deep technology, 16 percent are found in Europe, a higher share than in most other deep tech areas. Additionally, 68 percent of the world´s leading deep technology companies in Photonics & Electronics are found in North America. Of the remainder, 14 percent are localized in Asia, and 2 percent in Africa 6. Robotics & Communication technology are significantly influencing the global economy. Robots have been a key part of industrial development for decades, and are becoming increasingly advanced, with humanoid robots recently becoming a reality. That communication technology is changing the world is also apparent, in a time where many spend hours a day interacting through their smart phones. Amongst those companies that develop this deep technology, 18 percent are European, a higher share compared to other areas of technology. However, the 68 percent of the world´s leading companies in Robotics & Communication development are found in North America. Of the remainder, 10 percent are localized in Asia, and 4 percent in Africa and Oceania. 7. As recently as the 1960s, mechanical calculators were still used around the world. This is now a past memory since the development of electronic computing has revolutionized the world. Today, many people have more computing power in their mobile phones than the computers used for the first moon landings. While binary computer technology continues to evolve, it is now complemented by quantum computing, which relies on quantum bits instead of binary digits. Amongst those companies that develop this deep technology, fully 90 percent are found in North America. While North America dominated all areas of deep technology, the dominance is most clearly found in the area of Quantum & Computing. Of the remaining firms, 6 percent are located in Asia, with the remaining 4 percent in Europe. 8. Throughout the world, there is a trend toward increasing life span and providing people more healthy years. This progress is linked to development of Pharmaceuticals. An increasingly large share of the world population is today elderly, pushing up the global demand for Pharmaceuticals. Amongst those companies that develop this deep technology, fully 86 percent are found in North America. While North America dominated all areas of deep technology, the concentration of leading pharmaceutical tech companies is unusually high. Out of the remaining firms, 8 percent are localized in Europe, with the remaining 6 percent in Asia. 9. Financial technology, or Fintech, plays a key role in the world´s economy. Financial innovations, coupled to various digital solutions, promote investments and trade. Fintech solutions rely on specialized software running on computers and phones, which promote safe and efficient financial transactions. Amongst those companies that develop this deep technology, 20 percent are found in Asia; that a higher share than for any other area of deep technology. Since North America dominates all areas of deep technology, it comes as no surprise that it’s the place where 58 percent of the leading Fintech companies are found. However, 20 percent of the leading Fintech companies are in Europe, with the remaining 10 percent spread out in Africa, South America, and Oceania. And, 10.Outer space is in many ways the future of human progress. While space travel began more than half a century ago, it is only recently that private companies have been able to overcome the technological and economic barriers to making space travel commercially viable. Advanced material development is closely related since new materials are required for space travel. However, development of advanced materials also has many other industrial uses. Amongst those companies that dominate the deep technology of Space & Advanced Materials, 18 percent are found in Asia, a higher share than for any other area of deep technology except Fintech. North America, which dominates all areas of deep technology, is where 72 percent of the leading companies in Space & Advanced Materials are found. The remaining 10 percent of the leading Space & Advanced Materials companies are European. Taken as a whole, 72 percent of the leading deep tech companies are based in North America, with 68 percent in the US alone. This compares with 14 percent in Europe and 11 percent in Asia. Africa, Oceania, and Latin America each host around one per cent of the leading deep tech firms. Silicon Valley is the leading deep tech hub globally. About 24 percent of all the leading technology firms reside there. Thomas Edison founded the world’s first industrial innovation laboratory in this valley 150 years ago, and it has since become the most significant region for development of novel technologies. The second most important global hub for deep tech is New York, where close to 8 percent of all globally leading deep tech companies are located. Boston and Los Angeles are other important hubs. Outside the US, the leading hubs are London, Tel Aviv, New Delhi, Toronto, Paris, Tokyo, Bengaluru, Amsterdam, Berlin, Stockholm, Montreal, and Dublin. North America is particularly dominant in the area of quantum & computing technology, as well as in pharmaceuticals and artificial intelligence. In these three deep-tech fields, 80% or more of the leading global firms are in North America, predominantly in the US. Quantum & computing includes those companies that work on traditional computer technology, as well as futuristic quantum computers. In this field, 44 out of the 50 leading global companies are found in the USA, and an additional one is in Canada; that means fully 90 percent of these firms are in North America. Silicon Valley alone has 26 out of the 50 leading companies in quantum & computing. In the field of pharmaceuticals, 41 out of the 50 leading global companies are found in the USA, and additionally two are in Canada; that means that 86 percent of pharmaceutical companies are localized in North America. The Boston urban region has 13 out of these companies, with a further seven in New York, three in Silicon Valley, and three more in San Diego. The third sector with a particularly strong presence for North America is artificial intelligence. In this deep-tech field, 37 of the 50 globally leading companies are localized in the USA and a further 3 are in Canada. Thus, 80 percent of the leading companies are found in North America. Notably, 27 out of the 50 leading artificial intelligence companies are found in the Silicon Valley, with New York hosting an additional three. Notably, the share of North American deep-tech companies is lowest for Clean Tech (at 50%) and highest for quantum and computing (at 90%). Except for Clean Tech, more than half of the top-50 firms in each sector are located in the USA. However, Canada is strong in Clean Tech, meaning that even in this deep-tech area, half of the leading global companies are located in North America. Going forwards, the biggest deep tech challenge for the US is to retain this very dominating position. To do so, the US needs to stay at the top in education and research. That means continuing to attract the best and brightest scientists and engineers from around the world as well as enhancing the volume of home-grown talent. Currently, the US is not fostering enough mathematical skills in the young generation. Since the early 2000s, mathematics scores of US students in the global PISA study have decreased significantly. Today, 34 percent of USA mathematics students are low-performing, while only 7 percent are considered high-performing. In both instances, the USA performs worse than the average of OECD countries. Nevertheless, one key advantage the US still has is research universities. According to the QS World University Rankings, 27 out of the top one hundred engineering and technology universities are located in the US and Canada, while less than 30 are found in Europe, and 34 are found in Asia. In recent decades, domestic shortcomings have been compensated for by retaining the top talent from around the world which flocks to American universities. While this trend continues, other parts of the world are increasingly competing for top performers in higher education and research. In addition to talent, the biggest reason for North America’s dominance of deep tech comes down to business climate. That includes its existing synergistic businesses, entrepreneurial culture, favorable tax policies, freedom of movement, and extraordinary access to capital and natural resources. And while North America has more regulations than it used to have, it’s far less regulated than most other regions. What’s the bottom line? The ten deep tech industry sectors represent the engines of prosperity in the 21st century. North American dominance in all of them should help insure our affluence and security. The big challenge is to maintain this competitive advantage in the turbulent times ahead. Given this trend, we offer the following forecasts for your consideration. First, North American leadership across Deep Tech sectors will ensure its insurmountable economic and geopolitical advantage in the 21st century. In the digital era, deep tech drives affluence and military hegemony. Although globalization enabled countries like China, India, and Taiwan to share in this bounty, North America always retained a dominant position in terms of intellectual capital. Going forward, reindustrialization will reinforce this dynamic. Second, barring some “black swan event,” the US will be even more dominant 20 years from now than it is today. Why? Like natural environments, techno-economic eco-systems are self-sustaining; talent, capital investment, and intellectual property all evolve to enable the next innovation. Analogous to droughts and herbicides, excessive immigration controls and over-regulation could undermine North America’s Deep-Tech advantage. But barring such willful mismanagement, self-reinforcing feedback loops will continue to strengthen North America’s deep tech advantage in the 21st century. Third, the UK and EU will continue to lag North America because of demographic decline, over-regulation, and taxation. Unlike North America, these countries have aging & shrinking populations, coupled with a mediocre track record for assimilating foreign talent. Furthermore, their lack of “critical mass” in deep tech fields other than clean tech and biotechnology makes it unlikely that they will achieve game-changing breakthroughs outside those two sectors. Fourth, despite the bravado, China will remain a niche player in AI because it lacks the techno-economic eco-system needed to leapfrog US-based leaders. As we can already see, innovation in such an explosive field happens quickly and unexpectedly. That’s incompatible with China’s top-down, theft-enabled innovation system. And, Fifth, today’s big clean energy technologies ─ including wind, solar, and batteries ─ will atrophy for reasons highlighted in trend #5, this month. However, revenues and profits related to next-generation nuclear fission, fuel cells, and hydrogen will soar. China is already pioneering small-scale, molten-salt reactors fueled by thorium. This seems to be its best bet to dominate a deep tech sector in the foreseeable future. |
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