Who captures value from science-based innovation? The distribution of benefits from GMR in the hard disk drive industry

Abstract

We analyze the discovery of giant magneto-resistance (GMR) and its development and commercialization by the global disk drive industry to answer the question of “Who captures the benefits from innovation in a global innovation system?” We assess the returns to the scientists, firms, and countries associated with GMR. We find that the French and German scientists that discovered GMR and their labs benefited by receiving the Nobel Prize and small licensing fees. The firm that first commercialized the technology, IBM, captured profits from selling hard disk drives and magnetic heads using GMR. Other hard disk drive and head manufacturers based in the U.S. and Japan were able to quickly assimilate the technology and catch up with IBM. France and Germany reaped limited returns due to the lack of domestic firms with the absorptive capacity to commercialize GMR. The U.S. and Japan benefited from the success of their firms in commercializing GMR, as did other countries which were part of the global value chains of those companies. Consumers and firms that incorporated hard drives in their products ultimately benefited from cheaper hard drives with greater capacity. These findings illustrate the importance of absorptive capacity at the firm and national level in capturing benefits from innovation. They also show that the benefits to first mover firms can be short-lived in a competitive industry with open transfer of knowledge and limited appropriability regimes. Finally, they show that the location of jobs and wages associated with innovative products depends on the structure of the global value chains of leading firms.