Organizational Capital, R&D Assets, 

and Outsourcing 

Wendy Li 

2013 Federal Committee on Statistical Methodology Research Conference 

Bureau of Economic Analysis 

November 5, 2013 
Motivation and Challenge 

 Motivation: 

 * BEA now recognizes expenditures on R&D as fixed investment. 

 * Organizational capital as a business expense. 

 * If assume R&D expenditures and organizational capital were both treated as 

 investment, want to examine the relationship between these intangible 

 assets of U.S. industries and: 

 

 1) their global competence 

 2) their outsourcing patterns 

 Challenge: 

 * dearth of data and measurement difficulties 

 Latest efforts by NSF, Census, and NBER – new pilot survey on 

 U.S. management practices in 2011. 

bea.gov 
This Study 

A forward-looking intangible investment model (2012, 2013, Li) 

Two intangibles: R&D Assets and Organizational Capital 

Dataset: use Compustat (company-based) for the consistency of the 

measurement of the two intangibles. 

 1) R&D expenditures, SG&A expenditures (Lev and Radhakrishnan, 

2002), and other data including the market value of common equity at 

the end of fiscal year. 

 2) Nine R&D intensive industries 

 3) Period: 1987-2010.

 

bea.gov 
Depreciation Rates of R&D Assets and Organizational Capital 

Industry δR&D with 2-year gestation lag δOC with 1-year gestation lag 

Aerospace 21% 11%

Communication 31% 20%

Computer System Design 43% 8%

Computer & peripherals 41% 6%

Motor 28% 6%

Navigational 26% 4%

Pharmaceutical 10% 2%

Scientific R&D 16% 10%

Semiconductor 27% 16%

Software 24% 7%

Note: 

•The R&D depreciation rates are estimated based on BEA’s R&D dataset. 

•The depreciation rates of organization capital are estimated based on Compustat dataset. 

•Both datasets cover the period of 1987-2011. 

bea.gov 
Market Leaders vs. Followers: Depreciation Rates 

of R&D Assets and Organizational Capital 

Industry δR&D, Leader δR&D, Follower δOC, Leader δOC, Follower

Aerospace 29% 28% 13% 18%

Communication 29% 27% 17% 15%

Computer System Design 17% 23% 1% 13%

Computer & peripherals 26% 27% 3% 15%

Motor 21% 23% 5% 8%

Navigational 27% 34% 3% 7%

Pharmaceutical 9% 39% 2% 20%

Semiconductor 26% 26% 16% 19%

Software 21% 29% 2% 13%

bea.gov 
Ranking of Annual Stock Size of 

R&D Assets and Organizational Capital 

0 

200000

400000

600000

800000

1000000

1200000

1400000

1600000

1 3 5 7 9 11 13 15 17 19

Software 

onal 

 Design 

i 

200000

400000

600000

800000

1000000

1200000

0 

0

0

0

0

0

0

1 2 3 4 5 6 7 8 9 1011121314151617181920

Software 

Semi 

Pharma 

Navigational 

Motor 

Com Sys Design 

Com Peri 

Comm 

Aero 

Semi 

Pharma

Navigati

Motor 

Com Sys

Com Per

Comm 

Aero 

bea.gov Annual Stock of R&D Assets Annual Stock of Organizational Capital 
Global Top Ten Public Companies in 

Software, Semiconductor, and Pharmaceutical Industries 

Rank Software Co. Country Semi. Co. Country Pharmaceutical Co. Country 

1 Microsoft U.S. Samsung Electronics South Korea Pfizer U.S. 

2 Oracle U.S. Intel U.S. Novartis Switzerland 

3 SAP Germany Qualcomm U.S. Sanofi France 

4 Symantec U.S. Taiwan Semiconductor Taiwan Merk & Co U.S. 

5 VMware U.S. Texas Instrument U.S. Roche Holding Switzerland

6 CA U.S. ASML Holding Netherlands GlaxoSmithKline U.K. 

7 Adobe Systems U.S. Broadcom U.S. Abbott Laboratories U.S. 

8 Intuit U.S. SK Hynix South Korea Astra Zeneca U.K. 

9 Fiserv U.S. Applied Materials U.S. Eli Lilly & Co U.S. 

10 Amadeus Holdings Spain Tokyo Electron Japan Tera Pharmaceutical 

Inds 

Israel 

bea.gov Source: Forbes, 2013. http://www.forbes.com/global2000/
Global Top Ten Public Companies in 

the Auto and Computer Systems Design Industries 

Global Top Ten Public Companies 

in 

Software, Semiconductor, and 

Pharmaceutical Industries 

Rank Auto Co. Country Com Sys Design Country 

1 Volkswagen Group Germany IBM U.S. 

2 Toyota Motor Japan Accenture Ireland Ireland 

3 Daimler Germany Tencent Holdings China 

4 Ford Motor U.S. Tata Consultancy Services India 

5 BMW Group Germany Infosys India 

6 General Motors U.S. Wipro India 

7 Nissan Motor Japan Cognizant Technology U.S. 

8 Honda Motor Japan Capgemini France 

9 Hyundai Motor South Korea Computer Sciences U.S. 

10 SAIC Motor China Atos France 

bea.gov Source: Forbes, 2013. http://www.forbes.com/global2000/
Relationship between R&D and Organizational Capital

vs. Offshore Outsourcing Pattern 

Organizational 

Capital 

In-house RD x OC 

+ 

- 

RD

Lower degree of 

offshore outsourcing 

Higher degree of 

offshore outsourcing 

Industry 

Non IT-Hardware 

Industries 

IT Hardware 

Industries 

Ex. computer & peripherals and communication 

equipment 

Ex. pharmaceuticals, motor, and computer 

systems design 

bea.gov 
The Impacts of Treating R&D Expenditures and SG&A 

Expenditures as Investment on Each Industry’s 2011 CFC

Industry CFC due to RD CFC due to OC Total Increase in CFC 

Computer and electronics 

products 

0.53% 0.92% 1.45% 

Motor 3.5% 5.6% 9.1% 

Chemical 0.97% 1.44% 2.41% 

Publishing (includes software) 0.16% 0.37% 0.53% 

Computer system design 0.37% 1.08% 1.45% 

Notes: 1. The values shown here underestimate the true impacts on the industry and the 

economy. The calculations of stocks only include firms that are in the Compustat dataset, 

which only cover publically traded firms. 2. To calculate the percentage increase in CFC in each 

industry, we use the GDP by industry value added numbers posted on BEA’s website. 

bea.gov 
Conclusions 

1. Organizational capital depreciates slower than R&D assets. 

2. Market leaders have smaller depreciation rates of both

intangibles than their followers. 

3. U.S. industries with higher rankings in intangibles generally have 

greater global competitiveness. 

4. Outsourcing decision on R&D activities is related to the 

interaction relationship between R&D assets and organizational 

capital. 

5. During the sample period, the estimated impact of incorporating 

organizational capital on GDP is at least 1.5 times of that of 

incorporating R&D. 

bea.gov 
Summary of Impacts of R&D Assets, Organizational Capital, 

Physical Assets, and Their Relationship on Profitability 

Industry RD OC Tangible RD*OC RD*Tangible OC*Tangible 

Aerospace -/* -/ +/** +/** -/** +/* 

Communication +/* +/* +/* -/* +/** -/ 

Computer and Peripherals +/* +/* +/ -/* +/ +/* 

Computer Systems Design -/* +/* +/ +/* +/* -/*

Motor -/** +/** +/* +/* +/ -/ 

Navigational -/ +/* +/* +/ +/ -/** 

Pharmaceutical -/* +/* +/* +/* +/* -/*

Semiconductor -/ +/ +/* +/* -/* -/ 

Software -/* +/* +/* -/ +/* -/*

Note: * 10% significant level. ** 5% significant level. (Panel Regression Analysis)

bea.gov