Organizational Capital , R & D Assets , and Offshore Outsourcing

The degree of offshore outsourcing in the high-tech industries has increased rapidly in past decades. Because of this trend, economists have been debating whether offshore outsourcing is hollowing out U.S. high-tech firms’ core competencies in intangibles. To contribute to the debate, I first develop a forward-looking profit model and use Compustat dataset to measure the capital stock and depreciation rate of R&D and organizational capital for major U.S. R&Dintensive industries. Then, I use the estimates to analyze whether industries with a higher degree of offshore outsourcing exhibit a different investment pattern in intangibles. In general, I find that industries with more intangibles are more competitive in the global market. Even in R&D intensive industries, the estimated size of organizational capital is larger than that of R&D assets. Moreover, in industries with a lower degree of offshore outsourcing, R&D assets and organizational capital are complementary. However, industries with a higher degree of offshore outsourcing invest less in both R&D and organizational capital but have higher productivity growth. Lastly, R&D assets contribute to a firm’s market value but U.S. top high-tech market performers maintain a close ratio of R&D assets to organizational capital.