According to the 2008 Global Venture Capital Survey, which was conducted in March 2008 and measured the opinions of nearly 400 venture capitalists worldwide, the United States retains the top position as the global leader in technological innovation. While this position is not threatened, “other countries are quietly excelling in areas that are critical to the future of venture capital investment,” said Mark Heesen, president of the National Venture Capital Association.

“The United States maintains the top spot as the global technology leader in innovation,” said Mark Jensen, national managing partner of Deloitte LLP’s Venture Capital Services. “While the United States isn’t losing ground, the globalization of innovation is under way. The rest of the world is finding out what they’re good at, and venture capitalists recognize where those strengths lie.”

“Those countries that can marry the innovation and entrepreneurial work ethic as the United States has done will become formidable economic competitors in the 21st century,” says Heesen.

Europe is emerging as a new leader behind the United States for life sciences and clean technology sectors. Germany was recognized by 43 percent of all respondents as leading the rapidly growing clean technology field. The United Kingdom was identified in the second spot by 31 percent of the respondents as having leading technology for biopharmaceuticals.

In Asia, Japan leads (just behind the United States) in telecom. Taiwan is very strong in the production of semiconductors and outsourced manufacturing, while India ranks very high in software development.

The United States is still seen as having the best technology in all sectors surveyed. The following represents the percentage of global venture capitalists that named the United States to the No. 1 or No. 2 spot in the noted industry sectors:

• Telecommunications — 71 percent
• Semiconductors — 81 percent
• Software — 91 percent
• Biopharmaceuticals — 94 percent
• Medical Devices — 94 percent
• Clean Technology — 79 percent

Our Point of View*

Necessity may be the mother of invention, but complacency is the father of failure. For now, the United States remains the favorite amongst global venture capitalists, but times are certainly changing – and no one should expect the ‘States to retain this lead indefinitely.

The figures cited above are encouraging for American business people. They also reflect the beginnings of a shift in venture investment away from a single dominant innovator and toward a more selective and dispersed strategy. Also, these numbers may be somewhat distorted by the fact that much of the venture capitol going to U.S. enterprises is re-invested, in part, by outsourcing segments of a product’s development.

In the world of R&D, true vertical integration is a thing of the past, with select tasks going to those best suited to fulfill them. As distinct regions of the world strengthen their specializations (software in India, Taiwanese semi-conductors, Japanese telecom, etc.) U.S. firms should continue to capitalize on the added value these countries create, and focus on filling the niches they cannot.

To remain a leader in “innovation” investments, U.S. firms must embrace, engage, and exchange with nations that compliment its shortcomings. This pattern will most assuredly continue as communication and logistics technology causes the world to, as author Tomas Friedman calls it, flatten.

*The views expressed here are the individual views of their authors, and do not necessarily represent the views of Xerox Corporation.