Medical tourism

For a long time, international trade in services was seen as an outlier — some thing that is rare and not quite comprehensible. That changed in the 1980’s with the inclusion of services in the Uruguay Round of trade negotiations. Back then, I was also involved in one of the first looks at the specifics services trade by the non-disbanded Congressional Office of Technology Assessment. Our study, International Competition in Services: Banking, Building, Software, Know-How… looked at what we saw were four key tradable services. Medical services were not on the radar — except for some wealthy foreigners coming to the US for specialized treatment.
Now, as a new case study from Harvard Business School outlines, trade in medical services (dubbed “medial tourism”) is a big deal — and the shoe is on the other foot. More and more Americans are seeking lower cost treatment abroad, especially in India. The case study looks specifically at the rise of Apollo Hospitals. But, as the overview discussion in HBS Working Knowledge — The Rise of Medical Tourism the phenomenon is more wide spread:

Patients with resources can easily go where care is provided. “Historically doctors moved from Africa and India to London and New York to provide care. Now we are basically flipping it around and saying, ‘Why don’t the patients move? It’s not as difficult as it used to be.’ ”

It is growing and it is not just trade catering to patients from Western nations:

We will see solutions emerge that have nothing to do with the West and that specialize in particular kinds of care where the West may not even have much competence: tropical diseases in Southeast Asia and Africa, for instance. On the other hand, you might see very interesting links between particular companies, research institutes, and hospitals in different parts of the world—in the Middle East, Europe, the United States. My guess is that 3 or 4 prominent hospital companies will survive because the demand is so huge.

The growth of medical tourism highlights the changes in what is tradable. Medical services were once seen as one of the last remaining bedrocks of local economic development. The medical center replaced the factory as the main employer in many cities. But with greater push for telemedicine, the centralization of medical services is not as compelling as it once was. And improvements in transportation, not just information technology, are enabling the rise of medial tourism.
As the I-Cubed continues to evolve, look for more of these paradigm flipping strategies. They will pose a challenge not only to corporate strategy, but to our economic development strategies.

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Innovation predictions

Business Week has published its Innovation Predictions 2008. An interesting bunch of predictions about innovation itself — not necessarily about innovations. Some of them are already in place — like “the customer is king” where “Consumers replace competitors as the key reference point for corporate strategy.” Many revolve around the new face of innovation – with d-schools replacing b-schools, private equity firms embracing innovation as a turn around strategy and major consulting firms going after the design/innovation firms. Others have to do with the privacy backlash and new marketing trends. The one I found especially interesting was about politics:

A national innovation policy emerges as a key part of the Presidential campaign. With the economy sinking into recession and competitors from China, India, and Europe embracing national innovation plans, Hillary Clinton is the first to propose a program—and rivals respond.

That would be nice — but don’t hold your breath. Yes, the candidates will say (and already have said) nice things about innovation and have put forward plans and proposals (see earlier posting). But whether they add up to a “national innovation strategy” or simply a call for a “national innovation strategy” remains to be seen. Of course, even a call for a strategy would be a good starting point.
The real problem will be connecting to the voters – which is needed if innovation becomes a “key part.” The candidates can talk about what ever they want, but it is what the voters are interested in hearing about that determines the course of a campaign. Right now, “innovation” is a MEGO issue (“my eyes glass over”). Until and unless one of the candidates can connect the issue emotionally to the public, it will remain the providence of policy wonks and specific interests. And making that connection requires transforming the rhetoric and the public consciousness — two things I don’t yet see happening.
So, look for innovation to come up in the campaign, but not be a key part. It would be great if I’m wrong on that latter point, however.

Mission Intangible: A Conference on the Financial Impact of Extra-financial Information

Mission Intangible: A Conference on the Financial Impact of Extra-financial Information
December 14, 2007
Athena Alliance and the Intangible Assets Finance Society

There’s more to corporate performance than what can be gleaned from traditional financial reporting. We know that information on intangibles (also know as “extra-financial” information) plays a major part in investment decisions. One study found that non-financial criteria constitute, on average, 35 percent of the equity investor’s portfolio allocation decisions. But, it is not always readily available. Another study reported that over half of the information investors want is not reported on the balance sheet. This one day conference held in the heart of Wall Street brought together a number of experts and practioners. Dr. Cynthia A. Glassman, Undersecretary of Commerce for Economic Affairs, and former Commissioner of the U.S. Securities and Exchange Commission, was the keynote speaker. Her keynote speech is available online.

For summaries of the conference, see Intangible Asset Finance Society Conference Solidifies Understanding of Emerging Asset Class and IAFS seeks to spread the intangible asset message to the wider business community – Intellectual Asset Management.

Riding the Rising Tide

Earlier this week, ASTRA (the Alliance for Science & Technology Research in America) released its report – Riding the Rising Tide: A 21st Century Strategy for U.S. Competitiveness and Prosperity. The report is really a call for the various Presidential campaigns to take the issue of competitiveness seriously. It echoes and builds upon the now familiar concern about the lack of an innovation strategy in the US. The ASTRA report offers a 14 point plan:

1. BALANCE DEFENSE/CIVILIAN SHARE OF FEDERAL R&D PORTFOLIO
2. INCREASE FEDERAL FUNDING FOR PHYSICAL SCIENCES AND ENGINEERING RESEARCH
The Congress and the Administration should fulfill the physical sciences and engineering R&D commitments made in the American Competitiveness Initiative (ACI). However, to ensure that funding expands beyond increases in inflation, the timetable for these investments should be accelerated. In addition, investment should be increased beyond the ACI recipient agencies.
3. INCREASE AND STABILIZE FUNDING FOR APPLIED RESEARCH
The Federal government should increase and stabilize funding for applied research and advancing promising, high-risk technologies with substantial economic potential to bring them to a stage of maturity that is attractive for private sector investment. This includes funding for the new Technology Innovation Program (TIP) and other programs that meet this objective.
In addition, the approach to SBIR funding should be reviewed to determine how this program could maximize its ability to contribute to the U.S. innovation base.
4. FOCUS R&D ON LEADING EDGE OF SCIENCE AND TECHNOLOGY
A large share of Federal R&D investment should focus on the leading edge of science and technology, especially in fields expected to have revolutionary impacts, such as nanotechnology, biotechnology, and high-performance computing.
5. INCREASE R&D TO SUPPORT GROWING SERVICES SECTOR
The Federal government should increase R&D to support the U.S. service economy, including support for services innovation, productivity, efficiency, competitiveness, and technical workforce development.
6. INCREASE FOCUS ON INTERDISCIPLINARY AND MULTI-DISCIPLINARY RESEARCH, NEW FORMS OF COLLABORATION, AND NURTURING INNOVATIVE CAPACITY IN GEOGRAPHIC REGIONS WHERE INNOVATIVE CAPACITY EXISTS BUT IS UNDER-USED
While investigator-driven research remains the cornerstone of Federally-supported academic R&D, the Federal government should increase attention to emerging opportunities for interdisciplinary and multidisciplinary research, including a focus on centers of research excellence where rapid development of innovations requires this type of collaboration. This includes reaching out to academic institutions in geographic regions in which the potential for innovative capacity exists—such as high quality research and researchers—but needs further nurturing.
7. PROVIDE INCENTIVES FOR BENEFITS OF FEDERAL R&D TO BE CAPTURED WITHIN THE U.S.
To ensure that the US. reaps the benefits of Federal R&D investments, the Federal government should examine what incentives can be put in place to enable adequate returns from public R&D to be captured domestically For example, the U.S. should consider devoting a small part of the Federal research portfolio to investments in applied research,
technology prototyping, demonstration, testing, pilot-scale production and other precompetitive activities to increase the likelihood of eventual commercialization on our shores.
8. EXAMINE ADEQUACY OF U.S. SKILLS FOR INNOVATION ECONOMY
The U.S. needs to examine whether prevailing skill levels are adequate for an innovation based economy, and for our success in the growing global “trade in tasks” in which routine knowledge work is easy to ship offshore.
9. IMPROVE STATISTICAL AND CAREER INFORMATION ABOUT THE U.S. SCIENCE, TECHNOLOGY AND ENGINEERING WORKFORCE
The U.S. should provide better and more detailed information on the nation’s need for scientists, engineers and information technology workers. The National Science Foundation should: encourage employers to better articulate their current and prospective STEM workforce needs, and the types of skills and disciplines needed; ensure students and workers understand what these specific skills and disciplines are; as well as encourage a significant shortening of the feedback loop between employers and their needs, and the responses by education and training institutions. This includes providing career information and nurturing to groups underrepresented in STEM—such as minorities and women—to increase their knowledge of opportunities in STEM education and careers.
10. IMPROVE HIGHER EDUCATION FOR SCIENTISTS AND ENGINEERS BY FOCUSING ON GLOBAL AND CULTURAL AWARENESS, COMMUNICATIONS, BUSINESS AND MANAGEMENT SKILLS
The Federal government should encourage university educators to broaden the skill sets of U.S. scientists, engineers and information technology workers. University educators should ensure that scientists, engineers and IT professionals have: global and cultural awareness;
knowledge that helps them understand business, markets, marketing and customers; the ability to work as a member of and communicate effectively in teams of diverse disciplines; some understanding of business finance such as cost-benefit and return on investment concerns; as well as project management abilities.
11. STRENGTHEN EFFORTS TO ATTRACT TOP FOREIGN STUDENTS AND STEM PROFESSIONALS TO THE U.S.; REMOVE BARRIERS TO IMMIGRATION OF TALENT
The U.S. should strengthen efforts to attract top foreign students and PH.D.-level professionals in science, engineering and technology. This includes developing a national strategic plan for recruiting top international students, scientists, engineers and technologists, and evaluating the U.S. immigration system to remove barriers to these talented individuals migrating to the U.S.
12. PERFORM WHITE HOUSE REVIEW OF LAWS, REGULATIONS AND POLICIES; ADDRESS INHIBITORS TO INNOVATION
The next President should launch a White House level initiative to perform a comprehensive review of U.S. laws and regulations relating to the business climate for innovation. This would include regulations promoting human health and safety, standards for environmental protection, as well as tax, trade and antitrust policies, to determine whether changes are needed to meet the nation’s public policy goals while, at the same time, promoting innovation and competitiveness.
13. DEVELOP A MEANINGFUL SET OF INNOVATION INDICATORS TO GUIDE U.S. INNOVATION POLICY AND STRATEGY
The Federal government should lead efforts to determine where the priorities are, and to begin the process of developing some high level indicators around the key drivers of innovation that are known and recognized.
14. CREATE, AND PROVIDE ADEQUATE SUPPORT FOR, BETTER GOVERNMENT ANALYSIS OF U.S. AND FOREIGN INNOVATION SYSTEMS
The U.S. must create—and provide meaningful financial resources to—institutions within the Federal government capable of performing high quality analysis of U.S. and foreign innovation systems, and formulating a Federal innovation policy and investment agenda commensurate with the new economic realities and 21st century competitiveness challenges.

What I especially like about these points is that they incorporate but go beyond the current calls for more R&D funding and more attention to STEM (science, technology, engineering and mathematics) education. For example, the report discusses the range of innovation relevant skills needed in the US economy and highlights the need for STEM workers to have a broad skills set.
The last three recommendations are of particular interest to me. The report calls for greater efforts to understand the innovation ecosystem. We need to understand that the nature of innovations has changed in the I-Cubed Economy. It is no longer a linear process that begins with men in white coats in labs. Innovation is a complex set of interactions — truly an ecosystem. By calling for better measures, increased analytical capabilities and new ways of thinking about innovation, the report sets a direction for innovation policy.
Now if the policymakers will only follow ASTRA’s lead.

The Fed and intangibles

On his New York Times Blog, Floyd Norris explains what the Fed did yesterday when it announced a new “term auction facility”:

The Fed will lend money to banks based on almost any asset they own, even ones that are not liquid at all. That will include some of the more exotic loans and securities out there.
Investors, it appears, love it. The stock market opened sharply higher, reducing the losses that came yesterday after the Fed cut interest rates, but not by enough to satisfy Wall Street. This move is taken as evidence that central banks are determined to rescue the system, whatever it takes.
How much will the Fed lend against illiquid assets? It has a public list, already in use in discount window lending. You will note that it allows the lending of up to 85 percent of the face value of AAA-rated collateralized mortgage obligations, if there is no observable market value. There are some C.M.O.’s out there that have not yet been downgraded but that might not bring that much in a sale.
I’d love to see which assets are pledged, and how much the Fed lends against them. But the Fed won’t disclose those facts. Nor will it let us know which banks borrow using the new facility.

Intangible are not included on the current list of assets, however. The Fed will lend against Commercial and Agricultural Loans, Commercial Real Estate Loans, Construction Real Estate Loans, Family Residential Mortgages, Home Equity Loans, Consumer Loans- Autos, Private Banking, Installment, Etc., Consumer Loans- Credit Card Receivables, Student Loans, SubPrime Credit Card Receivables and Asset-Back Securities. It will be interesting to see if anyone asks them to lend against an intangible-backed loan.

October trade in intangibles

In a reversal of the trend for the past few months, this morning’s BEA trade data shows an increase in the deficit by $0.7 billion to $57.82 billion in October. The deficit for September was also revised upwards, meaning the deficit actually increased in that month rather than decreased as previously reported. Much of the increased deficit was due to oil. As the Wall Street Journal reports:

The U.S. bill for crude oil imports was $22.92 billion, up from $20.38 billion in September. The average price per barrel increased $3.98 to a record $72.49 from $68.51. Crude import volumes rose to 316.18 million barrels from 297.50 million.

The New York Times points out that imports from China also played a major role:

The deficit with China jumped 9.1 percent to $25.9 billion, a record for a single month.
The rise reflected record imports from China, led by large gains in shipments of toys and games and televisions as retailers stocked their shelves for Christmas. The demand for Chinese imports is still surging despite a string of high-profile recalls of Chinese products from toys with lead paint to defective tires and tainted toothpaste.

The good news is that our intangible trade balance improved by $90 million in October to a surplus of $10.21 billion. The increase was due to royalty receipts and exports of business services growing faster than royalty payments and imports of business services.
The other story on our intangibles trade is the revisions of the data for the past six months. The revised data does not change the overall trend. But it does show constantly higher figures for business service imports and exports and for royalty receipts (exports). Curiously, royalty payments (imports) were consistently lowered in the revisions. In other words, the earlier data appears to systematically underestimate trade in business services and royalty receipts while overestimating royalty payments. This highlights the continued difficulties of measuring trade in the I-Cubed Economy.
The deficit in Advanced Technology Products increased dramatically in October by $1.5 billion, reaching a record monthly deficit of $6.667 billion. This came in spite of a $1.4 billion improvement in aerospace trade as exports surged by almost $1.9 billion. That improvement was overshadowed by increased imports of information and communications technology (ICT), life sciences and opto-electronics. Imports of ICT alone increased by $1.6 billion. The last monthly surplus in Advanced Technology Products was in June 2002 and the last sustained series of monthly surpluses were in the first half of 2001.

Intangibles trade-Oct07.gif


Note: we define trade in intangibles as the sum of “royalties and license fees” and “other private services”. The BEA/Census Bureau definitions of those categories are as follows:


Royalties and License Fees – Transactions with foreign residents involving intangible assets and proprietary rights, such as the use of patents, techniques, processes, formulas, designs, know-how, trademarks, copyrights, franchises, and manufacturing rights. The term “royalties” generally refers to payments for the utilization of copyrights or trademarks, and the term “license fees” generally refers to payments for the use of patents or industrial processes.


Other Private Services – Transactions with affiliated foreigners, for which no identification by type is available, and of transactions with unaffiliated foreigners. (The term “affiliated” refers to a direct investment relationship, which exists when a U.S. person has ownership or control, directly or indirectly, of 10 percent or more of a foreign business enterprise’s voting securities or the equivalent, or when a foreign person has a similar interest in a U.S. enterprise.) Transactions with unaffiliated foreigners consist of education services; financial services (includes commissions and other transactions fees associated with the purchase and sale of securities and noninterest income of banks, and excludes investment income); insurance services; telecommunications services (includes transmission services and value-added services); and business, professional, and technical services. Included in the last group are advertising services; computer and data processing services; database and other information services; research, development, and testing services; management, consulting, and public relations services; legal services; construction, engineering, architectural, and mining services; industrial engineering services; installation, maintenance, and repair of equipment; and other services, including medical services and film and tape rentals.

Expectations

The Fed cuts interest rates and the Dow drops almost 300 points. I guess Wall Street really is fueled by that most intangible of intangibles – expectations. To quote Keynes:

Even apart from the instability due to speculation, there is the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations, whether moral or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits – a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities. (The General Theory of Employment Interest and Money, pp. 161-162).