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How does innovation spearhead prosperity? (page 442)
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Innovation: can policies really make a difference? (page 447)
The pros:
Innovators can emerge any time, anywhere. They emerge both in societies which are oppressive and those which encourage people to pursue new ideas.
Innovatory capacity does not need a basis in education or technological training.
Innovators are self-motivated, equipping themselves with the knowledge they need to pursue their ideas.
Innovators often thrive in adversity. Perhaps paradoxically, they are motivated by the sense that they are battling their way to success, struggling for funds and finding no one who believes in them. They would be less motivated if government money were too easily available.
The cons:
Although there are always going to be one-off highly motivated individuals in any society, the number will be insignificant unless the conditions are made more congenial for encouraging people to develop their ideas.
Education is a prerequisite, as it kindles the imagination of individuals who wish to pursue new ideas.
Education needs to encourage students to think independently, not simply learn by rote. As the pool of critically-minded educated people grows, more will pursue innovatory ideas which can be turned into viable businesses.
Although every country has innovative individuals, the ability to take an idea and develop a successful business requires considerable knowledge and skill in various business areas, not just in the idea for the new product. This knowledge can only come through education and training.
Finance is often the largest hurdle for entrepreneurs. Government policies to encourage both public and private funding of start-ups can bear fruit.
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The technology gap (page 450) Developing countries must build innovative capacity. See this Figure for the different elements of a national innovation system. Developing countries often look to technology transfer to help them to build innovative capacity, but much depends on their absorptive capacity. Education, infrastructure and the industrial structure in the particular country influence the extent to which local people and firms can benefit from technology transfer and develop their own technological capacity. FDI and technology licensing offer good opportunities for local people to learn new technology and how to manage it. However, these channels can be a mixed blessing. The risks of over-reliance on FDI include: |
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The foreign investor stifles local producers.
Local people are welcomed in the lower skilled jobs, but are not trained to do the more skilled jobs or take up managerial posts.
Some FDI investors do not develop ties with local suppliers, preferring to import from their own familiar sources
In the above situations, FDI provides little benefit to host-country innovation capacity. These effects can be avoided if host-country negotiators reach agreement with foreign investors on issues such as jobs, training and suppliers, to ensure local participation. However, the host country could well fear that doing so will deter the would-be investor.
Innovation strategies adapt to changing markets (page 457)
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Technology push strategies are associated with cutting-edge new products invented in research-intensive organizations, whereas customer pull strategies are more likely to be of the incremental variety. Incremental innovation can take place in any organization, not just those with sizeable R&D departments. As this Table shows, the companies which spend heavily on R&D are mainly in automotive engineering, pharmaceuticals and electronics. Their new products are the result of R&D activities. However, these companies are now focusing on changing customer needs. The ‘green’ car is an example (see CS 13.2). The global companies in consumer products, such as P&G (CS8.1), now target emerging markets, where meeting the particular needs of these consumers is spurring innovation. In mass-produced consumer goods, innovation is taking place in numerous functional areas, such as marketing and distribution. New ways of working can meet consumer needs better and cost less. Wal-Mart, which is a global retailer, also focuses on innovation in supply chains. This is incremental innovation which reduces costs and improves response times. |
The world’s 20 largest companies by R&D spending, 2006
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The
innovation culture (page 464) Aspects of corporate culture which foster innovation include openness to new ideas, informality and minimal bureaucracy. Large organizations tend to be more bureaucratic and procedure-driven, making it difficult to cultivate the sort of atmosphere in which creative people can thrive. Managers can attempt to change the corporate culture by reducing bureaucracy and allowing more informal networking to take place. Creative people can be given more scope to pursue their ideas. Often in a large organization, the person with a new idea can find that the daunting prospect of getting it adopted involves so many procedures that it is not worth the trouble.
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| Globalization of innovation? (page 467) | |
| This question could be used for a seminar debate or an individual assignment. If this were set as an assignment, the student would be expected to summarize what is meant by globalization. On the ‘yes’ side of the debate, organizations are scanning the globe for the best location for every activity, including R&D. R&D has traditionally been an activity which Western MNEs have kept in their home country, as this is where they would find the most highly skilled researchers. This is now no longer true. As emerging countries are rising up the development ladder, their research and innovation capabilities are also rising. These capabilities are serving both local MNEs (which are themselves becoming internationalized) and also foreign investors. Western companies also see the advantage of locating R&D near customers (recall the example of Swiss MNEs). Innovation is itself now conceptualized as part of a broader-based strategy than merely R&D, involving the whole organization and supply chain. As supply chains become internationalized, innovatory ideas can emerge at any stage in the process. |
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On the ‘no’ side of the debate, one could argue that national innovation systems are crucial to innovation capacity. Most innovation still takes place in the large MNEs,
which have the largest R&D spending. These companies have benefited from the national conditions in their home countries, which have fostered innovation. The
environment in the country, including the education system and cultural environment, is crucial to nurturing innovation. These remain essentially local factors. It is true that
more countries are now building innovation capacity, but this does not mean that innovation is itself globalized.
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(page 430) |
In what ways can government policies help to build innovative capacity, and how do the policy choices differ in relation to different stages of economic development?
Governments can invest in education, beginning with universal primary education, moving towards higher education. As these institutions are being developed, the government can send promising students to be educated, for example, in science and technology, to foreign institutions, on condition that they return home to take up jobs or train others. China has successfully pursued this policy. The government needs also to promote entrepreneurial activity, making it relatively simple and cheap to start a company, and making funding available in the early stages of the start-up. Governments in developing countries, looking to rise up the development ladder, often see FDI as the favoured means, moving from rather low-skilled to higher skilled manufacturing. However, the spillover effects and encouragement of local firms does not necessarily materialize where the absorptive capacity of the local workforce is limited.
The government should also build a legal framework for the recognition and enforcement of IP rights. This will help to attract foreign investors and will also protect local innovators.
Why is the large, research-intensive MNE, such as a pharmaceutical company, finding the global competitive environment increasingly tough?(Read CS12.2 before answering.)
The large, research-intensive MNE is compelled to spend huge sums on R&D, as new products are its main source of competitive advantage. For pharmaceutical companies, the costs must include the costs of long periods of testing and the costs of securing and defending patents. A consequence is that the company is compelled to try and recoup the costs through pricing of its products. In the current climate, however, consumers and health services around the world are exerting downward pressure on prices. In addition, producers of generic medicines (out of patent) are competing against the global brands. These generic competitors, which do not have large R&D budgets, charge much lower prices.
Some aggressively pursue legal actions against patent-holders, hoping to undermine patent protection and make more products available for generic companies to manufacture.
For the large MNE, assess the relative merits of keeping R&D in-house or acquiring new ideas from external sources.
Recall the theory of core competencies from Chapter 7. The large MNE must consider to what extent R&D represents a core competency, and whether acquisition of ideas from external sources would have a detrimental effect on its in-house research.
Merits of keeping R&D in-house:
Maintain core competencies
Maintain control of IP rights
Nurture the research skills to produce winning products in the future
Maintain quality control over research processes.
Case for using external sources:
The company cannot pursue in-house research in depth in all relevant areas.
The outside specialist can complement in-house strengths.
Buying in can be cheaper. The company may obtain a licence to produce the product or take over the company, which in many cases is an SME.
Working with outsiders can help to nurture new ideas.
What role is played by SMEs in breakthrough innovations, and how does it differ in differing national environments (give examples from this chapter)?
Any company can be innovative, and the small, entrepreneurial company often attracts creative people who come up with breakthrough innovations. Many of these companies are born-globals, set on a global presence from the outset. SMEs with rather more modest aspirations often seek to get their ideas taken up by large companies with greater resources to market them. The large company gains from this relationship, as in the pharmaceutical industry. National environments differ in their encouragement of SMEs. The chapter has featured two countries with high research profiles (Singapore and Switzerland), but both have been faltering in their encouragement of SMEs. In the case of Switzerland, we saw that the biotech SMEs are flourishing in some cantons.
Explain why managing IPR is becoming more multifaceted in the internationalized competitive environment.
Intellectual property rights (IPR) have become quite complex, and are subject to differing national regimes. Every product represents a bundle of rights: the product itself might be subject to patent; the trademark can be registered; media content is copyright. Managing these rights involves the company, not simply the legal department. As product life cycles become shorter, the company might have only a short space of time in which to exploit its new product (in practice, it will be a shorter time than the legal duration of a patent). If the product is successful, there are sure to be competitors on the scene with similar products, raising the possibility of action for infringement of IPR. Ensuring that the company’s products are well protected legally in the relevant markets will deter possible infringing activities. IP infringing activities are huge businesses in themselves, affecting all sectors, but particularly media products, including software (which is copyright). Pursuing infringers is one of the many facets of managing IPR in international markets.
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Country focus 12.1: Singapore (page 445)
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How sustainable is Singapore’s combination of a market economy and authoritarian political rule?
This is an interesting issue in general, relevant in a number of emerging economies, not simply Singapore. Singapore has benefited economically from its openness to foreign investors, and its entrenched political establishment has been able to claim credit for continued prosperity. However, rising inequality is now a cause of concern, and could lead to a breakdown in the consensus which has characterized the society. In addition, the preferential treatment accorded foreign businesses over local ones has led to a rise in political dissent, surfacing on the internet.
It is arguable that the paternalistic state, which has been responsible for Singapore’s economic development, is now seen more negatively, as a constraint on society. Any economic downturn, as is now engulfing states globally, can lead to a questioning of the government’s policies. The general issue is whether the growth of economic freedom logically leads to calls for greater political freedom. Often, calls for democracy come from the more educated and outward-looking sections of society. However, dissent can also grow among numerous social groups, including, for example, young people who find it hard to get jobs. If prosperity is not evenly spread in the society, this adds to the pressure on authoritarian governments.
What recommendations would you make to the Singapore government to maintain global competitiveness?
The government is seeking to create centres in biotechnology research, which will enhance its competitiveness. However, local spillovers seem to be few, as the policy has been to attract scientists from abroad. Perhaps, the government should look to encouraging local academic research: given the number of academic institutions, it would seem long overdue to encourage local excellence. Perhaps, local firms would then emerge, which could benefit from links with foreign investors.
Singapore needs to encourage more entrepreneurs to come forward and start businesses. These would create jobs which could be filled by the highly qualified local workforce. This policy would also raise the city-state’s innovation capacity.
The Singapore government recognizes the drawbacks of the restrictions on civil society and the perception of intrusive restrictions on social activities. Lifting restrictions would be popular, but the government is concerned about opening up political dissent. If social and political instability were to emerge, this would certainly be a deterrent to would-be foreign investors, whom the government has prioritized. The government is therefore faced with a dilemma. Dissent is likely to spread, whatever it does.
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12.1: Martek Marine rides the waves of innovation (page 439) |
What are the key elements of Martek’s approach to innovation, and in what ways is its innovation strategy linked to entrepreneurship?
Martek Marine operates in an internationally regulated industry, which is safety and other equipment for the shipping industry. In safety and environmental
monitoring, regulations are constantly changing the standards, and new products are constantly needed. The company is highly attuned to the changes in
international conventions (instruments of international law) which affect the industry, aiming to have products available which anticipate future changes. This
strategy stems from the founders’ entrepreneurial approach to the business. As a start-up, they linked technological expertise with marketing strategy designed to suit customers’ needs.
What are the core competencies of Martek, and what are its sources of competitive advantage?
Students should first recall these theories from Chapter 7. Martek’s core competencies would be their technological expertise in their specialist area, including design and operational know-how. Drawing on the resource-based view of the firm, this company has physical resources (its plant and machinery); human resources (its skills and expertise) and organizational resources (its corporate culture and networks of relations). Its CSR policy and close links with customers and other stakeholders are also sources of competitive advantage.
BusAd 170
Chapter Review:
Chapter 1
Chapter 2
Chapter 3
Chapter 4
Chapter 5
Chapter 6
Chapter 7
Chapter 8
Chapter 9
Chapter 10
Chapter 11
Chapter 12
Chapter 13
Chapter 14
Chapter 15
Updated on 05/05/2015
