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.

2. 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.

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.

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.

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.

Country focus        12.1: Singapore (page 445) In what ways has Singapore’s economic development model weakened national innovative capacity? Does a lack of home-grown innovators matter? First describe Singapore’s development model, which features a strong government role and FDI. Reliance on skilled foreigners has arguably led to weakened national innovative capacity. Singapore has long prioritized high-quality education, which helped to attract foreign investors. But local staff became accustomed to working for foreign companies, rather than developing their own innovative ideas. A further factor is that the city-state can seem to many local people to have a rather stifling social and political climate, leading many talented people to seek jobs elsewhere in more open environments.