Global Business Perspectives
The Global Business Environment
LeCTURE 9
Challenges and responsibilities
Technology and innovation
How companies and countries gain from technological innovation
Summary of contents
Concepts and processes
Theories of technological innovation
National systems of innovation
Patents and other intellectual property (IP) rights
What is a patentable invention?
Patent rights in practice
Diffusion of technology
Challenges and responsibilities
Conclusions
Concepts and processes
Innovation covers activities which seek improvements and new ways of doing things
An invention is a new product or process, making a qualitative leap forward from existing technology
Technology is the methodical application of scientific knowledge to practical purposes
Scientific knowledge plays a crucial role in technological innovation
Companies invest in research & development (R&D) to extend knowledge and generate new products and applications
The innovation process
Theories of technological innovation
Schumpeter’s theory of industrial waves -
Historical waves based on technical innovation, which affects organizations and societies
Viewed changes taking place within capitalism as ‘creative destruction’ – new products, new methods and new organizations emerge, as old ones die
Product life cycle theory and innovation -
Holds that the early success of a new product depends on a large home market which bears the cost of the necessary R&D
When the product becomes more standardized, production moves to less advanced, cheaper locations
Linked to globalization of production
Technology and economic development
Technology gap between developed countries and developing ones
Developing countries strive to ‘catch up’
FDI and globalization have led to technology transfer, but countries vary in their uptake
FDI can boost economic growth, but not necessarily promote development goals
Technological innovation at the domestic level can contribute to sustainable development
National systems of innovation
The structures and institutions which encourage a country’s innovation activities; they include –
Education and training
Science and technology capabilities
Industrial structure
Science and technology strengths and weaknesses
Interactions within the innovation system
Enhancing innovation capacity depends on interactions between the academic community, businesses and governments
How does education contribute?
High participation in education does not necessarily translate into technological innovation
Example of South Korea, one of the most highly educated countries
Its education system is strong in science and technology
China has greatly increased the number of graduates, but administration and finance are more popular subjects than science and technology
In China, there is still a shortage of expertise in science and technology
R&D activity as an indicator of innovation capacity
The total number of active researchers in the economy as an indicator:
Highest in Denmark, Sweden and South Korea
Relatively low in China
Most R&D spending is provided by businesses rather than governments
R&D spending is far more in the US than any other country
China’s R&D spending is rising steeply, and is likely to overtake that of the US in a few years
Why are some countries more innovative than others?
Social, cultural and historical differences among countries
Countries vary in ability to assimilate and adapt technology in local environments
Factors:
Skilled workforce
Availability of financial resources
Government policies
Role of culture
Patents as intellectual property rights
Intellectual property (IP) is the property in intangible assets such as patents, copyrights and trademarks
Patents are referred to as ‘industrial property’
IP law protects property rights in inventions and other products of the human intellect
IP protection is intended as an incentive, giving the owner a limited monopoly over the product
Patents are the basis of much licensed technology, whereby the owner licenses a manufacturer to make the product
What is a patentable invention?
A patentable invention must:
Be new
Be‘useful’ or ‘industrially applicable’,
Not have been previously disclosed
Need not be a totally new product, but a significant improvement on an existing product
The patent gives the owner an exclusive right for a limited period to exploit the product commercially, or license someone else to produce it
Patent activity: what does it tell us?
Most patent applications filed in each country are usually from residents of that country
China is now the world leader in patent applications
The US patent office is the world’s largest
The percentage of applications from foreign residents has gradually risen, and is now 51% in the US
A cautionary note: Patent activity is only one indicator
The invention must be something consumers will buy, which depends heavily on brand-building and marketing
Trade-related Aspects of IP Rights (TRIPS)
Harmonization of IP rights through a multilateral system, dating from 1996
Developed countries can be distinguished from developing ones, where IP law is less strict and less enforced
Developing countries were given extensions to the timeframe in which to bring national laws up to minimum international standards
Criticized by many in developing countries, especially in relation to plants and medicines, whose patents are mainly owned by large western MNEs
Technology diffusion and innovation
Technology diffusion – gradual processes for acquiring technology from other countries
Technology transfer - a deliberate acquisition of technology from another country
Key to industrial growth, where technology is transferred from more advanced economies to developing ones
The main channels:
FDI spillover effects for host economy
Joint ventures and strategic alliances – collaborative innovation
Technology licensing – often in outsourcing operations, but there is a risk of leakage of IP
Trade – ‘embodied’ technology in machinery and equipment can lead to ‘reverse engineering’ in the recipient country
Technology diffusion
Globalization and technology transfer
FDI is a major source of technology transfer
Technology licensing is often combined with FDI
For example, Apple’s iPhones made in China by Foxconn, a Taiwanese foreign investor
Japan and Germany benefited from imported technology to develop local capabilities
But foreign investors are often careful to avoid the ‘leakage’ of IP to local firms
Indigenous firms are challenged to develop innovative capacity independently
Benefits of new technology in developing countries
Poorer countries do not simply ‘catch up’ with richer ones
The country’s level of income is a factor
The country that relies on FDI in low-wage operations (such as textiles and electronic gadgets) based on imported technology can become ‘path-dependent’
Aids economic growth but not development
Indigenous innovation can be more relevant than imported technology in the long term
Challenges and responsibilities
Technological innovation is disruptive – creative destruction
Results in winners and losers, affecting individuals, firms and societies
Industrialization brings new factory jobs, but also dramatic changes in working life and in societies
The digital era brings empowerment to individuals - communications, knowledge and social interactions
Businesses can foster inclusive innovation – benefiting the company and society
Conclusions
Technological innovation can transform economies and societies
Industrialization has driven economic and social change, bringing both positive and negative outcomes
Supply chains and globalization have been central to spreading technology via FDI, but low-tech production can leave developing countries stuck in these sectors
Governments and businesses can promote innovation hand in hand with development goals