THE INNOVATION POTENTIAL OF AN SME AND THE VALUE OF THEINTELLECTUAL PROPERTY RIGHT Document prepared by Mr. Subash K. Bijlani,President,Magnus Engineers Pvt. Ltd., Chandigarh, India

THE INNOVATION POTENTIAL OF AN SME AND THE VALUE OF THEINTELLECTUAL PROPERTY RIGHT

Document prepared by Mr. Subash K. Bijlani,President,Magnus Engineers Pvt. Ltd., Chandigarh, India

Source of information: http://www.wipo.int/edocs/mdocs/sme/en/wipo_ip_mnl_00/wipo_ip_mnl_00_7_b.pdf

Introduction

Worldwide the focus of attention is shifting to the SME sector. Nations are recognizing the contribution SMEs are making to their economy. They have been variously described as the backbone of the economy and as the drivers of the economy. This is particularly true of Asian countries where many enterprises are the outcome of first generation entrepreneurs. They often have a product or service idea, some money, a zest to work hard but limited knowledge about markets, Government or bank procedures, cash flows or how to manage their creative idea. Their innovation potential and the value of intellectual property rights are of special significance in economic development.

It is the advantages of cost and of generating innovating ideas that have given rise to an increasing number of SMEs. Indeed, a nation’s ability to convert knowledge into wealth and social good through the process of innovation determines its future. Intellectual Property issues have emerged as an integral part of technology management and competence building in SMEs and have a pervasive relevance to their growth. Economics of knowledge, more than mere capital or natural resources, will dominate this century. The changes are truly dramatic.

History of Silicon Valley is full of stories of SMEs being the driving force of growth and innovation. The German economic miracle after World War II is largely the result of the enormous success of its SMEs. In India, about 60% of companies registered with the software technologies parks are SMEs.

The Changing Nature of Technology

The nature of what constitutes technology itself is undergoing a major paradigm shift. We define it differently today than we did two decades ago. The emphasis is moving away from physical or tangible assets, to intangible knowledge assets. The world’s major growth industries – such as microelectronics, biotechnology, designer made materials and telecommunications are brainpower industries.

Understanding the effects of technological progress on economic growth, was spearheaded by the Austrian economist, Joseph Schumpeter, best remembered for his views on the “creative destruction” associated with industrial cycles 50-60 years long. He was the first to challenge classical economics as it sought to optimize existing resources within as table environment. A healthy economy, as he observed, was not one in equilibrium, but one that was constantly “disrupted” by technological innovation. The cycle of “long waves” is unique, driven by entirely different clusters of industry.

A long upswing in a cycle starts when a new set of innovations comes into wide spread use. This happened in the late 18thcentury with waterpower, textiles and iron; in the mid 19thcentury with steam, rail, and steel; and at the turn of the 20thcentury, with electricity, chemicals, and the internal combustion engines.

These long booms petered out as the technologies matured and returns to investors declined with reducing number of opportunities. After a period of slow expansion, inevitably came the decline – only to be followed by a wave of fresh innovations, which destroyed the old way of doing things. Conditions were created for a new upswing.

By 1950’s the third cycle of these successive industrial revolutions had already run its course. The fourth, powered by oil, electronics, aviation and mass production is winding down. There is evidence that a fifth industrial revolution based on semi-conductors, fiber optics, genetics and software, is not only well under way but has, possibly, run two-thirds of its course and may be approaching maturity. The long economic waves are shortening 50-60years to around 30-40 years.

We should also look at the changing paths in technology developments. Over 50 years ago, before World War II, the driving force for innovation was search for knowledge –individual and organizational. Scientific research work was pursued by the few small enterprises. Little interaction existed between academics and industry.

The World War II and the years after that witnessed emergence of Government funded research driven by demands of economics, defense and health. Science based industries such as Biotechnology and Information Technology grew. There was also growth of industrial scientific research. Industry support to academia was intense.

The process of globalization has also given rise to privatization and corporation of innovation effort. As these have grown, the issues of ownership of intellectual capital and proprietary information have begun to assume greater importance. The Uruguay Round (1986– 1994) under GATT and subsequent emergence of WTO in 1995 have brought the issues of intellectual property rights to the fore.

The Innovation Process

The purpose of innovation is to create a new value, be it for individual, team or organization or for the society at large.

Invention to conceive the idea.

Innovation to use the process by which an invention or idea is translated into the economy

What precisely constitutes innovation is hard to say. It is usually thought of as the creation of a better product or process but it could just as easily be the substitution of a cheaper material in an existing product or a better way of marketing, distributing and supporting a product or service. Entrepreneur’s, usually the most successful, though not only innovators, seldom stop to examine how they do it. “The entrepreneur”, said Jean-Baptist Say, the French Economist who coined the word around 1800, “shifts economic resources out of an area of lower and into an area of higher productivity and greater yield”.

Though the notion of innovation lacks a rigorous definition, the WIPO Model Law for Developing Countries on Inventions (1979) reads as follows: “ ‘Invention’ means an idea of an inventor which permits in practice the solution to a specific problem in the field of technology”. The Japanese patent law is one of the rare laws that contains a definition. It says that an invention is a “highly advanced creation of technical ideas by which a law of nature is utilized”.

If we examine the different roads to innovation, three approaches become visible:

The first is the innovation on a large scale. They take the form of strong social and economic commitments, like building pyramids or man on the moon. They became the crucibles of innovation creating challenges to innovations and integrating technologies, people, systems, organizations and methods. These require visionary leaders and resources which usually the nation states have at their command. Strategic programs in space, defense, agriculture, and atomic energy represent such large-scale innovations. These are fired by dreams and great ambitions and by denials as in case of war or sanctions.
The second kind is the incremental innovation. The process of technology development at the operations level is driven by the competitive forces. They lead to influx of improved products and services. The number of patent applications in the world each year is estimated to be well over one million. Those applications result in the grant of over half a million patents. The number of patent documents since the time when patents were first published is close to 30 million. Of course, not all inventions are taken to patent offices. The point is that, at grass roots – at the firm or the individual level – the innovative activity is very intense. The heart of competitiveness lies in the human endeavor to excel and in continuous innovation to develop superior products, in terms of quality, features, design, content and service that satisfies the end-user.
The third type of innovation arises through major breakthroughs. They give rise to altogether new industries. Telephones, x-rays, photography, Xerox, jet engines, stereo sound are some examples of radical innovations. Often, they come about by serendipity. Many products in the chemical, plastic and antibiotic industries came about by accident. People usually call them ‘lucky accidents’ but it requires an inquisitive mind to spot them. Eyes do not see what the mind does not know.

Innovations not only break the mould, they also yield far better returns than ordinary business ventures. One American study found that the overall rate of return for some 17successful innovations made in the 1970’s averaged 56%. Compare that 16% average return on investment for all American businesses over the past 30 years. Innovators with good ideas and track record, with all the friskiness of their endeavors, attract investments.

The advantages of cost and of generating innovative ideas have given rise to an increasing number of small and medium enterprises. Outsourcing has increased, leading to reduction of large conglomerate.

For example, smaller firms in emerging economies can now sell in global markets. It is now easier, for instance, for a tailor in Shanghai to make a suit by hand for a lawyer in Boston or software designer in India than to write a programmer for a firm in California.

As competition increases, one of the key benchmarks for competitiveness would be technology. Hitherto, SMEs could work with low technology levels, coupled with high labor intensity. Often, second-hand machines were purchased in an effort to minimize capital outlay. These would result in greater wastage or sub-optimal production but were more than offset by lower labor costs. As the market was not very demanding, the focus on quality tended to be diffused. The rules of the game are set to change all this.
Knowledge, embodied in new ideas and inventions, stimulates even the traditional industries to become knowledge driven. New knowledge in oil industry in three-dimensional acoustical sounding, horizontal drilling and deep offshore drilling is turning it into a knowledge industry.

Tomorrow’s society will be knowledge society. Tomorrows markets will knowledge markets. It has been said that tomorrow’s wars will be fought not by the conventional weapons but with the new thermo-nuclear weapons called information and knowledge.

The importance of knowledge is seen in the vigor with which companies protect infringement of their intellectual property.


THE INNOVATION POTENTIAL OF AN SME AND THE VALUE OF THEINTELLECTUAL PROPERTY RIGHT Document prepared by Mr. Subash K. Bijlani,President,Magnus Engineers Pvt. Ltd., Chandigarh, India Source of information: http://www.wipo.int/edocs/mdocs/sme/en/wipo_ip_mnl_00/wipo_ip_mnl_00_7_b.pdf
Introduction Worldwide the focus of attention is shifting to the SME sector. Nations are recognizing the contribution SMEs are making to their economy. They have been variously described as the backbone of the economy and as the drivers of the economy. This is particularly true of Asian countries where many enterprises are the outcome of first generation entrepreneurs. They often have a product or service idea, some money, a zest to work hard but limited knowledge about markets, Government or bank procedures, cash flows or how to manage their creative idea. Their innovation potential and the value of intellectual property rights are of special significance in economic development. It is the advantages of cost and of generating innovating ideas that have given rise to an increasing number of SMEs. Indeed, a nation’s ability to convert knowledge into wealth and social good through the process of innovation determines its future. Intellectual Property issues have emerged as an integral part of technology management and competence building in SMEs and have a pervasive relevance to their growth. Economics of knowledge, more than mere capital or natural resources, will dominate this century. The changes are truly dramatic. History of Silicon Valley is full of stories of SMEs being the driving force of growth and innovation. The German economic miracle after World War II is largely the result of the enormous success of its SMEs. In India, about 60% of companies registered with the software technologies parks are SMEs. The Changing Nature of Technology The nature of what constitutes technology itself is undergoing a major paradigm shift. We define it differently today than we did two decades ago. The emphasis is moving away from physical or tangible assets, to intangible knowledge assets. The world’s major growth industries – such as microelectronics, biotechnology, designer made materials and telecommunications are brainpower industries. Understanding the effects of technological progress on economic growth, was spearheaded by the Austrian economist, Joseph Schumpeter, best remembered for his views on the “creative destruction” associated with industrial cycles 50-60 years long. He was the first to challenge classical economics as it sought to optimize existing resources within as table environment. A healthy economy, as he observed, was not one in equilibrium, but one that was constantly “disrupted” by technological innovation. The cycle of “long waves” is unique, driven by entirely different clusters of industry. A long upswing in a cycle starts when a new set of innovations comes into wide spread use. This happened in the late 18thcentury with waterpower, textiles and iron; in the mid 19thcentury with steam, rail, and steel; and at the turn of the 20thcentury, with electricity, chemicals, and the internal combustion engines. These long booms petered out as the technologies matured and returns to investors declined with reducing number of opportunities. After a period of slow expansion, inevitably came the decline – only to be followed by a wave of fresh innovations, which destroyed the old way of doing things. Conditions were created for a new upswing. By 1950’s the third cycle of these successive industrial revolutions had already run its course. The fourth, powered by oil, electronics, aviation and mass production is winding down. There is evidence that a fifth industrial revolution based on semi-conductors, fiber optics, genetics and software, is not only well under way but has, possibly, run two-thirds of its course and may be approaching maturity. The long economic waves are shortening 50-60years to around 30-40 years. We should also look at the changing paths in technology developments. Over 50 years ago, before World War II, the driving force for innovation was search for knowledge –individual and organizational. Scientific research work was pursued by the few small enterprises. Little interaction existed between academics and industry. The World War II and the years after that witnessed emergence of Government funded research driven by demands of economics, defense and health. Science based industries such as Biotechnology and Information Technology grew. There was also growth of industrial scientific research. Industry support to academia was intense. The process of globalization has also given rise to privatization and corporation of innovation effort. As these have grown, the issues of ownership of intellectual capital and proprietary information have begun to assume greater importance. The Uruguay Round (1986– 1994) under GATT and subsequent emergence of WTO in 1995 have brought the issues of intellectual property rights to the fore. The Innovation Process The purpose of innovation is to create a new value, be it for individual, team or organization or for the society at large. Invention to conceive the idea. Innovation to use the process by which an invention or idea is translated into the economy What precisely constitutes innovation is hard to say. It is usually thought of as the creation of a better product or process but it could just as easily be the substitution of a cheaper material in an existing product or a better way of marketing, distributing and supporting a product or service. Entrepreneur’s, usually the most successful, though not only innovators, seldom stop to examine how they do it. “The entrepreneur”, said Jean-Baptist Say, the French Economist who coined the word around 1800, “shifts economic resources out of an area of lower and into an area of higher productivity and greater yield”. Though the notion of innovation lacks a rigorous definition, the WIPO Model Law for Developing Countries on Inventions (1979) reads as follows: “ ‘Invention’ means an idea of an inventor which permits in practice the solution to a specific problem in the field of technology”. The Japanese patent law is one of the rare laws that contains a definition. It says that an invention is a “highly advanced creation of technical ideas by which a law of nature is utilized”. If we examine the different roads to innovation, three approaches become visible: The first is the innovation on a large scale. They take the form of strong social and economic commitments, like building pyramids or man on the moon. They became the crucibles of innovation creating challenges to innovations and integrating technologies, people, systems, organizations and methods. These require visionary leaders and resources which usually the nation states have at their command. Strategic programs in space, defense, agriculture, and atomic energy represent such large-scale innovations. These are fired by dreams and great ambitions and by denials as in case of war or sanctions. The second kind is the incremental innovation. The process of technology development at the operations level is driven by the competitive forces. They lead to influx of improved products and services. The number of patent applications in the world each year is estimated to be well over one million. Those applications result in the grant of over half a million patents. The number of patent documents since the time when patents were first published is close to 30 million. Of course, not all inventions are taken to patent offices. The point is that, at grass roots – at the firm or the individual level – the innovative activity is very intense. The heart of competitiveness lies in the human endeavor to excel and in continuous innovation to develop superior products, in terms of quality, features, design, content and service that satisfies the end-user. The third type of innovation arises through major breakthroughs. They give rise to altogether new industries. Telephones, x-rays, photography, Xerox, jet engines, stereo sound are some examples of radical innovations. Often, they come about by serendipity. Many products in the chemical, plastic and antibiotic industries came about by accident. People usually call them ‘lucky accidents’ but it requires an inquisitive mind to spot them. Eyes do not see what the mind does not know. Innovations not only break the mould, they also yield far better returns than ordinary business ventures. One American study found that the overall rate of return for some 17successful innovations made in the 1970’s averaged 56%. Compare that 16% average return on investment for all American businesses over the past 30 years. Innovators with good ideas and track record, with all the friskiness of their endeavors, attract investments. The advantages of cost and of generating innovative ideas have given rise to an increasing number of small and medium enterprises. Outsourcing has increased, leading to reduction of large conglomerate. For example, smaller firms in emerging economies can now sell in global markets. It is now easier, for instance, for a tailor in Shanghai to make a suit by hand for a lawyer in Boston or software designer in India than to write a programmer for a firm in California. As competition increases, one of the key benchmarks for competitiveness would be technology. Hitherto, SMEs could work with low technology levels, coupled with high labor intensity. Often, second-hand machines were purchased in an effort to minimize capital outlay. These would result in greater wastage or sub-optimal production but were more than offset by lower labor costs. As the market was not very demanding, the focus on quality tended to be diffused. The rules of the game are set to change all this. Knowledge, embodied in new ideas and inventions, stimulates even the traditional industries to become knowledge driven. New knowledge in oil industry in three-dimensional acoustical sounding, horizontal drilling and deep offshore drilling is turning it into a knowledge industry. Tomorrow’s society will be knowledge society. Tomorrows markets will knowledge markets. It has been said that tomorrow’s wars will be fought not by the conventional weapons but with the new thermo-nuclear weapons called information and knowledge. The importance of knowledge is seen in the vigor with which companies protect infringement of their intellectual property.