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

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

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.
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 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 a stable 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 18th century with waterpower, textiles and iron; in the mid 19th century with steam, rail, and steel; and at the turn of the 20th century, 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.
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 purpose of innovation is to create a new value, be it for individual, team or organization or for the society at large.
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.

As labor laws become stringent, labor costs can be expected to go up and the hidden advantage in terms of cheap labor hitherto available to SSIs would be considerably diluted. SMEs have to increasingly look at technology which improves productivity, effectiveness and competitiveness.
The emergence of new technologies, including the Internet offers a new information system, a new marketplace, a new form of communication and a new means of distribution. The power of digital distribution has the power of leading to development of wholly new products and services that nobody has imagined, offering the hope of further increases in economic growth.
SMEs have traditionally enjoyed strengths in innovation, reverse engineering and in serving niche markets. They are also a favored destination of outsourcing and sub-contracting on account of their lower overheads and personal attention which an entrepreneur can give to the production processes.