Study 2003: Innovative exporters and intellectual property regimes in selected service industries

The changing composition of the Organisation for Economic Co-operation [OECD] and Development economies, and the rapid growth of trade in services have placed the role of services and services innovation into policy debates on innovation. Despite the increasing importance of the service sector, empirical evidence and theoretical frameworks of innovation in the service sector remains largely underdeveloped.

The study "Innovative exporters and intellectual property regimes in selected service industries: Evidence from the Canadian Survey of Innovation 2003," examines the relationship between intellectual property rights and the performance of firms in service industry sectors. It uses innovative exporting firms as the unit of analysis for two dynamic service industry sectors: information and communication technologies and selected professional scientific and technical.

The empirical analysis in this study is based on data from the Survey of Innovation 2003. The study compares innovative exporters that used formal and informal intellectual property regimes. Formal regimes include patents, trademarks and registration of industrial design; informal methods include secrecy, complexity of design and lead-time advantage on competitors.
This study found that significant differences exist between innovative exporters using formal intellectual property regimes and those using informal regimes.

In the most general terms, innovative exporters with formal regimes had a greater commitment to research and development (R&D) activities and to export activities.

In terms of R&D, they are more likely to have R&D personnel, to carry out both internal and external R&D activities, and to use R&D staff as a source of information.

In terms of export activities, exporters with formal intellectual property regimes are more likely to obtain more than 50% of their revenues from exports. They are more likely to consider the development of export markets as an important factor in the success of their firm.

Exporters using formal intellectual property regimes are more likely to have more novel innovative products than those with informal regimes. This can perhaps be explained by the greater investment in R&D. This could improve the competitive advantage of the firm in the global marketplace.

Patent Scorecard; India loses out [India]

If the number of patent applications filed under the World Intellectual Property Organisation’s (WIPO) Patent Cooperation Treaty (PCT) is any indication, India appears to be a laggard among the knowledge- and innovation-driven economies. That the country is way behind developed nations like the US and Japan in seeking patent safeguards for inventions, is understandable. What is more noteworthy is that it compares poorly even with a much smaller economy like South Korea, as also the much bigger China. The data put out by WIPO show that only 686 patent applications were filed from India in 2007, against 7,061 from Korea and 5,456 from China. And while the rate of patent filings is growing steadily elsewhere, it is on the slide in India. The number of applications in 2007, as a result, was the second-smallest in the last five years.

However, single-number comparisons of complex processes can be deceptive. So it is worth pointing out that any comparison based merely on the number of patent applications could be misleading, and other relevant factors also need to be taken into the reckoning. A comparison of India with China must be weighted for the fact that the sectors that drive economic growth are different in the two countries. While software and services predominate as Indian growth engines, Chinese growth is coming in substantial measure from new, mass-scale manufacturing activities. In the Indian software sector, research and development (R&D) activity is controlled largely by the big global companies, with headquarters elsewhere, and they treat India as an offshore R&D hub to make use of its low-cost, scientific and engineering talent pool. The patents filed on the basis of such work will mostly be done in the company’s country of origin, so it will not show up in India’s number. Also, there is little scope for patenting when it comes to software services. And where the life-science and pharmaceutical industry is concerned, investments in in-house R&D are a recent phenomenon. As this trend picks up, one should expect patent filings to increase.

That said, the importance of patenting has come slowly to Indian companies. This could be because of a slow awakening to globalisation, and because India is a signatory to a large number of global pacts and protocols that provide automatic intellectual property protection to innovations in different fields in all the member countries. China, on the other hand, has not been as open to embracing knowledge protection obligations through such treaties. In any case, the Chinese track record in respecting intellectual property has been dismal and many global companies have suffered on this account. Though India’s record in this respect may also not be perfect, it has taken two key steps through the amendment of the Patent Act in 2005 to align it with the international agreement on trade-related intellectual property rights (Trips), and the enactment of a law on sui generis plant variety and farmers’ rights protection. Nevertheless, even after considering these factors, the truth is that India does not score very well on the R&D front. The positive change is that, even in manufacturing industries like automobiles, Indian companies now show signs of doing serious R&D work.

Booz Hamilton: Innovation Study

In an excellent, incisive and inspiring article, Booz Allen Hamilton Vice President Barry Jaruzelski discusses the findings of their annual Global Innovation Study. Not surprisingly, it offers lessons and ideas for our community.

Jaruzelski makes the point that innovation is not directly tied to R&D spending. In fact, he observes, some of the top spenders achieve some of the worst results. In part, this seems to be the typical problem of 'too many resources make complexity'.

And that issue of broad business culture, attitude and organization recurs throughout the article. If you have complex decision-making processes, with endless reviews and approvals, you are likely to stifle innovation. If you are inward looking and lack market and customer insights, you are likely to be among the lowest (and slowest) performers.

Jaruzelski identifies three business types - and each can be successful. He describes them as "Need Seekers, Market Readers, and Technology Drivers" and explains them as follows:
Need Seekers are focused on understanding their customers’ needs deeply and being the first to market with innovation as a consequence of that deep understanding.

Market Readers are companies focused on monitoring not only their customers’ needs, but also their competitors’ moves. Members of this group tend to be fast followers, taking an incremental approach to innovation. And as a result, although they don’t necessarily have better financial returns than the other two groups, they do spend a lot less on R&D than companies following either of the other two strategies.

Technology Drivers are companies that do not necessarily ignore customers, but have a greater focus on breakthrough technologies. They look to address unarticulated needs of customers, swinging for the fences more than taking an incremental approach to innovation.
"All three models employ customer insight, and it’s important to note that the three produced comparable financial performance. No model was inherently superior financially. The one thing that cut across both industries and models is that the more a company relied on direct customer insight, the better it did", comments Jaruzelski.

The BAH study and interview can be accessed at http://www.strategy-business.com/li/leadingideas/li00057.