According to an article in BusinessWorld, the reason for the minimal-to-zero growth of technology commercialisation in the Philippines is that investors do not understand the value of technological start-ups. Thus, various forums are being set-up to encourage communication between technology entrepreneurs and potential investors. My thoughts:
- Is it really because the investors do not understand/appreciate the value of going hi-tech? Or is it more because they are aware of the very high risks involved in entering these areas of business? I believe it is more the latter and I also believe that this is not an unreasonable concern. It is, after all, their money. The question then is what are the technology entrepreneurs doing to address these concerns?
- I question whether repeatedly trying to convince these investors is the best way to handle the situation. I would much rather step back and examine the validity of the underlying assumptions that influence this move to push technology towards VCs. From what I’m observing, one of the underlying assumptions seem to be that acquiring the core knowledge on the commercialisation of new product categories is easy as pie. However, there are many findings (going as far back as 1966) that refute this belief. The findings, such as the one by Vernon (1966), state that knowledge about the development/commercialisation of new products are mostly, if not all, in the form of tacit rather than codified knowledge. Tacit knowledge, unlike codified knowledge, can only be transferred through human interaction. This is one reason why R&D, production, and marketing departments of a new product are usually found in one geographic location (Tidd et al. 2005). This is also the reason why firms from countries such as France, Germany, and Switzerland move a large part of their innovative activities to the USA: to tap the large pool of tacit knowledge on biotechnology and I.T. (Tidd et al. 2005). In the case of the Philippines, do we have the appropriate amount of tacit knowledge in I.T. and biotech to compete with other, more advanced countries? I sure would love some empirical data on that.
- So then, I think, the solution is not to repeatedly convince our local investors to invest in hi-tech firms. The main thing that we need to do first is to demonstrate that we have enough of the necessary tacit knowledge before we commercialise. After all, what good is capital infusion if we don’t have the intellectual capability to successfully compete in the global hi-tech arena? How we acquire the tacit knowledge, on the other hand, is an entirely different but very good question altogether.
- One other option that might fit us is to enter industries whose products are in the maturing or matured phase of their life. Vernon (1966) finds that the products of this type of industry tend to have most if not all of the related knowledge in codified form. Scott-Kemmis (2007) pointed out that this was the strategy of South Korea and Taiwan: they leveraged the relatively more accessible codified knowledge of the maturing car industry (among other things) just to get inside the market and then gradually introduced their own product/process innovations to get them ahead of some players. Perhaps the tendency for businessmen to go for franchises and maturing/mature markets isn’t such a bad thing after all, but a good first step in the right direction.
Scott-Kemmis, D. 2007. Seminar on Technology and Innovation Management and Strategy. March 27, 2007. The Australian National University.
Tidd, J, J. Bessant, K. Pavitt 2005. Managing Innovation: Integrating Technological, Market and Organizational Change. Wiley.
Vernon, R. 1966. International Investment and International Trade in the Product Lifecycle. The Quarterly Journal of Economics. 8:2. 190-207.
Vargo and Lusch (2004) have caused renewed interest in the reformulation of marketing through their paper titled ‘Evolving to a New Dominant Logic for Marketing’ in which they provide a new perspective that redefines the discipline’s long-standing concept of goods and services. In their paper, they contend that services are more prevalent than goods and that goods should instead be viewed as a medium for the firm’s service.
This paper will discuss the new definitions that Vargo and Lusch provide. First, it will take a look, in better detail, at how they define goods and services as well as provide an example for clarification; second, it will take a look at how the new logic redefines the relationship between the firm and the customer; and third, it will briefly look at the developments that have caused this shift in perspective. The paper will then identify potential benefits of the new logic and then proceed to provide some criticisms about it. Finally, this paper will provide some suggestions on how industries may use it at its present state. Continue reading
Where does our national competency lie?
The reason I ask has something to do with my observation of many prominent individuals in the Philippines (at least those that I know of) pushing for I.T. entrepreneurship and competing head-to-head with India. It makes me wonder if this is where our national competencies are. Amidst all this push for advancing IT education and technological entrepreneurship, I do not even see any effort to link it with advancing our agricultural sector which, I think, is where the real capabilities of our nation lies.
I’m just wondering that perhaps we’re too engrossed with hi-tech that we’ve forgotten that it’s only part of the equation. We have to put it in the context of the national system of innovation which includes, among other things, the country’s natural resources and pre-existing knowledge-base. This is what led Sweden, for example, from being abundant in iron ore, to being competent in robots: the competencies that they gained in building mining machines and producing iron and steel were useful in advancing their competencies in building production machines and producing high-quality metal products which eventually contributed to their ability to produce robotic machinery. That’s probably a very simplified example, but one that nevertheless illustrates how natural resources and pre-existing capabilities play an important role in deciding which way a country should go.
So where do you think we should go and why?
Here is our group’s PowerPoint presentation based on the IBM Global CEO Study conducted last 2006. Some interesting points to consider here:
- While innovation in the product/service/market and operational aspects remain fundamental, many CEOs now regard business model innovation as the new frontier. One that will give their organisation an edge over their competitors. In fact, the study found that there is a huge correlation between financial performance and investment in business model innovation.
- The key, as these CEOs see it, is not in how big or how small a firm is. The trick is in how to make it more agile in the face of constantly changing threats and opportunities in the market. Through business model innovation, companies ensure agility.
- Internal R&D is no longer considered as among the top sources of innovation. The top three important sources are now: employees, business partners, and customers. An even more interesting finding is that many CEOs consider competitors to be a more valuable source of innovation than their own internal R&D departments. While this may be strange at first, if we consider how two competing firms can combine forces to beat the rest of the industry, then it will start to make sense.
- CEOs no longer think of their internal R&D manager as the sole responsible person for bringing innovation into the company. Rather, innovation is now considered as the whole organisation’s job with the CEO in the center motivating everyone to come up with innovative ideas.