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.