Beyond “Technokapihan”

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.

Cited Works

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.

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5 Comments

Filed under Innovation, Technopreneurship

5 responses to “Beyond “Technokapihan”

  1. Mike Soledad

    Mark,

    The move towards geographical concentration of similar companies and companies in related activities is the same logic Michael Porter espoused in the now-popular industry clustering strategy. (You may be aware that we are adopting this in Region XI.) The concept is quite simple: companies in the same industry cluster can band together and work as one and experience economies of scale and scope (remember “Ent Mgt”? Ninang is the in-house expert on this one now) as well as share what you call tacit kn0wledge with each other. In the process, the companies in the cluster grow and develop together. My observation, though, is, at the moment, our “industry clusters” are not quite clusters yet. They still are individual industry groups with their symbiotic bonds still in the process of development. But, we’ll get there, eventually.

  2. Mike Soledad

    Mark,

    I’m not sure about riding the wave at the mature stage. As you know, margins are rather thin at this stage. This is why there is a reluctance to enter maturing businesses. The success of Korea and Taiwan may not be so much due to entering a matured market but rather adroitly finding niches within what appears to be a matured market and moving in for the kill even before others can. Hyundai’s (or Kia’s, I’m not so sure now) entry of the “matured” US car market with the Pony seemed illustrative of an attempt to exploit the “small car niche” which the other car manufacturers were not closely looking into.

    The margins are in the shooting stars. And, you’ld need the margins to finance your knowledge acquisitions.

  3. Sir Mike,

    I should probably say “maturing products” or products that have most of their knowledge in codified form. Perhaps I’m not using the best term to describe what I mean here so I’ll get back to that part when I have more material.

    I agree though in the wisdom of Porter’s theory on competitive clusters and it could work in the Philippines. But it seems to me that the Philippine ICT community is interpreting Porter’s theory the wrong way or perhaps just inadequately.

    From where I’m viewing things, it appears that the Philippine ICT industry does not have the necessary absorptive capacity to take on the global ICT industry. It also looks to me like it doesn’t have enough capital to increase that same absorptive capacity. And yet, it seems to use a strategy that assumes otherwise as exemplified by its focus on R&D and by being supply-side driven. We’re so obsessed with the Silicon Valley model when we don’t even know if it’s the best model for the Philippines.

    Reading the case of Lenovo and Hyundai further crystallized that belief of mine. In both cases management was aware of the limits of their absorptive capacity and operated within that constraint while, at the same time, making moves to incrementally improve it. Although I don’t believe that their strategies will work in every case in the Philippines. I think that modified version of it might be a better fit for us than the over-hyped Silicon Valley model.

  4. Pingback: Beyond “Technokapihan” « Technopreneurship Notes - TECHSQUAD.COM

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