How Vital is the Existence of IP in Encouraging Innovation ?!

In my previous posts I have talked about environment, tools and government policies necessary to foster entrepreneurship and innovation in a country. At the same time, I discussed how entrepreneurial activities and innovations lead to economic development of a country. Therefore, I want to continue discussing the topic by introducing the subject of intellectual property laws. From my point of view, existence of intellectual property (IP) laws in a country plays a great role in encouraging creativity and innovation. And to clarify how it does, let’s start to define intellectual property. According to Barringer and Ireland (2006), ‘intellectual property is any product of human intellect that is intangible but has value in the marketplace.’ It is called “intellectual” property because it is the product of human imagination, creativity and inventiveness (Barringer & Ireland, 2006). And mostly it is the result of hard work and risky behavior considering the time and money spent on it. Now, imagine that a company or a person owns some kind of intellectual property which is there and others can simply copy. How will it influence the future behavior of that firm or that person? Will the firm of the person be willing to spent time and money on the product which is easily copied by competitors and does not help to gain competitive advantage? Logical answer is most probably not. That’s why intellectual property rights were introduced and granted under the intellectual property laws. Barringer and Ireland (2006) propose that ‘intellectual property laws exist to encourage creativity and innovation by granting individuals who risk their time and money in creative endeavors exclusive rights to the fruits of their labors for a period of time.’ It is obvious that entrepreneurs are more motivated to create something new, invent and innovate more to gain first-mover advantage or competitive advantage when they are granted exclusive rights on their intellectual property. Besides, taking into consideration that innovations and entrepreneurial activities lead to economic development, the importance of intellectual property laws becomes critical. Another positive aspect of intellectual property laws is that it assists individuals make well-informed choices. Whenever a consumer sees the H&M shop, he/she knows what to expect from the shop since only H&M is permitted to use the trademark for cloth, shoes, jewelry and etc. Most importantly, intellectual property can be source of income through such ways as licensing. Licensing incomes further motivate companies to be more creative and innovative since large portion of income generated is from granting others rights to use their intellectual property for some fee. Finally, I want to mention one caution involved in intellectual property protection that it is up to the entrepreneur to take advantage of them and to safeguard his or her intellectual property once it is legally protected (Barringer & Ireland, 2006). No one is going to protect your intellectual property if you as an entrepreneur do not take care of it. That's why it is suggested that companies do intellectual property audit to monitor if their intellectual property is adequately protected. To sum up, existence of intellectual property laws becomes critical factor or element in creating innovative environment in a country, which then leads to its economic development.


References:
Barringer, B. R. & Ireland, R. D. (2006). Entrepreneurship: successfully launching new ventures (pp. 278-300). Upper Saddle River, NJ: Pearson Education.

WHY some nations are Poor, while other are Rich...

The discussion on entrepreneurship and economic development in my older posts shows that both are highly linked to each other. Moreover, it is obvious that entrepreneurial activities lead to an economic development of a country. I also talked about the importance of university spin-offs and how university spin-offs lead to high economic performance of a country. It is mostly evident in countries encouraging collaboration between private companies and university research departments. From my point of view, it is hard to encourage university spin-offs before the environment necessary for productive entrepreneurship is present. For that reason, I think a country should develop favorable environment for entrepreneurial activities and then, encourage company owners to cooperate with universities to increase overall level of economic stand.

Finding answer to the question proposed by Powel (2008) ´´in what countries do you get rich by inventing a new product, and in what countries do you get rich by wresting control of government from your rivals?´´, helps us understand why some nations are so behind and others are introducing radical innovations almost every day. Everyone would agree that entrepreneurs are in almost all countries, but process of economic development is not observed in every country. Is that because of resource scarcity, labor availability or something else? Powel (2008) calls it existence of an institutional environment rewarding entrepreneurial activities. In addition, he emphasizes on the presence of private property rights and economic freedom in a country. I would strongly support his idea and apply the concept to my country’s environment and economic stand.

Most importantly, I have lived and experienced an environment where working in the government gave people and authority, while entrepreneurs or small business owners had a few incentives. Mostly they had to share net income or profit with the government either paying directly government officials or financing ´´government´´ projects. This system definitely affected the existence or creation of such private businesses and was conducive to entrepreneurship. Small business owners never considered to grow and did not exploit opportunities. On the other hand, my country, Georgia, is endowed with natural resources and labor is not constrained with their abilities and are very adaptive to new environment. So, we come to the point where we can freely state the importance of institutional environment. Besides to those factors mentioned, people would have capital in form of cash and never use it to finance private entities due to government policy and environment. At the same time, demand on financial services, particularly on bank services was low. But let’s look at the current environment of Georgia after famous Rose revolution and change in government policy. We could observe that every single person starts to form a business, exploit opportunities in the rapid developing market and also, try to create new markets. Some people started to save money in form of deposits at banks and others demand credit or loans from banks to develop something new or enter existing markets. Therefore, many commercial banks are founded and competition gets high. Thus, leading to low interest rates on loans and new service packages are introduced. As a result, entrepreneurs find it easy to finance new venture growth and their desire to market products internationally becomes achievable. Besides, as a result of changes in government policy, government introduced subsidy programs for entrepreneurs in some sectors of economy, particularly in agriculture. Entrepreneurs are highly motivated to come up with innovative ideas and get low-percent credit. Further increasing country’s economic development. Another significant trend observed in the country is that people started to specialize in narrow fields instead of broad fields such as law and economics. They recognize existing opportunities in IT management, BA and engineering, while in past environment being a lawyer or economic theory specialist seemed cool and advantageous for getting employed.

Finally, economic freedom indicator in Georgia is 69.2%, meaning that the economy is 69.2% free. Even though, it is ranked as the world’s 32nd freest economy, we could observe that property rights are undeveloped and judicial corruption still is the great problem in the country. On the other hand, business freedom, trade freedom and other significant components of economic freedom indicator are quite high. (see figure 1).

Figure 1. retrieved from http://www.heritage.org/Index/country.cfm?id=Georgia

References:
Powel, B. (2008). Making Poor Nations Rich/ Entrepreneurship and the Process of Economic Development. Stanford: Stanford University Press.

Is that only entrepreneurs' willingness to grow???

From my postings you could conclude that the topic on Growing Pains struck me the most. At this time, I want to go back to the post, where I mentioned that sometimes entrepreneurs are not willing to change or they might not trust others (mostly managers) and do not delegate responsibilities, which further does not allow a firm to grow. I would like to add here that most entrepreneurial companies fail to grow or have hard time to survive due to the limited nature of entrepreneurial resources. As Penrose (1955) describes, firms are inhibited in their ability to expand due to lack of entrepreneur’s interest in experimenting or a lack of their confidence in dealing with new and unfamiliar lines of activities. When limited demand appears on the existing products and services of a firm, management or entrepreneur has to has to introduce something new, either create a new product or develop a new market. For those to be accomplished, versatile type of management is required, while according to Penrose (1955) those services are not likely to be equally available to all companies. From my point of view, this point can be applied to the case of entrepreneurs failing to recognize and overcome growing pains in the their companies. From my personal experience, I have seen small family businesses in my country being highly satisfied with their existing products and owners mostly like to remain in their field of specialization. Moreover, they lack the interest in experimenting new lines of activity and lack confidence in their ability to deal with something ´´new´´ and ´´uncertain´´, respectively. To conclude, there are many characteristics of the firms and the entrepreneurs that constitute the failure of dealing with ´´growing pains´´ when they arise. Significantly, the nature of entrepreneurs meaning their willingness to change might determine the extent of future growth of a firm.


References:
Penrose, E. (1955). Limits to the growth and size of firms. The American Economic Review 45(2), 531-543.

Innovation through CSR

The importance of Corporate Social Responsibility (CSR) is enhanced when it comes to hypercompetitive markets. In nowadays hypercompetitive markets, companies are finding difficult to survive and engage in practice of Corporate Social Responsibility. Some companies try to "do good" and also "do well", which means that while their commitment to society development is high, their sales are going up.
In past, companies focused solely on financial performance, but now their interest and commitment into CSR has increased dramatically. What happens is that interest and commitment of those companies is highly rewarded by their customers by being loyal and decreasing their price-consciousness. As a result, companies’ customer base enlarges and sales profits go up. That can be regarded as one reason companies might be interested in pursuing the concept of CSR. Another reason might be the pressure from company stakeholders such as customers, local NGOs, and government. For example, governments might introduce laws or rules prohibiting certain practices to promote safer environments, etc.
What is more challenging and interesting, companies can gain competitive advantage by practicing CSR concept or simply by being "shaper of society". Such companies are 100% committed to promoting social welfare and by doing so further increase competition in the market. Usually, entrance to the market is blocked since new entrants do not possess such amount of resources to compete with mature organization with highly developed social programs. Here comes the most interesting question as "is innovation hindered in such mature organizations with CSR or adversely, it is encouraged?"
From my point of view, such large organizations engage in innovation and creativity through launching new programs, new products and combination of both by integrating Corporate Social Responsibility into their day-to-day activities. Employees are more encouraged to think about innovative "bundle of products and benefits" company can offer to its customers in a way that it reflects company’s commitment to social benefits. Most importantly, employees of organization promoting CSR are the part of that larger society that is served by their organization. Consequently, employees are much more motivated to be creative and innovative.

Further critical discussion of "Growing Pains"...

To elaborate more on the previous topic, I totally agree that entrepreneurial firms have to make transition to a professionally managed firm at some point during their life cycle. But how easy it is for the entrepreneurs to engage in such a process and jump from one type of organizational structure to another. Moreover, are entrepreneurs willing to change? Even though, transition is necessary for their firm’s success. From my viewpoint, most of the entrepreneurs simply are not willing to change because do not want to give up doing what they think should be done only by them. Moreover, they might not trust others or “outside managers” the fate of their company. Entrepreneurs might have different perception about the growth, responsibilities and success of their companies. Another thing I would like to comment on is that even though managers perceive the importance of having trained employees or “subordinates”, they might not be willing to train and develop them with the threat of loosing the position. From my personal experience I can tell that one of the criteria people use to assess and describe managers is if they are willing and trying to develop their subordinates. Once, when I talked to one of the employees (friend of my family) of a particular company about internship opportunities in their company, she did not recommend the marketing department and drew attention to the nature of marketing manager. She pointed out that marketing manager did not like when her subordinates over performed and she felt in danger of loosing the position. Besides, from my point of view the competence of “outside managers” is the matter of discussion. Most of the entrepreneurial firms are based on ideas and beliefs of entrepreneurs. Employees who “grow” with the company, share those ideas and beliefs and carry them forward. Even if company faces rapid growth and needs transition to successfully overcome “growing pains”, how long will it take “outside manager” to learn the company, share those beliefs and start “curing”? My subjective opinion is that bringing outsiders into the company might not be the best solution to the “growing pains” facing the company. As a final point, desire of entrepreneurs and nature and willingness of managers are most critical issues while discussing transition process from an entrepreneurship to a professionally managed firm. In addition, bringing “outside managers” to fix the problems or “growing pains” might not be efficient tool.

Are they Growing Pains???

Some people in my country say that having work experience is the most important factor in development of person’s career. They say that theory plays a little role in that process. But I would never agree with them. My opinion is that we need to acquire some level of theoretical knowledge to be able to better understand real-life problems and tasks at work. The question whether entrepreneurs need theory of entrepreneurship is matter of discussion, since some still doubt if the do need. As for me, I think they definitely need and I will illustrate this by linking the issue with my personal-work experience.

Before coming to JIBS, I worked for a company which became corporation when I was there after being Limited Liability Company for a long time period. I think it was not an easy transition and it was mainly caused by the growth of the company. After one month of working there, I saw that some people felt that there were not enough time to accomplish a task, some others were unaware of what other people in the same department were doing and majority thought that meetings are a waste of time. More importantly, I noticed that there were not many good managers. Even I wondered if I could have more hours in a day to accomplish the tasks I was assigned to. My manager was highly involved in day-to-day activities of the firm and no issue was solved without first agreeing with her. Also, I could list all other problems but above mentioned ones are enough to grasp the main idea. The thing I want to emphasize is that I saw those problems there but I just saw them as facts but could not realize that they were cause by the growth of the company. Also, due to the fact that I worked there just for 4 months, I was not aware of main changes that took place in company’s previous years. So, I even did not feel that the company was growing. But now, after I read the article “Recognizing Growing Pains and Assessing the Need for Change” by Flamholtz E. G., I comprehend the company was growing and actually, it is growing at the present. Consequently, I recognize those problems as Growing Pains as Flamholtz E. G. (1990) called them. Notably, those growing pains, I saw in the company, are still there and CEO (newly changed from being called as entrepreneur) together with managers do not realize them. Moreover, they will not be able to realize those until the company will come close to so called “choking on its own growth” used by Flamholtz E.G. (1990).

Finally, I would say entrepreneur needs the theory of entrepreneurship. Considering the above case, just imagine what happens if CEO or one of the managers read the literature about Growth and Growing Pains. I am sure, they will recognize growing pains they face, and they will look back to their company situation and start to build the required infrastructure, knowledge and organizational structure to accompany growth the company is going through.

The importance of University Spin-offs...

In my last two posts, I discussed the link between an entrepreneurship and economic development. Since, I found out that entrepreneurial activities lead to economic development of a country, I became interested what kind of policies could Georgian government use to encourage economic development through entrepreneurship. But, before discussing those policies I would like to stress on the importance of university spin-offs which I found very interesting.

I always wondered why so many researches are done at universities and why they were important. I knew that universities are important entities that give education to people, which in turn allow educated people to take many opportunities as good job, high salary and etc. But, I never thought about universities contributing heavily to economic development of a country. After exploring entrepreneurship literature, I found that US or European Countries’ governments long collaborated with universities to advance economic development through entrepreneurship. For example, Land grant system introduced in US is very famous in that it led to the formation of many universities and held the idea that universities should have created knowledge so that entrepreneurs could exploit to enhance local economy. This once more emphasizes on the importance of universities as contributor to economic development through entrepreneurship. How is it achieved? The process is the following: several policies were introduced to encourage company formations to use knowledge created by faculty, staff and students of research universities, which is named as university spin-offs and in my opinion, the process itself can be considered as university entrepreneurship. More importantly, even the term ´´entrepreneurial university´´ was coined by Etzkowitz (1998) to describe universities which contributed to economic development and highlight their critical role.

Nowadays, number of university spin-offs has become large and includes some best known technology companies as Hewlett Packard, Cirrus Logic, Genentech, Lycos and Yahoo! Nevertheless, ways how university spin-offs enhance economic development are: a) university spin-offs create jobs, b) they commercialize academic inventions that would otherwise go undeveloped and c) they have larger indirect economic impact since they have multiplier effects on the economy through hiring of employees and their sourcing of supply and production.

Finally, it worth mentioning that the importance of university spin-offs becomes larger when we link the issue to the process of globalization. At present, countries focus more on competitive use of knowledge to acquire comparative advantage due to the fact that economic growth is now directly linked to knowledge accumulation rather just to capital accumulation. At last, as I read more about entrepreneurship and economic development, I see that my country yet has to go through lengthy developmental processes that should definitely involve creation of research universities, formation of lasting partnership and lastly, encouragement of spin-offs.

REFERENCE:

Shane, S. (2005). Economic Development through Entrepreneurship. Great Britain: MPG Books Ltd, Bodmin, Cornwall

O’Shea R., Allen J. T., O’Gorman C., Roche F. (2004). Universities and Technology Transfer: A Review of Academic Entrepreneurship Literature. Irish Journal of Management. 25(2), 11-29.