Intellectual Property and
Competitiveness of MSMEs
G S Jaiya, Director, SMEs Division
World Intellectual Property Organization
Needs Assessment
As of December 8, 2009: 86 IP offices
- OECD countries (19)
Certain
Countries in
Europe and
Asia
22%
Asia and the
Pacific region
10%
Latin America
and Caribbean
12%
OECD
22%
- African Region (25)
- Arab Region (4)
Arab Region
5%
Africa
29%
- Asia and the Pacific Region(9)
- Certain Countries in Europe
and Asia (19)
- Latin America and Caribbean
Region(10 )
IP awareness and capacity
building activities
IP awareness and capacity building activities for SMEs are done in an
ad hoc and reactive mode, instead of being driven by a proactive
overall strategy
•
6% of the IP Offices which have replied have done a study of the
impact of the IP awareness and capacity building services for SMEs.
•
22% of the respondents have a formally approved marketing
policy, plan and strategy for their IP awareness and capacity building
activities.
•
24% of the respondents have done a survey of the IP needs of their
users
•
30% of the respondents maintain a database of contacts of SMEs
support institutions.
•
Most IP offices have not allocated a specific budget or full-time
human resources for their SME support (outreach and capacity
building) activities:
MSME Competitiveness (I)
• In a knowledge-based economy, competitiveness
of enterprises, including MSMEs, is increasingly
based on ability to provide high-value-added
products at a competitive price
• Globalization and trade liberalization has made it
crucial for most enterprises, including MSMEs, to
become internationally competitive even when
operating wholly in the domestic market
MSMEs Competitiveness (II)
• To become and remain competitive, MSMEs need
a coherent business strategy to constantly improve
their efficiency, reduce production costs and
enhance the reputation of their products by:
– Investing in research and development
– Acquiring new technology
– Improving management practices
– Developing creative and appealing designs
– Effectively marketing their products
MSMEs Competitiveness (III)
• For this, MSMEs must make significant investments of
time and resources
• Without intellectual property protection there is a strong
risk that investments in R&D, product differentiation and
marketing may be stolen/copied
• Intellectual property rights enable MSMEs to have
exclusivity over the exploitation of their innovative new
or original products, their creative designs and their
brands. The exclusivity creates an appropriate incentive
for investing in improving their competitiveness
Everything Depends on 5 Key Choices:
• Choosing the right business to be in
• Creating the right strategy
• Building the right systems
• Designing the right organization
• Getting the right people
Effective Strategies answer three key
questions:
How will we
Create value?
How will we
How will we
Deliver value? Capture value?
From Three to Seven Critical Questions
• How will we create value?
– How will the technology evolve?
– How will the market change?
• How will we capture value?
– How should we design the business model?
– Where should we compete in the value chain?
– How should we compete if standards are important?
• How will we deliver value?
– How do we manage the core business and growth
simultaneously?
– How do we use our strategy to drive real resource allocation?
Three key ideas:
• Uniqueness
– Controlling the knowledge generated by an
innovation
• Complementary assets
– Controlling the assets that maximize the profits
from innovating
• Understanding the dynamics of the value chain
– Should we buy our suppliers? Distributors?
– Should we outsource our manufacturing…
distribution… sales… capability?
Ideas, Creativity and Innovation
• Creativity
The ability to make or otherwise bring into existence something
new, whether a new solution to a problem, a new method or
device, or a new artistic object or form.
• Innovation
1 : The introduction of something new
2 : A new idea, method, or device
• Creativity = Idea + Action
• Innovation = Creativity + Productivity
• Innovation = Idea + Action + Productivity
Understanding the Process of
Innovation
The Process/Steps of Innovation
Pre-IPO
$
Expansion
• Legal Entity
• Viable
• Market acceptance
• Heading to IPO or M&A
• High Growth
• Founders = Mgt Team
• Bright Idea
• Head Count
• Minimal Revenue
• Experimental
Start-Up
• Multiple Cycles
• Slow Growth
• Research
• Support Functions
• Business Plan
• Administration
Seed
• Proof of Concept
• Marketing
• Revenue Growth
Idea / Concept
Time
Needs of Each Stage
$
•Business Plan
•Prototype/ POC
•Project Management
•Business Premises
•Project Management
•Management Training
Idea / Concept
•Corporate and
Secretarial
•Financial
•Training
•PR and Marketing
•Networking
•Business
Development
•Recruitment
•Business
Development
•A & P
•Market Access
Expansion
Start-Up
Seed
•International support and Mkt.
Access
•Diversification strategies and
support
•Recruitment
•Training and Incentives
Time
IP Management Needed in all stages
IP Needs of Each Stage
Idea
Types of
protection
used
Confidentiality
agreement
Research
Technology
Confidentiality
Confidentiality
Research contract
(with IP clauses)
Patent
Industrial
Designs
Product
All previous
plus:
Licensing
agreements
Sales
All previous plus:
Enforcement of
rights
Trade marks
Copyright
Key IP
activities
Patent Search
Competitor
search
Avoid premature
publication or
disclosure
Develop patent
strategy
Identify licensing
candidates
Prepare and
lodge patent
Augment patents
Enforce existing
rights
Maintain patents
A Network View of Innovation
Depending on a firm’s strengths, different firms
play different roles in open innovation value chain
• Some firms generate innovations
• Some integrate the innovations of others
• Some have a fully integrated model
An open innovation system is a networked system
The Profitability of Innovation
Profits
from
Innovation
Value of an
innovation
• Legal protection
Innovator’s
ability to
appropriate
value from an
innovation
• Ease of imitation
of technology
• Complementary
assets
• Lead time
Profiting from Technological Innovation:
Three Critical Factors
• The Appropriability Regime
• Control over “specialised” Complementary
Assets
• Industry Structure & Maturity
Sources of Appropriability
• Intellectual property protection
–
Patents
•
•
–
Finite length
The right to prohibit “producing”
Copyrights
•
The right to prohibit “copying”
• Secrecy
Trade secrets & non compete clauses
– Complexity and “tacit” knowledge
–
• Speed (First Mover Advantages)
What are Complementary Assets?
• Those assets that allow a firm to
make money, even if the innovation
is not unique:
• The answer to the question:
–If our innovations were instantly
available to our competitors, would
we still make money? Why?
Types of Complementary Assets
Things you can do
Competitive
manufacturing
COMPETENCIES
Other
Distribution
channels
Core
technological
know-how in
innovation
Other
Customer
relationships
Things you own
RESOURCES
Complementary
technologies
Brand
name
Types of Complementary Assets
• Things you can do
–
–
Manufacturing capabilities
Sales and service expertise
• Things you own
– Brand
–
–
Distribution channels
Customer relationships
COMPETENCIES
RESOURCES
Uniqueness & Complementary
Assets over the Life Cycle:
Uniqueness
Maturity
Takeoff
Ferment
Complementary
Assets
Increasingly, returns are earned through
contracting in the “Market for Ideas”
R&D Investment
Production & Marketing
Alliance
Licensing Revenues
Acquisition
Profiting from Innovation Through Contracting out
ideas
Cost & Risk
Build, Buy, Partner: Benefits and Tradeoffs
Build
Buy
Partner
Pros
Cons
Most product control
Own the IP
Most profit opportunity
Longest time to market
Risk in market shifts
High development costs
Highest switching costs
Shorten time to market
Own the IP
Acquisition costs
Integration costs
Shortest Time to Market
Conserves Resources
Try before you Buy
Lowest Switching Costs
Credibility and access
Least Control
Integration Costs
Shared gross margins Least Profit Opportunity
Time to Market & Control & Profit
Which horse to pick?
Build
Leadership
Buy
Core
Business
Partner
Time to
Market
Reduce
Risk
The Key is Collaboration
“Few if any companies today can hold all the pieces of their
own product technology…they simply must collaborate with
others if they want to survive and prosper…IP has become
much more of a bridge to collaboration”
Marshall Phelps, Microsoft
Eleven Modes of Collaboration
Agreements: Illustration of Their Anchor Points
Common
Research
Research
contract
Ways
of...
Engineering
contract
Patent
licence
Common
purchase Subcontracting
supplying
designing
producing
Trademark
licence
Common
production
Consortium
(common
marketing)
marketing
Know-how transfer
contract
Distribution
agreements
delivering
The Interaction of Intangible and Tangible
Assets to Create Earnings
Intellectual Capital (Unique)
Structural Capital (Generic)
Sales Force
Distribution
Capabilities
l
Property
Manufacturing
Facilities
Complementary Business
Value Creation Value Extraction Assets (Differentiated)
Intellectual
Assets
Human
Intellectua
Capital
$
Intellectual Property Tuned To A Company’s Business
Complementary Business Assets
(Unique Assets)
(Differentiated Assets)
Value Creation
Know-How
Trade Secrets
Copyrights
Trademarks
Intellectual Assets
Intellectual Property
Patents
Human
Capital
(Lead Time)
Value Extraction
Distribution Capabilities
Intellectual Capital
?%
$
Structural Capital (Generic Assets)
1. IP Value Is Created When Leveraged Through Complementary Assets
2. When Companies Have Different Complementary Asset Strengths,
They Will Need Different Intellectual Property (Materials, Process, Use)
Intellectual Property Tuned To A Company’s Business
Beverage Companies
Intellectual
Capital
(Differentiated Assets)
Value Creation(Unique
Value Assets)
Extraction
Know-How
Trade Secrets
Copyrights
Trademarks
Intellectual Assets
Intellectual Property
Patents
Human
Capital
(Lead Time)
Distribution Capabilities
Complementary Business Assets
Structural Capital
$
(Generic Assets)
•Line Shows the Percentage of Company Value (Market
Capitalization) That is Protected By This Asset
•Most value is in Trademark, Trade Secret, Distribution and Sales
Intellectual Property Tuned To A Company’s Business
Paper Companies
Complementary Business Assets
Intellectual Capital
Value Extraction
Value Creation
Structural Capital
Know-How
Trade Secrets
Copyrights
Trademarks
Patents
Human
Capital
(Lead Time)
Intellectual Assets
Intellectual Property
Distribution Capabilities
(Differentiated Assets)
(Unique Assets)
$
(Generic Assets)
•Most value is in Trademark, Know-How, Manufacturing and Sales
•Some value in Patents
Intellectual Property Tuned To A Company’s Business
Software Companies
Complementary Business Assets
(Unique Assets)
(Differentiated Assets)
Value Extraction
Value Creation
Know-How
Trade Secrets
Copyrights
Trademarks
Patents
Human
Capital
(Lead Time)
Intellectual Assets
Intellectual Property
Distribution Capabilities
Intellectual Capital
$
Structural Capital (Generic Assets)
•Most Value is in Human Creativity, Trademark, Copyright, and
Distribution
Intellectual Property Tuned To A Company’s Business
Pharmaceutical Companies
Intellectual Capital
Complementary Business Assets
(Unique Assets)
Distribution Capabilities
Know-How
Trade Secrets
Copyrights
Intellectual Assets
Intellectual Property
Trademarks
Human
Capital
(Lead Time)
Value Extraction
Patents
Value Creation
(Differentiated Assets)
Structural Capital (Generic Assets)
•Most Value is in Human Creativity, Patents, and Trademarks
•Some Value in Know-How, and Sales
$
Basic Message 1
IP adds value at every stage of the value chain from
creative/innovative idea to putting a new, better, and
cheaper, product/service on the market:
Trademarks/ GIs
Ind. Designs/Patents/Copyright
Patents /
Utility Models/Trade secrets
Patents /
Utility models
Invention
Commercialization
Marketing
Financing
Literary / artistic
creation
Copyright/Related Rights
All IP Rights
Industrial Designs/
Trademarks/GIs
Product Design
Licensing
All IP Rights
Exporting
Basic Message 2
• IP Strategy should be an integral part of the
overall business strategy of an Enterprise
• The IP strategy of an Enterprise is influenced by
its creative/innovative capacity, financial
resources, field of technology, competitive
environment, etc.
• BUT: Ignoring the IP system altogether is in itself
an IP strategy, which may eventually prove very
costly or even fatal