Comprehensive Week 3 Flashcards
Why is R&D and innovation important?
Primary means through which firms establish, sustain and enhance their long run competitiveness and profitability
What are the 5 types of R&D?
Basic R&D
Problem solving R&D
Product/service improving R&D
Efficiency/process improving R&D
Reverse R&D
What is basic R&D?
Fundamental research, unknown outcome costly
What is product/service improving R&D?
Meant to lead in incremental improvements. Low cost and focussed
What is reverse R&D?
Strategic learning from the innovation of competitors. Industrial espionage/ illegal replication
What does Hymer say about MNE characteristics?
MNEs have specific characteristics. They are highly concentrated in industries with advanced tech, substantial R&D costs, high sunk costs and substantial economies of scale.
Tech-intensive industries tend to be dominated by firms of what size?
LARGE firms. Because R&D and innovation is capital intensive and requires substantial sunk costs.
SMEs possess R&D and innovative capacity in areas with
Human capital intensive tech.
What is technological leapfrogging?
Firms that currently dominate markets with well established tech may be sluggish and less likely to innovate.
How is R&D and innovation incentivised?
Tangible outcomes are protected by intellectual property rights (IPRs)
Who enforces patents?
WIPO
How does IPR protection benefit innovating firms?
They are granted a temporary monopoly over innovative outcomes. Exploiting this leads to long run profitability and competitiveness.
Hymer observed that innovation is strongly related to what?
The characteristics of the home market
Talk about the global pattern of innovative activity.
Changing rapidly. An increasing no. countries are developing technological capacity.
What factors do SPF claim determine national innovative capacity?
- National innovative infrastructure
- Cluster-specific environment
- Quality of linkages
Explain the national innovative environment.
- How much humans and financial resources are devoted to R&D and innovation
- What’s government policy like? Tax breaks/patent protection
- National level of technology sophistication
Explain the cluster specific environment.
Geographic concentration of inter-connected firms stimulating each other
It’s a setting that encourages rivalry and investment
Explain the quality of linkages.
How well innovations and activities by firms come together.
What were the results of SPF?
That 99% of variation in patent activity is explained by the national innovative capacity.
What is the recent decades’ trend in innovative activity?
More innovative activity has been occurring outside of OECD
Substantial investment in countries upgrading their innovative capacity
What’s misleading about the fact that 67% of patents now come from Asia?
Not all patents are equal!
Why’s the location of innovation important for global companies?
Well because they should want to set up R&D labs in favourable innovative environments. As a result, they should be monitoring trends very closely.
What is the international innovation index?
Gives a better measure of where the best innovating areas are. Output is not just number of patents but how output and efficiency improve. Remember, not all patents are equal.
What does the international innovation index find?
Despite most patent activity being in Asia these days, the impact of innovation on growth is still better in OECD.
What are the implications of the changing location of R&D and innovation for firms?
They must be increasing awareness of developments in R&D locations if they wish to create or maintain competitive advantages.
Future comp. adv. will be determined by firms’ abilities to identify new innovation opportunities
What is the significance of som many BRIC graduates?
Other countries are developing a lot more human capital. More competition in the world.
What is Posners technology gap?
Neoclassical framework, perfect competition
Model of innovation, monopoly and imitations.
Outline how posners technology gap works.
Innovation creates a temporary technology gap which generates monopoly profits. Imitation restores the market to a perfectly competitive equilibrium.
How does Vernons product cycle relate to posners tech gap?
It extends posners model by adding a key spatial element
What empirical backing does vernons product cycle have?
It could explain the outwards FDI from the US in the 1950s and early 60s + outward FDI from Japan in the 1980s.
What are the 3 stages of vernons product cycle?
The New Product Phase
The Mature Product Phase
The Standardised Product Phase
Talk about the New Product Phase
-innovation reflects home country’s factor endowment and satisfies market (income elastic good)
-innovating firms enjoy monopoly power in their home market protected by patents
Talk about the Mature Product Phase.
Domestic demand increases along with demand from overseas markets with similar characteristics. Firms standardise production and benefit from EoS which act as a barrier for entry for imitating firms. (Foreign markets can be supplied with exports or horizontal FDI)
Talk about the standardised product phase
Successful imitation by rival firms erodes market power of innovators.
Increasing competitive pressure forces firms to shift production to lower-cost host countries
The source of market power becomes product differentiation
In the standardised product phase, what type of market do we end up in?
Monopolistic. IMPERFECT MARKET - WE DKNT RETURN TO PERFECT COMP
What are some critiques of Vernons PC?
Assumes innovation is located in home country
Assumes production is initially in home country. In some cases it’ll be offshored right away.
Firms principal markets are only in wealthy industrialised countries.
New innovations and products increasingly represent endowment and demand of industrialised and emerging economies
How could you tackle a question about how well the PC provides useful insight into the evolution of globalisation and spatial pattern of IB?
-Countries are separated by type
-allows us to look at how production location evolves
-how trade and FDI (objective) pattern evolves
-shows market structure isn’t perfect
BUT
- considers firms that innovate then become global
- Doesn’t fully consider evolution whereby new products and innovation increasingly represent factor endowment and mrkt chrctrtcs of industrialised and emerging economies
