business process of innov

8/12/2019 Business Process of Innov

1/3

Business process of innovation creation and

commercialization of knowledge

G. V. Kosolapov

FinanceInternational Academy of Business (IAB)

Almaty, Kazakhstan

[email protected]

Abstract - The development of the modern world and domestic

economy happens in a "new economic reality" and is

characterized by increasing competition and the worsening of

conditions for growth. Determining factors of growth are

intangible assets such as knowledge, abilities and skills. This is

reflected in the strategy of innovative development. This paper

proposes a method of financing and commercialization of

knowledge, based on the mortgage and securitization ofintangible assets.

Keywords - intellectual property; commercialization of

knowledge; patent; innovation; securutization; business.

I. INTRODUCTIONStrategy of industrial and innovative development, adopted

by the Government of the Republic of Kazakhstan, is a majordirection to achieve the goal of building a competitiveeconomy of the Republic of Kazakhstan.

II. COUNTRY PROFILEProvisions of the strategy were specified in the State

Program of Accelerated Industrial and Innovative Development(SPAIID) until 2014. With these documents, the Republic ofKazakhstan is increasing its innovation activity, as it is seenfrom statistics and notes of the major international ratingagencies.

A. Rankings and IndecesAccording to the Global Competitiveness Index of the

World Economic Forum, by the end of 2011 Kazakhstan hasmoved from the group of transition countries, driven by"factors of production" and "effective control", to the group ofhigher level located between the categories of countries,

motivated by "management efficiency" and "innovation." Thisgroup also includes Argentina, Brazil, Malaysia, Russia,Turkey and others. Kazakhstan has raised its rating by 21points and reached 51

stplace out of 144 countries (72nd place

in 2010.). Kazakhstan ranked second among CIS countries,after Azerbaijan (46th). Ranking sub-indices, technological andinnovation factors have grown. In relation to the ranking of"the ability of companies to apply modern technology," thecountry has risen by 22 points up to 91 st place. According tothe "Quality of research institutions" the country has reached108

thplace, going up by 13 points.

B. Need for ChangeTo improve the effectiveness of the SPAIID performance

there is a need to advance its scientific and methodologicalsupport in many issues. At some point, there is a need to lookat the two of them - the essence of innovation and itsrelationship with organizational and economic mechanism and

the search for new financial tools for engaging of IntellectualProperty Rights (IPR) into the business processes.

III. CALL FOR INNOVATIONInnovation is defined by international standards as the end

result of innovative activity, which is in the form of new orimproved product that is embedded in the market for a new orimproved technological process used in practice, or in a newapproach to social services.

This definition is suggested by experts of the Organizationfor Economic Cooperation and Development (OECD) in the"Oslo Manual", which contains explanation of key terms in the

area of innovation [1, p.195].

A. What is Innovation Process?Innovation process is a unique process that combines science,technology, economics, business and management. It consistsof the development and implementation of advancements and

extends from the birth of an idea to its commercialimplementation, covering the whole range of relations of

production, exchange and consumption.

B. What is the Environment for Innovation?Formation of innovation depends on many factors,

providing the possibility of converting new knowledge into

good and marketable. An aggregate number of factors providea favorable environment for innovation [2, p.17].

They include:

existence of the patent system that is capable ofprotecting intellectual property;

the level of technology that determines the ability tocreate and apply new knowledge and developments, theirconversion into finished products and services;

level of business development, ensuring theimplementation of innovations, the conversion of new

International Academy of Business

SECTION

5. Financing and Accounting

Advanced Research in Scientific Areas 2012

December, 3. - 7. 2012

INTERNATIONAL VIRTUAL CONFERENCE

http://www.arsa-conf.com - 624 -

ARSA 2 012

-

Ad

vanced

Resear

ch

inS

cientificAreas

-

VIR

TU

AL

CON

FEREN

CE

-


2/3

knowledge into innovation, their diffusion andcommercialization;

human capacity for innovation system. Staff capacityof the country to create science and education;

maturity of the financial system and its ability toprovide the financial resources of the innovation process at allstages of its implementation.

C. How To Manage Innovation?Later in the study, the following definitions of the terms

used:

Innovative activities - the creation, development,distribution and use of innovation, i.e. package of measuresaimed at creating conditions for the innovation process [2,p.18].

Innovation process - the process of turning ideas intocoherent innovation passing phases of fundamental and appliedresearch, engineering development, marketing, manufacturingand sales. [3]

Innovative system - a set of actors and institutions, whichjointly and individually contribute to the reproduction, storage,dissemination and use of knowledge to produce new products,technologies and services to meet the needs of the individualand society. [4]

IV. APPROACHES OF INNNOVATIONOne of the main features of the knowledge economy is the

predominance of enterprise asset amortization (especiallyknowledge) over the material. The process of turningknowledge into material and other benefits reflects the essenceof innovation.

A. Science and Innovation.To delineate between the two main stages of the innovation

process - science and innovation - we use the following concisedefinitions, giving principle difference between these conceptsin terms of commercialization.

Science is the process of turning money into knowledge.

Innovation is the process of transformation of knowledgeinto money.

Certainly, both stages are interrelated and interdependent.The subject of further research is innovation.

B. The Operation Cycle of Innovation.The operating cycle of innovation can be described as

follows. The process of innovation starts with acquisition newknowledge, i.e. science. The transition from science toinnovation begins with the protection of rights on theknowledge that should be protected in the form of patents,copyrights, etc. At this stage, there are objects of intellectualproperty (OIP) and their owners. There is a need to get theirvaluation for the conversion of OIP into assets (i.e., to assess

their potential utility of money). The next step of creating

innovation includes market research (and in many ways this islogistics study) related to the search and the formation of thepool and the OIP with a common goal to create an innovativeproduct demanded by the market. Here traditional marketingdoes not work: we need marketers who have knowledge of theintellectual property market, research and development (R &D), and etc.

Next, there is a call for an industrial R & D in the creationof the final intellectual product, first on paper (models, designs,diagrams and software), and then in the form of pilot samples.After taking an experimental sample to a consumer-readysample, there is a necessity of organizing the mass productionof an innovative product, i.e. development and implementationof the corresponding business project and managing time tomarket the product.

Implementation of a business project should beaccompanied by the relevant market research andorganizational intelligence management at all stages. There is alittle number of such professionals in the Republic ofKazakhstan, which complicates the problem at all stages of theinnovation process.

Production and sale of innovative products (goods) on themarket is truly the final stage of commercialization ofintellectual property (i.e., the conversion of intangible assets(OIP) into money). Prior to implementation of innovativeproduct on the market, all participants of the innovationprocess experienced investment costs, which can be coveredonly by selling an innovative product in the market. Thus, theactual conversion of knowledge into capital (money) is whenthey become tangible and intangible goods that are in marketdemand.

C. Commercialization of Knowledge.Business process of transformation knowledge into goodsand its conversion into capital can be presented in the form of

two opposing flows. The first (direct flow) describes thetransformation of the property owners of the OIP, investmentsof venture capitalists, and other sources of funding into the newproduct (good). This is done by converting knowledge intointangible and tangible assets that create new benefit forconsumers in the market. Counter (reverse) flow arises fromthe sale of the newly created goods in the market. This streamprovides conversion (capitalization) of knowledge capital andgrants a return on investment for investors, owners ofIntellectual property and other participants in the process. Theyget a return on invested capital income defined by the market,which can be used for developing new innovations and for

consumption.

D. Securitization.Let us consider the methodology of financing innovative

projects with the use of mortgage and asset securitization.

Securitization- accounts receivable financing requirementsthrough the issuance of securities backed by dedicated assets.

It is important to ensure legally sound agreements. Smallbanks attract investors to combine their loans into pools andissue securities backed by them. [5] The method of forming a

SECTION



December, 3. - 7. 2012



ARSA 2 012

-

Ad

vanced

Resear

ch

inS

cientificAreas

-

VIR

TU

AL

CON

FEREN

CE

-


3/3

business structure is offered to address the problems offinancing of innovative project and commercialization ofintellectual property in the investment environment through theuse of the mortgage and securitization.

V. IMPLEMENTING INNOVATIONThe technique of constructing management of funding

innovative projects and commercialization of intellectualproperty in the investment environment, is represented by anumber of stages and circuits. There was a request for theinvention based on this scheme, and two patents (both inKazakhstan and Russia) are obtained. [6]

A. Methodology.The proposed methodology includes the following main

stages.

1). The originating company wishing to take advantage ofthe securitization, forms pools of INSO as innovative projectsand works with the owners of intellectual property. It alsogenerates intangible assets that will continue to provide cash

flow, accumulates them, then combines assets similar by theirstructure into one big pool and sends it to the target company(SPV), specially created for this project.

2). Next, the main character and the holder of the assetspool is the target company. After receiving the SPV assets itissues its own securities backed by the upcoming cash flowfrom the assets received. Usually this is a different type of debt- bonds or bills. In our proposed form this is an intellectualproperty and other intangible assets presented in the form ofinnovative projects that need to increase their liquidity.

3). The next step (probably the most important) is thestage of securitization: receiving a credit rating for the new

securities.4). After obtaining credit rating, SPV issues securitiesand place them on the stock market, where investors buythem.

5). At the final stage the profits received from the saleof its shares are passed from the target company to the creator,thus paying for the assets received. Generally a company-maker subcontracts the target company to manage those same

assets, which happens parallel to the transfer of assets.

B. Implementation.To implement the proposed scheme of commercialization

of intellectual property (Fig.1) and the financing of innovativeproject, there is a need for creation of corporations. Creation of

corporations is to be governed by the contract. The contractdefines the activities and attitudes of the parties in the processof implementation of the innovative project; the procedure forstorage and management of stock assets.

The most important objectives of a corporation are the legalregulation of relations between the participants of the processof securitization, and provision of the effective attraction ofadditional investment and expansion available to securitiesinvestors.

C. How it works

REFERENCES

[1] P. R. Dixon. Upravlenie Marketingom: perevod s angl.. .: BinomPublisher, 1998.560p., p.241, 195.

[2] G. M. Mutanov. Innovatsii: sozdanie I razvitie. Almaty: KazNUPublisher, 2012.224p. p.17.

[3] http://tourlib.net/books-tourism/novikov53.htm.[4] S. K. Bishimbayeva. Modeli uspeshnoi kommertsializatsii obiektov

intellektualnoi sobstvennosti v ekonomicheski razvityh stranah. //

Innovative Congress Proceedings of thesis and reports. Karaganda,ARKO LLP, 2010 408p.

[5] P. S. Rose. Bankovskii Menedgment..: Delo LLP, 1995. p. 743.[6] G. B. Kosolapov. Opisanie izobreteniya k patentu 2459257 C1. Sistema

upravleniya kreditno-finansovymi operatsiyami innovatsionnogo proektav investitsionnoi srede. // Russian Federation. Useful Models Inventions.

Official Bulletin of the Federal Service for Intellectual Property.Moscow: - 23, 2012 16p.

SECTION



December, 3. - 7. 2012



ARSA 2 012

-

Ad

vanced

Resear

ch

inS

cientificAreas

-

VIR

TU

AL

CON

FEREN

CE

-

business process of innov

Documents