examining strategies of firms leveraging...

EXAMINING STRATEGIES OF FIRMS LEVERAGING AGRICULTURAL BIOTECHNOLOGY IN

INDIAN SEED INDUSTRY: A QUALITATIVE CASE STUDY APPROACH

Sheetal Menon Shailesh J. Mehta School of Management, Indian Institute of Technology Bombay, Mumbai - 400 076, India

[email protected]

Prof. Shishir Kumar Jha Shailesh J. Mehta School of Management, Indian Institute of Technology Bombay, Mumbai - 400 076, India

[email protected]

Prof. Karuna Jain National Institute of Industrial Engineering, Mumbai - 400 087, India

[email protected] Abstract

The present study draws its roots from the literature on management of emerging technologies, and theories on corporate and technology strategies of firms presented with technological change. The purpose of this study is to examine technology strategies of firms in the context of Indian seed industry, leveraging agribiotechnology as an emerging technology. In the process, we will be able to identify strategic choices made by firms in the Indian seed industry. Technology generator firms exploit advances in agribiotechnology for plant breeding research, while technology follower firms sustain with existing seed and plant breeding technologies and markets. This study is of significance because, at present, the Indian seed industry has an interesting mix of such firms vying for market share. The research methodology is qualitative in approach, and involves multiple case study analyses of select firms from the Indian seed industry, with different sizes, and at different stages in the adoption of agribiotechnology. In-depth interviews are conducted with key decision makers from these organizations to investigate how strategies of technology generators differ from those of technology followers and technology utilizers. We use qualitative data analysis for interpreting the findings from case analysis. The initial findings of this on-going study indicate that technology generators are typically foreign multinationals involved in trait development. In this case, agribiotechnology is central to the corporate and technology strategy of these firms. Tech generator firms rely on the model of technology licensing with seed companies followed by a steady stream of royalty payments. Firms characterized as technology followers are usually major domestic seed companies with capabilities in germplasm and plant varietal development. Tech followers’ license-in technology from tech generator firms to incorporate traits into their germplasm for value added crop development. These firms are still in the initial stages of technology adoption due to lack of infrastructure and research capabilities. Technology utilizers, on the other hand, focus on downstream functions such as seed production, distribution, marketing and retail activities of the seed business value chain. Their role is limited to distributors for firms belonging to tech generator and follower categories. Regulatory uncertainties and inconsistent policy environment within India also play a major role in the adoption of agribiotechnology by domestic companies, given that R&D and capacity building investments are contingent upon such macroeconomic factors. Limited scholarly inquiry has been dedicated toward strategic management of emerging technologies in developing countries. Findings from this study would make for a valuable contribution to the literature on technology management.

Keywords: Management of technological change, Technology strategy, Qualitative data analysis, Case study approach, Agricultural biotechnology, and Seed industry

International Association for Management of Technology IAMOT 2016 Conference Proceedings

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Introduction Agricultural biotechnology is the application of plant biotechnology to crop-based functions of agriculture such as plant breeding, varietal and germplasm development and improvement, all of which constitute upstream activities of the seed industry. Agribiotechnology and its impact on seed, agrochemical and related agribusinesses over the past decade have been extensively researched in the context of developed nations. However, with respect to the Indian seed industry, agribiotechnology is considered as an emerging technology. According to Schumpeter, technological change is characterized as a force of creative destruction, often resulting in winners and losers among firms within the relevant industry. More often, the impact is largely due to the strategies adopted by firms in the face of technological changes. Technological change is a major competitive force with strategic implications for individual companies and the entire industry. This often results in bringing new challenges and opportunities as a result of increased levels of technical and market uncertainty, sources of competition, as well as newer endeavors for commercial prospects. In order to sustain a competitive position in a dynamic environment, firms need to utilize complementary assets to commercialize the emerging technology (Hamilton, 1985). In the case of agribiotechnology, firms need to develop or acquire capabilities in complementary intellectual assets such as biotech trait development technologies, plant transformation technologies and crop varietal germplasm (Graff et al., 2003).

Literature Review Literature on technology management deals with how industries change as they encounter breakthrough technological changes. Historically, scholars such as Rosenberg (1969, 1982), Abernathy and Utterback (1976), Nelson and Winter (1977), Sahal (1981), Dosi (1982, 1988), and Pavitt (1984) contributed to theories explaining the patterns and progress of technological change. Rosenberg described innovative efforts as focused on solving a finite set of closely related problems, termed as focusing devices operating as ‘selective devices’ or technological imperatives as guiding the evolution of certain technologies, resulting in compulsive sequences of innovations over time. Abernathy and Utterback described a technology life cycle to explain the transitions of early stage technologies to emerging as the dominant design until its decline and obsolescence, to finally being replaced by radically new technology. Nelson and Winter introduced the concept of natural trajectories to determine the direction of technological progress. Sahal described technical progress as invariably characterized by the existence of technological guideposts and innovation avenues that lay out certain definite paths of development. Dosi discussed the concepts of technological paradigms and technological trajectories to examine the direction of technological change beyond the extant theories of demand-pull and technology-push. The technological paradigm defined the idea of progress by embodying prescriptions on the directions of technological changes to pursue and those to neglect (Dosi, 1982; Vanloqueren and Baret, 2009). Technological trajectories are seen as time sequence of progressive shifts of trade-offs between techno-economic variables, specific to a given technology, which indicate technological progress and which stem from innovative efforts of firms and institutions. A paradigm may involve many trajectories through which it evolves and reproduces itself. During the transitions between technological paradigms they may coexist with one another, especially when the sunk costs of the older paradigm and the new one’s uncertainties and investment requirements are high enough. These concepts have been useful for examining the micropatterns of new innovations in chemical industry studies (Possas et al., 1996). Although Dosi initially introduced his concepts of technological change within industrial structures, it has been argued that these could be extended to agriculture. The existence of technological trajectories and the convergence between some of them may be a decisive factor to understand the long-run trends of this sector. Technological change transformed conventional agriculture as the dominant technological paradigm, replacing the older paradigm of subsistence farming. Green Revolution was responsible for substantial contributions to successful agricultural technologies characteristic of conventional agriculture. The Green Revolution made India self sufficient in food grains during the 1960s and 70s as a result of tremendous improvements in


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agricultural technology. This technological trajectory involved the use of seeds of high-yielding varieties (HYVs), adoption of a package of input-intensive agricultural practices involving fertilizers and pesticides, controlled water access, as well as modernized farm equipment. However, recent scientific progress achieved in agricultural biotechnology infused advanced genetic technology into agricultural production, offering possibilities for conventional agriculture beyond the scope of technologies part of the Green Revolution. Agribiotechnology, as an emerging technology, has shown potential to enhance the speed and precision of agricultural research and development, new approaches and solutions for controlling pests and diseases, stress tolerance, crop yields, as well as nutrition levels in crops.

Figure 1: Theoretical Perspectives to Examine Emerging Technologies An understanding of literature on the direction and progress of technological change would provide sound theoretical foundation for understanding the evolution of agricultural biotechnology as an emerging technological trajectory within the technological paradigm of conventional agriculture (Table 1).

Table 1: Summary of Literature on Technological Change

TheoreticalPerspectives

Overview LiteratureSources

PatternsofTechnologicalChange

Technological evolution depends on: a) the process through which scientific advanceoccurs; b) New advances to address current technical problems; c) building on priorknowledgethathasaccumulated;d)socio-economic&politicalforcesthataffectthepaththattechnologicaladvancetakesplace;Underlyingdrivingforcesbasedontechnologicalchange determine the form and level of competition, attractiveness of entry, andultimatelythestructureofanindustry

Nelson&Winter(1977,1982),Pavitt(1984),Rosenberg(1982),Abernathy&Utterback(1978),Sahal(1985),Dosi(1982),Possasetal.(1996),Parayil(2003);Vanloqueren&Baret(2009)

IntellectualPropertyManagement&InnovationManagement

Relationship between complementarities and transaction costs in the coordination ofintellectualassetson industryrestructuring,Appropriabilityregimeasadeterminantfortechnologicalinnovationanditsstrategicimplicationsforfirms

Teece(1986),Arora&Gambardella(1990),Heller&Eisenberg(1998),Graffetal.(2003),Mansfieldetal.(1981),Scherer(2005);Fulton&Giannakas(2001);Ollinger&Fernandez-Cornejo(1998)

TechnologyStrategy Technologystrategycanbeunderstoodbyconsidering:a) The emergenceof new technologies, b) shifts in the natureof competitionbetweenfirms, and c) changes in the dominant strategies& structures of other firms; Need forlinkageof technologywithoverallcorporate levelstrategy; Identify thedynamicsof thecontext inwhichfirmsoperate,aswellasawarenessofthepossiblestrategiesavailabletothefirms

Cohen&Levin(1989),Narayanan(2001),AdnerandLevinthal(2002),Davenportetal.(2003),Pavitt(1990);Hamiltonetal.(1990)

StrategicManagementofTechnology

Simultaneous consideration of business and technology issues as well as integratingdecisions considering both issues. The growing realization that adoption of newtechnologiesisahighlycomplexprocess,thesuccessofwhichisdependentnotonlyonmanagement of change in the technology itself, but also upon changes within thebusinessnecessarytoexploitthepotentialofthetechnology

Drejer(1997),Dosi(1988),Whipp&Clark(1985),Juhl(1988),Bhalla(1987),Tushman&Anderson(1986),Hambrick(1980)

EmergingTechnologyonFirms'Strategy

TheoriesonTechnological

Change

InnovadonManagement

IntellectualProperty

Management TechnologyManagement

StrategicManagement


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Patent Analysis of Agricultural Biotechnology Sector In recent years, greater reliance has been placed on patent analysis by academia, industry and governments across the world to understand technology trends. Patent indicators provide reliable inputs for policy development, strategic business decisions, or addressing academic inquiry. Since patents are the earliest sources of disclosure for new technologies, these techno-legal documents are considered representative of the state-of-the-art in technical knowledge (Sastry, 2011). In this paper, comparison of patent statistics in the field of agribiotechnology globally highlights the relative nascency of the technology within the Indian context. The quantum of patents filed and granted worldwide is on an average ten-fold higher than those filed in India (Figure 1 and 2).

Figure 1: Agribiotech Patent Statistics for Worldwide (1995 - 2015)

Figure 2: Agribiotech Patent Statistics for India (1995 - 2015) Figure 3 highlights the countries with highest number of patents filed in the area of agribiotech. Patents filed in China exceed eight-fold while those filed in the US exceed five-fold when compared to India. Factors such as regulatory uncertainties and inconsistent policy environment within India play a major role in the adoption of agribiotechnology by firms within the seed industry, given that R&D and capacity building investments are contingent upon such macroeconomic factors. Another contributing factor has been the controversy surrounding agricultural biotechnology from the perspective of food security and safety concerns in a predominantly agrarian nation.


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Figure 3: Country-wise Agribiotech Patents Filed

The technological focus within agribiotechnology is represented by the international patent classification (IPC) codes. Comparison of technology class codes for the global and Indian context indicates substantial focus on recombinant DNA technologies, plant-breeding technologies, as well as enabling technologies such as transformation techniques and genetic engineering (Figure 4 and 5).

Figure 4: Technology Focus - Worldwide

Figure 5: Technology Focus - India

CLASS CODE # FAMILIES DESCRIPTION

C12N 15/82 12,210 Recombinant DNA technology adapted for plants A01H 5/00 11,512 Plant breeding technique using tissue culture C12N 15/29 5,127 Recombinant DNA technology for expressing plant proteins C12N 5/10 4,642 Transformation techniques C12Q 1/68 4,528 Preparing nucleic acids such as DNA/RNA


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Research Methodology Limited scholarly inquiry has been dedicated toward emerging technologies in developing countries. The primary focus of this study is to explore firms leveraging agricultural biotechnology in the upstream activities of the Indian seed industry. The fundamental nature of inquiry lends itself to a qualitative research approach. In this regard, we identified case study methodology as an appropriate qualitative approach. In-depth case studies of firms within the context of agribiotechnology as an emerging technology, would make for a valuable contribution to the literature on technology management Case selection is an important aspect of theory building from case studies. Selection of an appropriate population is crucial as it defines the set of entities from which relevant case studies can be conducted. This controls for extraneous variation and defines the limits for generalizing the findings (Glaser & Strauss, 1967; Eisenhardt, 1989; Yin, 2009). A closer look at the structure of the seed industry helped us identify and study firms leveraging agricultural biotechnology. The Indian seed market can be categorized into i) the informal market (farm-saved seeds) representing 75% of all seed transactions involving saving, reuse and exchange of seeds, and ii) the formal seed (purchased seeds) market represents 25% of all seed transactions (Figure 6). Within the formal seed market, state-owned seed production holds 24% share, whereas private firms hold 76% share (Rabobank, 2006).

Figure 6: Structure of Seed Industry in India (2014) Across the formal seed market value chain, private sector firms engage in upstream activities such as research, development, commercialization, distribution of elite germplasm, advanced agribiotechnology tools and techniques for plant breeding; or downstream activities such as multiplication, distribution, and marketing of improved seeds (Spielman et al., 2014). Private firms are further divided into regional players, which include over 500 small and medium firms, primarily involved in downstream functions, whereas national players that comprise over 50 large domestic and multinational firms, are involved in upstream functions (Figure 7).

75%

25%

Farm-savedSeeds CommercialSeeds

76%

24%

PublicSector PrivateSector

CLASS CODE # FAMILIES DESCRIPTION

C12N 15/82 459 Recombinant DNA technology adapted for plants A01H 5/00 195 Plant breeding technique using tissue culture C12N 78 Genetic engineering methods C07K 14/415 70 Modified proteins derived from plants C12Q 1/68 62 Preparing nucleic acids such as DNA/RNA


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Figure 7: National & Regional Firms in Seed Industry (in terms of value & volume) For the purpose of conducting case studies, we identified the unit of analysis as private sector firms, which are a subset of national players, engaged in upstream activities of the Indian seed industry. In order to sustain a competitive position in this sector, firms need to develop or acquire capabilities in complementary intellectual assets. Firms have been characterized as technology generators, technology followers and technology utilizers, based on the capabilities to leverage agribiotechnology. Technology Generator firms are usually involved in biotech trait development platforms, Technology Follower firms focus on enabling technologies, while Technology Utilizer firms engage primarily in germplasm development and improvement. In order to characterize firms in this manner, we utilized data on firm-level agribiotech patents and plant variety protection (PVP) filings in India.

Preliminary Findings The initial findings of this on-going study indicate that firms characterized as technology generators typically are foreign multinationals involved in trait development. Data analysis reveal that tech generator firms file for patents in recombinant DNA technology, plant breeding techniques, as well as enabling technologies like genetic engineering. These firms undertake substantial levels of R&D when compared to their industry peers, with focus on research-intensive biotech-trait platforms, and technology licensing and commercialization. Their technologies are developed for a diversified crop portfolio, with wide applications for GM traits. Tech generators also file for PVPs (India’s alternative to plant patents), in order to indigenize foreign technologies into local germplasm. In this case, agribiotechnology is central to the corporate and technology strategy of these firms. Tech generator firms rely on the model of technology licensing with domestic seed companies followed by a steady stream of royalty payments. Although firms characterized as technology followers engage in developing enabling technologies such as transformation techniques and plant-breeding activities, their focus is primarily directed toward proprietary crop breeding programs to develop elite germplasm. For tech follower firms, crop portfolio is not as diverse as is the case with tech generators. In-house R&D expertise is complemented with external dependence on licensed technologies. Tech followers’ license-in technology from tech generators to incorporate traits into their germplasm for value added crop development. These firms are still in the initial stages of technology adoption due to lack of infrastructure and research capabilities. They have higher PVP filings compared with tech generator firms as a result of the output from breeding programs, as well as patents for developing enabling technologies.

57%

43%

0%

10%

20%

30%

40%

50%

60%

NadonalPlayers RegionalPlayers

Intermsofvalue

50

500

0

100

200

300

400

500

600

NadonalPlayers RegionalPlayers

Intermsofvolume


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Technology utilizers, on the other hand, focus on downstream functions such as seed production, distribution, marketing and retail activities of the seed business value chain. Their role is limited to distributors for firms belonging to tech generator and follower categories. Tech utilizers engage in small breeding programs, relying on technology access from public and private sector organizations to develop crop varieties. These firms lack research capabilities and infrastructure to develop biotech-traits or enabling technologies. Tech utilizers do not file for any agribiotech patents, and hold few PVP filings as a result of the output from breeding programs.

Conclusion This study is based on the theoretical underpinnings of the management of emerging technologies and strategies of firms presented with technological change. In the on-going study, we examined technology strategies of firms leveraging agricultural biotechnology in the context of Indian seed industry. This research is of significance because, at present, an interesting mix of tech generator, tech follower, and tech utilizer firms are adopting different strategies in order to vie for market share in the Indian seed industry. By using a qualitative research methodology involving multiple case study approach, in-depth interviews were conducted with key decision-makers from select organizations. The preliminary findings of the study provided insight into how strategies of agribiotech firms differ when faced with technological change. Due to the limited scholarly inquiry dedicated toward strategic and technology management issues of firms from emerging economies, we believe this study makes a valuable contribution to literature from this perspective.

Limitations The findings presented in this paper are based on an on-going study. As we near completion of the research, incorporating more findings would enhance the output and contribution of this study to the literature on technology management of emerging technologies in developing nations.

Acknowledgements We would like to thank the MHRD IPR Chair, IIT Bombay for providing funding support for this study.

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