Intellectual Property and Intellectual Property and Competitiveness of MSMEsCompetitiveness of MSMEs

G S Jaiya, Director, SMEs Division

World Intellectual Property Organization

Needs Assessment

Latin America and Caribbean

12%Certain Countries in Europe and

Asia22%

Asia and the Pacif ic region

10%

Arab Region5%

Africa 29%

OECD22%

- OECD countries (19)

- African Region (25)

- Arab Region (4)

- Asia and the Pacific Region(9)

- Certain Countries in Europe and Asia (19)

- Latin America and Caribbean Region(10 )

As of December 8, 2009: 86 IP offices

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 weCapture value?

How will weDeliver value?

• 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?

From Three to Seven Critical Questions

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

• CreativityThe 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.

• Innovation1 : The introduction of something new2 : A new idea, method, or device

• Creativity = Idea + Action• Innovation = Creativity + Productivity• Innovation = Idea + Action + Productivity

Pre-IPO

Expansion

Start-Up

Seed

Idea / Concept

TimeTime

$

• Bright Idea• Experimental• Research• Business Plan• Proof of Concept

• Legal Entity• Founders = Mgt Team• Minimal Revenue• Slow Growth

• Support Functions• Administration• Marketing• Revenue Growth

• High Growth• Head Count • Multiple Cycles

• Viable• Market acceptance• Heading to IPO or M&A

The Process/Steps of Innovation

Understanding the Process of Innovation

Expansion

Start-Up

SeedIdea / Concept

TimeTime

$

•Business Plan•Prototype/ POC•Project Management•Business Premises•Project Management•Management Training

•Corporate and Secretarial •Financial •Training •PR and Marketing•Networking •Business Development

•Recruitment•Business Development•A & P•Market Access

•International support and Mkt. Access •Diversification strategies and support •Recruitment•Training and Incentives

Needs of Each Stage

IP Management Needed in all stages

SalesProductTechnologyResearch

IP Needs of Each StageIdea

Types of protection

used

Key IP activities

Confidentiality agreement

Patent Search

Competitor search

Confidentiality

Research contract (with IP clauses)

Avoid premature publication or disclosure

Confidentiality

Patent

Industrial Designs

Copyright

Develop patent strategy

Prepare and lodge patent

All previous plus:

Licensing agreements

Trade marks

Identify licensing candidates

Augment patents

All previous plus:

Enforcement of rights

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 InnovationThe Profitability of Innovation

• Legal protection

• Complementary assets

• Ease of imitation of technology

• Lead time

Profits from

Innovation

Value of an innovation

Innovator’s ability to

appropriate value from an

innovation

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

Competitive manufacturing Sales and

service

expertise

Brand name

Distribution channels

Customer relationships

Complementary technologies

COMPETENCIES

Things you can do

Things you ownRESOURCES

Core technological know-how in innovation

Other

Other

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:

Ferment

Takeoff

Maturity

UniquenessComplementary

Assets

Increasingly, returns are earned through

contracting in the “Market for Ideas”

Profiting from Innovation Through Contracting out ideas

P ro d u c tio n & M a rke tingA llia n ce

L ice n s in g R e ve n u es A cq u is it ion

R & D In ve s tm e nt

Build, Buy, Partner: Benefits and Tradeoffs

BuildBuild

BuyBuy

PartnerPartner

Time to Market & Control & Profit

Cos

t &

Ris

k

Most product controlOwn the IPMost profit opportunity

Longest time to marketRisk in market shiftsHigh development costsHighest switching costs

Pros Cons

Shorten time to marketOwn the IP

Acquisition costsIntegration costs

Least ControlIntegration CostsShared gross margins -Least Profit Opportunity

Shortest Time to Market Conserves ResourcesTry before you BuyLowest Switching CostsCredibility and access

Which horse to pick?Build Buy Partner

Leadership Core Business

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

Waysof... designing

supplying producing marketing delivering

Know-how transfercontract

Eleven Modes of Collaboration Agreements: Illustration of Their Anchor Points

Researchcontract

CommonResearch

CommonpurchaseSubcontracting

Engineeringcontract

Patentlicence

Commonproduction

Trademarklicence

Consortium(common

marketing)

Distributionagreements

The Interaction of Intangible and Tangible Assets to Create Earnings

$$Structural Capital (Generic)Structural Capital (Generic)

Complementary BusinessAssets (Differentiated)

Intellectual Capital (Unique)

Value Creation Value Extraction

Sal

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HumanCapitalHumanCapital

IntellectualIntellectualAssetsAssets

IntellectualIntellectualAssetsAssets

Intellectual

Property

Structural Capital (Generic Assets)

Intellectual Assets

$

Complementary Business Assets (Differentiated Assets)

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Value Creation Value Extraction

HumanCapital

(Lead Time)

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

Kn

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?%

Structural Capital (Generic Assets)

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Value Creation Value Extraction

HumanCapital

(Lead Time)

•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 Beverage Companies

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Value Creation Value Extraction

HumanCapital

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•Most value is in Trademark, Know-How, Manufacturing and Sales

•Some value in Patents

Intellectual Property Tuned To A Company’s Business Paper Companies

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Value Creation Value Extraction

HumanCapital

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•Most Value is in Human Creativity, Trademark, Copyright, and Distribution

Intellectual Property Tuned To A Company’s Business Software Companies

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Value Creation Value Extraction

HumanCapital

(Lead Time)

•Most Value is in Human Creativity, Patents, and Trademarks

•Some Value in Know-How, and Sales

Intellectual Property Tuned To A Company’s Business Pharmaceutical Companies

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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:

Literary / artisticcreation

Invention

Financing Product Design

CommercializationMarketing

Licensing

Exporting

Patents / Utility Models/Trade secrets

Copyright/Related Rights

Patents / Utility models

Industrial Designs/Trademarks/GIs

Trademarks/ GIsInd. Designs/Patents/Copyright

All IP Rights

All IP Rights

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