Class 7 Size of companies as a factor to innovate Prof. Paulo Feldmann

The reason why the great inducer of R&D in the world is the large company The conclusion of many different studies shows that the more larger companies exist in a given country the more that country will spend on R&D and, likewise, the greater the number of patents/innovations .

Is there any relation between size of firm and innovation? Two streams of thoughts: Small firms are important to innovation Schumpeter’s early works [e.g., The Theory of Economic Development,1912] Large firms are important to innovation Schumpeter’s late works [e.g., Capitalism, Socialism and Democracy, 1943] John K. Galbraith [e.g., The New Industrial State, 1967]

Innovation and Size Small firms might have some advantages on the earlier stages of inventive work, but large firms are more efficient There are some types of innovation which are beyond the resources of the small firm (e.g. aerospace, nuclear reactor, pharmaceutical, cement, glass, steel, shipbuilding, etc) Small firms are more flexible and have good internal communication skills, but large firms are structured, have access to finance and the ability to cope with government regulation

R&D Expenditure and Size R&D expenditure is highly concentrated and performed in large firms 98% of small firms did not perform any specialized R&D program

Patents are very expensive Invention and Size Patents are very expensive Propensity to patent among firms and industries are different Some large firms may rely on secrecy and/or internal policies to keep secrets

The future tendency Large companies will stimulate start ups and aquire them after the innovation becomes mature