Intellectual Property and Competitiveness of MSMEs G S Jaiya, Director, SMEs Division World Intellectual Property Organization

Needs Assessment - 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 we Capture value? How will we Deliver 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 Creativity The 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. Innovation 1 : The introduction of something new 2 : A new idea, method, or device Creativity = Idea + Action Innovation = Creativity + Productivity Innovation = Idea + Action + Productivity

Pre-IPO Expansion Start-Up Seed Idea / Concept Time $ 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 Seed Idea / Concept Time $ 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 Stage Idea 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 firms 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 Innovation Legal protection Complementary assets Ease of imitation of technology Lead time Profits from Innovation Value of an innovation Innovators 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 own RESOURCES Core technological know-how in innovation 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 Uniqueness Complementary Assets

Increasingly, returns are earned through contracting in the Market for Ideas Profiting from Innovation Through Contracting out ideas

Build, Buy, Partner: Benefits and Tradeoffs Build Buy Partner Time to Market & Control & Profit Cost & Risk Most product control Own the IP Most profit opportunity Longest time to market Risk in market shifts High development costs Highest switching costs Pros Cons Shorten time to market Own the IP Acquisition costs Integration costs Least Control Integration Costs Shared gross margins - Least Profit Opportunity Shortest Time to Market Conserves Resources Try before you Buy Lowest Switching Costs Credibility and access

Which horse to pick? BuildBuyPartner LeadershipCore 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

Ways of... designing supplying producingmarketingdelivering Know-how transfer contract Eleven Modes of Collaboration Agreements: Illustration of Their Anchor Points Research contract Common Research Common purchase Subcontracting Engineering contract Patent licence Common production Trademark licence Consortium (common marketing) Distribution agreements

The Interaction of Intangible and Tangible Assets to Create Earnings $ $ Structural Capital (Generic) Complementary Business Assets (Differentiated) Intellectual Capital (Unique) Value CreationValue Extraction Sales Force Distribution Capabilities Manufacturing Facilities Human Capital Human CapitalIntellectualAssetsIntellectualAssets Intellectua l Property

Structural Capital (Generic Assets) Intellectual Assets $ Complementary Business Assets (Differentiated Assets) Distribution Capabilities Sales Force Manufacturing Facilities Intellectual Capital (Unique Assets) Value CreationValue Extraction Human Capital (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 Companys Business Know-How Intellectual Property Trade Secrets Copyrights TrademarksPatents ?%

Structural Capital (Generic Assets) Intellectual Assets $ Complementary Business Assets (Differentiated Assets) Distribution Capabilities Sales Force Manufacturing Facilities Intellectual Capital (Unique Assets) Value CreationValue Extraction Human Capital (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 Companys Business Beverage Companies Know-How Intellectual Property Trade Secrets Copyrights TrademarksPatents

Structural Capital (Generic Assets) Intellectual Assets $ Complementary Business Assets (Differentiated Assets) Distribution Capabilities Sales Force Manufacturing Facilities Intellectual Capital (Unique Assets) Value Creation Value Extraction Human Capital (Lead Time) Most value is in Trademark, Know-How, Manufacturing and Sales Some value in Patents Intellectual Property Tuned To A Companys Business Paper Companies Know-How Intellectual Property Trade Secrets Copyrights TrademarksPatents

Structural Capital (Generic Assets) Intellectual Assets $ Complementary Business Assets (Differentiated Assets) Distribution Capabilities Sales Force Manufacturing Facilities Intellectual Capital (Unique Assets) Value Creation Value Extraction Human Capital (Lead Time) Most Value is in Human Creativity, Trademark, Copyright, and Distribution Intellectual Property Tuned To A Companys Business Software Companies Know-How Intellectual Property Trade Secrets Copyrights TrademarksPatents

Structural Capital (Generic Assets) Intellectual Assets $ Complementary Business Assets (Differentiated Assets) Distribution Capabilities Sales Force Manufacturing Facilities Intellectual Capital (Unique Assets) Value CreationValue Extraction Human Capital (Lead Time) Most Value is in Human Creativity, Patents, and Trademarks Some Value in Know-How, and Sales Intellectual Property Tuned To A Companys Business Pharmaceutical Companies Know-How Intellectual Property Trade Secrets Copyrights TrademarksPatents

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 / artistic creation Invention FinancingProduct Design Commercialization Marketing Licensing Exporting Patents / Utility Models/Trade secrets Copyright/Related Rights Patents / Utility models Industrial Designs/ Trademarks/GIs Trademarks/ GIs Ind. Designs/Patents/Copyright 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