The Economics of Innovation
In fact, the ones who create innovative disruptive technology is not as important of who actually appropriates value from them.
Today’s world is full of technologies, modern digital systems which help people to be more productive in their daily life. Innovations play not only an important role for the 21st century, but are a lifestyle for both modern and older generation. The innovation can lead society to positive changes in different spheres of people’s lives and is a major source of economic growth. The innovation sector occupies one of the first places in the market economy. Huge business prospects open to innovation in the business sphere. However, it is quite a complicated and costly activity. It requires additional intellectual and financial costs, long-term cooperation between different subjects with complementary functions and possibilities.
So, who takes part in this and leads our society to a new standard of living?
Amazon is the leading innovative company in the world. The company was the first who introduced retail via the Internet to the whole world. It tops the list of the most innovative companies according to the Fast Company edition because it doesn`t slow down even after reaching such incredible heights. According to the Morgan Stanley bank holding, Amazon takes the second place in the list of the largest US clothing stores. This business direction was the result of Amazon’s experiments with the sale of garden furniture ( in 2004), household goods( in 2008), electronic appliances (in 2009) and diapers (in 2014). Now the company sells perishable products such as short shelf life organic coffee. Unlike Apple, Google and Microsoft, Amazon does not put itself within the narrow ecosystem of interconnected programs and services. But on the contrary it is constantly expanding its boundaries to provide customers with the best and fastest service possible.
Another example is Microsoft, which not only innovates in its company but also helps other companies reach a new level of development. Microsoft strives to improve the implementation of cutting-edge technologies such as data analytics, artificial intelligence, cognitive services, blockchain, Internet of Things and peripheral computing in small and medium-sized enterprises to help them compete and grow, as well as accelerate growth.
Let’s take a look at representatives of the structure of innovative companies.
The effective functioning of the innovation market, like any other market, requires the presence of business entities — seller and buyer. Vendors of innovations are research institutions, universities, research and development bureaus, experimental plants, laboratories that officially design their products as innovative developments, offers, scientific ideas, and conduct other research to gain consumer commitment. It is known that in the market economy, only 6–8% of research is transformed into a new product or process. Such a small percentage is caused by high competition. Mostly scientists and developers do not know the market and don`t always imagine how their scientific results can be transformed into an innovative product.
What is the platform for creating the economics of innovation?
• New markets that offer customized solutions, developments, intellectual ideas and innovative products. Such markets are meant to change the old structure of the economy and offer consumers a more modern solution.
• Creating a separate platform for development on a company-by-company basis.
• Technoparks at universities, business incubators, corporate training centers, small business clusters and special trading venues for innovation implementation and testing.
Each year, the World Intellectual Property Organization (WIPO), INSEAD International Business School and Cornell University collect data, analyze, and present an analytical report entitled “Global Innovation Index”. This index consists of 80 different variables that detail the innovative development of countries in the world at different levels of economic development. It represents the sum of estimates of indicators such as resources and conditions for innovation (Innovation Input) and achieved practical results of innovation implementation (Innovation Output). The Final Index is a cost-effect ratio that allows you to objectively evaluate the effectiveness of innovation efforts in a particular country. In the last five years, the top ten innovation leaders have remained virtually unchanged. Switzerland has a leading position. It is followed by Sweden, the United States, the United Kingdom, Hong Kong, the Netherlands, Finland, Singapore, Denmark and Ireland. The United States, which continues to enjoy the benefits of its powerful educational base (this especially applies to the leading universities), has significantly increased software development costs and employment in science-intensive industries. The UK demonstrates a well-balanced track record of innovation despite relatively low productivity growth.
It is the innovative economy that provides the global economic advantage to the country that creates it. And one of the most important tasks of an innovator is to be able and to know how to defend your invention, development or implement your own idea in the competitive market.
So, what should be the focus of someone who creates value?
1. The nature of the legal system. It includes the protection of intellectual property. This adds not only confidence and importance but also a superiority over other innovators. One significant factor is the availability of legal remedies, which include: copyright, patent, a registered trademark. It should be noted here that every country has its own nuances and features that need to be known and taken into account when it comes to court protection.
2. Ancillary assets. These include the market, distribution, hardware and software in some cases. Because of constant research and training, these assets bring high quality and value and make competition impossible.
3. Branding. A recognizable product in the market will always take precedence. Even if another product has better benefits but is not yet known. It is the branding that helps to become not only recognizable in the market, but also provides a competitive advantage, especially when it comes to derivative products of a well-known company. In this case, the Apple iPad, which was developed by Apple when it was already well known and had a recognizable brand, is a good example.
In addition to these items, it is important to mention standardization. It is known from observations that one who has a dominant design creates a standard in a particular industry. Some companies do not use any type of intellectual property protection but rely on a trade secret. It provides innovative features and value for a specific product because it cannot be reproduced by other people. However, this is not enough to know for newcomers. It is important to understand that the main influence on the innovation economy of the country belongs to the state. Usually, the history of innovative product development begins with public funding, which is the system of economic incentives for enterprises and attracting foreign investment for implementing development. This order of state support has helped India develop its information technology sector, the garment industry in Bangladesh, the salmon farms in Chile, the production of soccer balls in Pakistan, the cultivation of flowers in Colombia, and the mass production of microwave ovens in Korea. It is important to note that in this case the initiative comes from the entrepreneur, and the state is always ready to support the idea of the innovator.
It is very difficult to be financially independent, as external sources are usually required to develop well. These include suppliers, research institutions, universities, financial institutions. And only those countries, where the policy of the state has formed a number of economic incentives for developers are successful and prosper in certain industries.
Investigating the niche of innovations of various companies in the world, we highlight the following driving indicators, integral for the movement and development of innovations:
1. Human resources — the availability of educated and highly qualified staff who are interested in both personal and professional development. First of all, they are graduates of doctoral studies at prestigious universities, which devote their life to science.
2. Innovative business environment. Employers are interested in developing and entering new markets and are ready to attract investment for this.
3. Auxiliary research systems that affect the speed and quality of future research.
On the path of development of an innovative economy lies a purposeful process of search, preparation and implementation of scientific and technological innovations, which allow to increase the efficiency of social production, improve the life of society and the individual, including a high degree of protection of the individual. Thus, both society and the state must realize that the basis for successful economic and social development is constant innovation. The basis of this update is a focus on creating innovation in all areas of business.
