Ch 15 The Firm Environment And Innovation

Front 1

Origins of competitive advantage?

Back 1

The (competitive) environment of the firm is important for the development and sustainability of competitive advantage.

Front 2

Environment:

Back 2

The characteristics of the environment in which the firm is embedded, affects the possibility to develop an international competitive advantage.
Local (national) versus international.

Develop? Characteristics of the domestic country or the local market shape the firm by:
Supporting the accumulation of resources and capabilities.
Exerting pressure on the firm to innovate, invest and improve.

Analysis: Porter diamond is a nice tool.

Front 3

Porter'S diamond?

Back 3

Michael E. Porter argued that a nation can create new advanced factor endowments such as skilled labor, a strong technology and knowledge base, government support, and culture. Porter used a diamond shaped diagram as the basis of a framework to illustrate the determinants of national advantage. This diamond represents the national playing field that countries establish for their industries.

Front 4

porter'S daimond factors

Back 4

A firm’s competitive advantage in global markets is enhanced by local:
Factor conditions:
Fe: (Highly skilled) labour, infrastructure and capital.
Demand conditions:
Fe: Size and growth of the market, but also local conditions.
Related and Supporting industries:
Fe: Access to suppliers, exchange of know-how.
Strategy structure and competition.
Fe: Management practices, transparency in local capital markets.

Firms that enjoy local protection often fail to make a mark outside their home nations.
Fe: Chinese banks!

Front 5

the features of the enviroment implies:

Back 5

So:
The local environment is important for building international competitive advantage.

Long term?
Long term competitiveness is affected by the presence of innovate capabilities in the local environment of the firm.

 Systems of innovation!

Front 6

How can a government improve the enviroment?

Back 6

Government: Is able to affect the innovative capabilities of the local environment and thus the innovative capacity of the firm  effect on sustainable competitive advantage!

How? For example:
Educational system.
ICT-level.
Public R&D expenditures.
Enhancing knowledge exchange.
Subsidise (techno)starters, knowledge intensive firms.

Front 7

national system of innovation?

Back 7

Underlying assumptions of the NSI:
The most fundamental source in the modern economy is knowledge and accordingly the most important process is learning.
Learning is predominantly interactive.
‘Nation state’.

Purpose? The long term competitiveness of firms and national economies is reflected by their innovative capabilities.

Front 8

Definition?
of NIS

Back 8

Definition?
“ […] the elements and relationships which interact in the production, diffusion and use of new and economically useful, knowledge…and are either located within or rooted inside the borders of a nation state.” (Lundvall, 1992).

“[…] that set of distinct institutions which jointly and individually contribute to the development and diffusion of new technologies and which provides the framework within which governments form and implement policies to influence the innovation process. As such it is a system of interconnected institutions to create, store and transfer the knowledge skills and artefacts which define new technologies.” (Metcalfe, 1995).

Front 9

Characteristics of NIS

Back 9

Institutions versus Organisations/Actors:
Institutions = “[…] sets of common habits, routines, established practices, rules, or laws that regulate the relations and interactions between individual and groups.”
Organisations = “[…] formal structures with an explicit purpose and they are consciously created. They are players or actors.”
Institutions = rules of the game.
Organisations/actors = players of the game.

Institutional Framework?
Often in the literature: combination of institutions and organisations.
Here: Institutional set-up or ‘the rules of the game’.

Front 10

Characteristics of NIS II

Back 10

Interaction → the importance of networks:
Innovation by means of knowledge accumulation and learning can be improved through interaction with other actors (both national and international).
Uncertainty reducing on a national level.

Diffusion → the importance of networks:
Network relations (links) make the diffusion of technology and knowledge possible.

Network relations between different actors in the system (Ex: firms, universities, government, etc.).

Front 11

characteristics of NIS III

Back 11

‘Nation state’ → differentiation in the macro-environment:
National social-cultural and political dimension; NSI presumes national homogeneity.
Ex: educational system, ICT-level en demography.

Does the nation-state exists? → ambiguity?
EU (-regulation).
Multinational states, like Belgium, Switzerland, Canada.
Regionalisation and internationalisation.

Front 12

Implementation of NIS for the Netherlands?

Back 12

Challenges for the Netherlands: What is the problem?
Dutch economic growth in 90s mostly factor driven
 growth due to more labour.
However, demographic developments, predominantly aging and dropouts limit the possibilities for more labour.
Aging  increase outflow of labour.
Drop-outs  decrease inflow of labour.

Problem: How to realise future economic growth?

(Possible) solution?
Work smart to improve labour productivity.
Labour productivity = number of unit products per employee per time unit.

Front 13

Furthermore solutions examples for NIS

Back 13

Solution to improve productivity: Innovation and technology!

That’s why the government is interested in innovation and technology:
Innovation as a stimulus for increased productivity, which may results in sustainable economic growth.

Sustainable economic growth: Economic growth which meets the needs of the present without compromising the ability of future generations to meet heir own needs.

Mission of Dutch ministry of Economic Affairs: ‘Improving sustainable economic growth in the Netherlands’.

Front 14

analysis: How about the current condition of the Dutch system of innovation?

Back 14

Strengths (among others):
Public R&D expenditures.
Quality of university research output.
ICT conditions.
R&D of Dutch multinationals.
Weaknesses (among others):
Private R&D expenditures.
Availability of R&D personnel.
Exploitation of university research output (knowledge paradox).

Problem? Knowledge paradox!
No exploitation of high-profile university research output by commercial firms.
Fe: Many patents are not commercialised.

Government tries to improve this system of innovation.

Front 15

International Positioning of the Netherlands?

Back 15

Purpose of system of innovation? Improve the international competitiveness of the Netherlands in both the short and the long term.

Ambition of the Netherlands? Belong to the best performing countries in the EU.

Ambition of the EU? “[…] to become the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion.”
Lisabon treaty!!

Front 16

Conclusion

Back 16

Competitive advantage in the long term is affected by the local environment of the firm  innovation is of considerable importance.

In the Netherlands and Europe the government is an important factor in the creation of an environment in which innovative firms are stimulated.
Purpose: Sustainable economic development.
Problem: Knowledge paradox.