Comprehensive Week 3

Question 1

Why is R&D and innovation important?

Answer 1

Primary means through which firms establish, sustain and enhance their long run competitiveness and profitability

Question 2

What are the 5 types of R&D?

Answer 2

Basic R&D

Problem solving R&D

Product/service improving R&D

Efficiency/process improving R&D

Reverse R&D

Question 3

What is basic R&D?

Answer 3

Fundamental research, unknown outcome costly

Question 4

What is product/service improving R&D?

Answer 4

Meant to lead in incremental improvements. Low cost and focussed

Question 5

What is reverse R&D?

Answer 5

Strategic learning from the innovation of competitors. Industrial espionage/ illegal replication

Question 6

What does Hymer say about MNE characteristics?

Answer 6

MNEs have specific characteristics. They are highly concentrated in industries with advanced tech, substantial R&D costs, high sunk costs and substantial economies of scale.

Question 7

Tech-intensive industries tend to be dominated by firms of what size?

Answer 7

LARGE firms. Because R&D and innovation is capital intensive and requires substantial sunk costs.

Question 8

SMEs possess R&D and innovative capacity in areas with

Answer 8

Human capital intensive tech.

Question 9

What is technological leapfrogging?

Answer 9

Firms that currently dominate markets with well established tech may be sluggish and less likely to innovate.

Question 10

How is R&D and innovation incentivised?

Answer 10

Tangible outcomes are protected by intellectual property rights (IPRs)

Question 11

Who enforces patents?

Answer 11

WIPO

Question 12

How does IPR protection benefit innovating firms?

Answer 12

They are granted a temporary monopoly over innovative outcomes. Exploiting this leads to long run profitability and competitiveness.

Question 13

Hymer observed that innovation is strongly related to what?

Answer 13

The characteristics of the home market

Question 14

Talk about the global pattern of innovative activity.

Answer 14

Changing rapidly. An increasing no. countries are developing technological capacity.

Question 15

What factors do SPF claim determine national innovative capacity?

Answer 15

• National innovative infrastructure
• Cluster-specific environment
• Quality of linkages

Question 16

Explain the national innovative environment.

Answer 16

• How much humans and financial resources are devoted to R&D and innovation
• What’s government policy like? Tax breaks/patent protection
• National level of technology sophistication

Question 17

Explain the cluster specific environment.

Answer 17

Geographic concentration of inter-connected firms stimulating each other

It’s a setting that encourages rivalry and investment

Question 18

Explain the quality of linkages.

Answer 18

How well innovations and activities by firms come together.

Question 19

What were the results of SPF?

Answer 19

That 99% of variation in patent activity is explained by the national innovative capacity.

Question 20

What is the recent decades’ trend in innovative activity?

Answer 20

More innovative activity has been occurring outside of OECD

Substantial investment in countries upgrading their innovative capacity

Question 21

What’s misleading about the fact that 67% of patents now come from Asia?

Answer 21

Not all patents are equal!

Question 22

Why’s the location of innovation important for global companies?

Answer 22

Well because they should want to set up R&D labs in favourable innovative environments. As a result, they should be monitoring trends very closely.

Question 23

What is the international innovation index?

Answer 23

Gives a better measure of where the best innovating areas are. Output is not just number of patents but how output and efficiency improve. Remember, not all patents are equal.

Question 24

What does the international innovation index find?

Answer 24

Despite most patent activity being in Asia these days, the impact of innovation on growth is still better in OECD.

Question 25

What are the implications of the changing location of R&D and innovation for firms?

Answer 25

They must be increasing awareness of developments in R&D locations if they wish to create or maintain competitive advantages. Future comp. adv. will be determined by firms’ abilities to identify new innovation opportunities

Question 26

What is the significance of som many BRIC graduates?

Answer 26

Other countries are developing a lot more human capital. More competition in the world.

Question 27

What is Posners technology gap?

Answer 27

Neoclassical framework, perfect competition Model of innovation, monopoly and imitations.

Question 28

Outline how posners technology gap works.

Answer 28

Innovation creates a temporary technology gap which generates monopoly profits. Imitation restores the market to a perfectly competitive equilibrium.

Question 29

How does Vernons product cycle relate to posners tech gap?

Answer 29

It extends posners model by adding a key spatial element

Question 30

What empirical backing does vernons product cycle have?

Answer 30

It could explain the outwards FDI from the US in the 1950s and early 60s + outward FDI from Japan in the 1980s.

Question 31

What are the 3 stages of vernons product cycle?

Answer 31

The New Product Phase The Mature Product Phase The Standardised Product Phase

Question 32

Talk about the New Product Phase

Answer 32

-innovation reflects home country’s factor endowment and satisfies market (income elastic good) -innovating firms enjoy monopoly power in their home market protected by patents

Question 33

Talk about the Mature Product Phase.

Answer 33

Domestic demand increases along with demand from overseas markets with similar characteristics. Firms standardise production and benefit from EoS which act as a barrier for entry for imitating firms. (Foreign markets can be supplied with exports or horizontal FDI)

Question 34

Talk about the standardised product phase

Answer 34

Successful imitation by rival firms erodes market power of innovators. Increasing competitive pressure forces firms to shift production to lower-cost host countries The source of market power becomes product differentiation

Question 35

In the standardised product phase, what type of market do we end up in?

Answer 35

Monopolistic. IMPERFECT MARKET - WE DKNT RETURN TO PERFECT COMP

Question 36

What are some critiques of Vernons PC?

Answer 36

Assumes innovation is located in home country Assumes production is initially in home country. In some cases it’ll be offshored right away. Firms principal markets are only in wealthy industrialised countries. New innovations and products increasingly represent endowment and demand of industrialised and emerging economies

Question 37

How could you tackle a question about how well the PC provides useful insight into the evolution of globalisation and spatial pattern of IB?

Answer 37

-Countries are separated by type -allows us to look at how production location evolves -how trade and FDI (objective) pattern evolves -shows market structure isn’t perfect BUT - considers firms that innovate then become global - Doesn’t fully consider evolution whereby new products and innovation increasingly represent factor endowment and mrkt chrctrtcs of industrialised and emerging economies