Lecture 8 Innovation and International Legal Systems

Session Outline
Innovation and Entrepreneurship Born Global companies SMEs internationalisation process International Legal systems Intellectual Property Right

Innovation
Introduction of new things or methods These could be products and/or services relating to: Associated markets - establishment of new methods of production, supply and distribution; The introduction of changes in management, work organization, and the working conditions and skills of the workforce

Dimensions of innovation

Companies manage business operations representing different set of opportunities for innovation, in two specific ways innovation input opportunities distinctive output opportunities These represent two main forms of internationalisation, namely, resource-seeking very often go market-seeking

 NIS are characterised by 3 key elements

The quality of local scientific and technological institutions Design-related and creative expertise Institutional relationships between enterprises

National Innovation Systems

Universities and government research organisations Regional variations in these components partly account for firm-level differences in innovation-related capabilities and competitiveness.

 Entrepreneurship and innovation go hand-inhand. Entrepreneurs

whether working in small or large firms, as owner-managers or employees, are distinctive

Entrepreneurship

Entrepreneurs have the capability and motivation to pursue innovative commercial opportunities
Such innovations are riskier and more radical than normal They identify such opportunities and assemble the resources and capabilities needed to create value.

Born Global firms

Is a term used to describe a firm that from its beginnings, immediately or very quickly reliant on a global presence to survive and succeed Born global firms are also referred to as international new ventures (INVs) in the international entrepreneurship literature. They can be defined as business organizations that, from inception, seek to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries.

SMOOTH
Reliance on SMOOTH Source raw materials wherever they are the cheapest Manufacture anywhere in the world where it is most cost effective Obtain and sell in those global markets where prices are highest Organise and raise finances globally Try and forge international strategic alliances Hire the best talents from all over the world. To manage all the above points

Key areas of dispute

Debates have developed around the concept and the empirical reality of the born global firm. The applicable definition of global, specifically is a firm born global (or global at all) if it simply exports and imports products and services and has no FDI Are born global really global in terms of their cross-border trade and/or FDI, or are they regional? How quickly does a small firm needs to develop a global presence to be called a born global firm? i.e. what does from inception mean in the abovementioned definition?

 SMEs face significant limitations compared to large firms, making internationalisation strategies riskier. These limitations mean that small firms often need to be that much more entrepreneurial and innovative And/or take risky short-cuts, to expand across national borders

The practical challenges for internationalising SMEs

 Mathews and Zander propose three milestones of international entrepreneurial processes: (1) the discovery of new opportunities (2) the deployment of resources in the exploitation of these opportunities (3) engagement with competitors

How do SME managers know which markets to enter?

The International Legal Environment

Types of legal systems

Common law Statutory law Code law Religious law Bureaucratic law.

Common Law
Legal system in the UK and its former colonies, including the USA, Canada, Australia, India, New Zealand, and much of the Caribbean Essentially unwritten, based on judicial precedent There are variations between countries

Statute Law
The laws passed by government. There are variations between countries. For example : Freedom of Information Act in UK and USA.

Code Law
Explicit codification in written terms of what is and what is not permissible.

Such laws can be written down in criminal, civil and/or commercial codes.
This is the worlds most common system. Most continental European countries, together with their former colonies, follow this type of legal system.

Religious Law
Based on rules related to the faith and practice of a particular religion - a theocracy recogntion of form of God. For example, Iran where mullahs (holy men) determine what is legal or illegal depending on their interpretation of the Koran, the holy book of Islam. In countries relying on religious laws there is often an absence of a due process and appeals procedure. Can pose particular problems for businesses operating in those countries.

Bureaucratic Law
Occurs in dictatorships and communist countries when bureaucrats largely determine what the laws are, even if these are contrary to the historical laws of the land. Also causes particular problems: MNEs find it difficult to manage their affairs as there tends to be a lack of
consistency, predictability and appeals procedures.

Impact on International Business

Foreign ownership restrictions Environmental restrictions Exit restrictions Trade restrictions Example of Trade difference:
The Koran says that people should not charge others interest as this is an unfair exploitation of the poor. Thus banks charge up-front fees, and owners of bank deposits are given shares of the banks profits rather than interest.

Settling International Business Disputes

Which country s laws apply? In which country should the issue be resolved?
USEFUL LINK: http://www.bbc.co.uk/news/business-19662880 Japan v China 2 min

Intellectual Property Rights

1. Patents 2. Trademarks 3. Copyrights 4. TRIPS (Trade Related Intellectual Property Rights)
Developed countries (since 1 Jan 1996) Developing/Transitional countries (since 1 Jan 2000) Least developed countries (from Jan 2006).

1. Patents
Patent law confers ownership rights on the inventor. To qualify as the subject matter of a patent the process must be novel, involve an inventive step and be capable of industrial application.

Inventive seeks to establish that a step has been taken which would not be obvious to experts in the field.
Patents depend upon registration for their validity.

2. Trademarks
Trademarks are any sign capable of being represented graphically which is capable of distinguishing goods or services of one undertaking from those of other undertakings (UK, Trade Marks Act 1994).
This is sometimes referred to as the product differentiation function.

3. Copyright
Copyright law prevents the copying of forms of work (e.g. an article, book, play, poem, music score, etc.) rather than the ideas contained within these forms. Sometimes the copyright can be extended to the structure underpinning the form actually used (e.g. the plot of a book as well as the book itself). Copyright applies automatically and does not require registration.

4. TRIPS
The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights, recognises that increasingly the value of goods and services entering into international trade resides in the know-how and creativity incorporated into them. TRIPS provides for minimum international standards of protection and enforcement of IPR, including geographical indications, industrial designs, patents, layout-designs of integrated circuits and undisclosed information.

Seminar
Assignment update