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Chapter 1
1.1 Introduction
Performance of a company can be affected by two factors. The one is internal factor comprising its capabilities and resources, and the other is external factor comprising micro and macro economies. Capabilities and resources are controllable by organization, while external factors are not. Good performance of a company may begin with good analysis about its capabilities based on its resources as well as external factors. Then a company can set up its strategy and implementation plan to achieve its targets based on its analysis results. Its strategy should be simulated against competitors’ actions and reactions and customers response, then determine optimum one among good strategies.
Analysis for external factors may include industry’s dominant economic features and competitive forces, driving forces to change industry and their impacts, rivals’ strategies based on their strength and weakness, competitive success factors, attractiveness of the industry which a company presents. Optimum strategy can be drawn, firstly, to identify company resource strength and competitive capabilities which may take several forms such as high yield and low cost operation system, advanced equipment and factories, human assets, intellectual capital, key patents, intangible assets, good strategic alliances.
No company can have only absolute strength in all aspects in modern competitive markets, they may have competitiveness in some factors and weakness in others relatively comparing with competitors. Monopoly is exception. Companies are doing their production or
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service activities in uncertain environments with their strength and weaknesses. Uncertain environment may bring more critical affects to companies rather than internal factors, because wave of industry, national, international economy are uncontrollable.
The factors such as economies of scale, time to market, advanced technology, low cost production method have brought good financial performance to companies, but the companies with these strength are still to be affected to their outstanding performances by unexpected change of market and economy. How companies can be less affected by unexpected change of external environments and bring higher performance with their limited resources. In the severe competitive markets, firms consistently should bring new ideas and innovation to their products and process. Product innovation is stimulated by technological competition, downward and horizontal knowledge sourcing, diversification, laboratory research, innovation experience and high capital intensity. Innovation output refers to the results of innovation process. Innovation is often measured by the percentage of sales from new products.
Alternative measures are patents. The innovation output is influenced by the innovative inputs and innovation process.
Patents may be the vehicle to be able to carry companies cross against slow growth of national and international economy, and protect themselves from competitors’ patents which may impede their production and service activities to create good performances. Patents also can create monopoly supply. In present markets we can easily find monopoly or oligopoly supply by patents. Microsoft’s Window, Fuji’s optical film ( Wide view angle film), 3M’s prism sheet (Double Brightness Enhancement Film), Qualcomm’s CDMA (Code Division Multiple Access), Intel, AMD and Samsung (Nand Flash and SSD), Apple and Google (OS).
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technology and innovation-related activities, start-up companies may spend significantly more.Technology is a resource of paramount importance to many organizations. Managing this resource for competitive advantage entails integrating it with the firm’s strategy in order to be able to access the firm’s innovative capabilities and identify how they may be leveraged or improved.
At the origin of the technological innovation process are inventions and discoveries.
The criteria for success regarding inventions and discoveries are technical rather than commercial. Though patents by inventions and discoveries sometimes allow their originators to establish a potential for economic rents with subsequent innovations, but there may be a significant time lag between doing scientific research and using the inventions and discoveries to create successful innovations. A successful innovation is one that returns the original investment in its development plus some additional returns which enjoy a sufficiently large market for the innovation to be developed. Innovations are the outcome of the innovation process, which can be defined as the combined activities leading to new, marketable products and services. Innovation by business is achieved in many ways, with much attention now given to research and development for breakthrough inventions. Research and development spur on patents and other scientific innovations that lead to productive growth in such areas as IT, medicine, engineering and government. The more radical and revolutionary innovations tend to emerge from research and development, while more incremental innovations may emerge from practice. But there are many exceptions to each of these trends.
Patents facilitate and encourage disclosure of technological innovation into the public domain for the common goods. Technological innovation with patent may drive firms to
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right to exclude others from making, using, selling which is usually 20 years from filing date.Registered patents for the idea, product, technology, the company can enjoy 20 years of advantage in the markets, which bring a successful launch of the product with reasonable profit to the company. Some patent can change the position of the company from follower to leader, deficit recorded to profit creator, low profile brand to high reputation identity,. and so on. New products from technological innovation eventually can replace older and continue to drive growth upwards. Some patents may not bring the good returns in short time due to the underperformance of the technology, less market acceptance, low return against high investment in R&D, or production yield not enough high.
From reviewing literatures about company performance, some literatures pointed that company size is more important rather than technological innovation for financial performance. In consideration of this finding and the industry culture of Korea that has some numbers of conglomerates such as Samsung, LG and very large size companies, conglomerates and very large size firms whose capital is over U$500 millions are not included in this analysis. By excluding the conglomerate and very large size companies, it may help to depict the relationship between technological innovation and financial performance among firms in similar or same industry. The 106 companies in the data of this thesis have a significant number of granted patents and strong financial structure in their industry. The analysis is proceeded for the period of 4 years from 2005 to 2008 upon their financial performance and granted patents.
106 firms consist of 2 utility suppliers, 2 fertilizer manufacturers, 3 auto parts manufacturers, 3 electrical companies, 6 electronic firms, 6 metal manufacturers, 10 iron and
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steel works, 15 chemical makers, 16 food and beverage manufacturers, 24 pharmaceutical companies.
During the period of 2007 and 2008, Korea economy as well as global economy has been slow down, while Korean enjoyed good economy growth in 2005 and 2006 in the circumstance of good export market and slow domestic market. This paper compared Korea GNP growth against the sales growth of 106 firms to see if technological innovation can still contribute to company growth to exceed GNP growth rate even in the hardship of macro-economy environment.