What ails our small industries? Could “flipping the model” be the answer?

Your guess is as good as mine. Well, all most. But a report from a “special task Force on Diversifying the New York State Economy through Industry-Higher Education Partnerships” indicates that perhaps our small industries should change the way they do business. In particular the way they bring about new ideas and innovations. You see, all along the way, industries have depended on either their own people or those working in research institutions to come up with ideas. However, because of cost constraints, most small industries and enterprises can’t afford their own R & D department, or even if they have one, little comes out of it. Whilst most researches are done at universities and state funded research institutions, the ideas that come out of it doesn’t fully feed into industry demands, simply because researchers don’t understand industry demands, or they are out of date. How then to resolve the mismatch?

What the New York State Economy special task force recommended was that instead of the industry people looking for ideas from the institutions, the industry people must go to these institutions to tell them what to research, and to come up with ideas that the industry needs. Now, that is a no brainer and something that should have been done long time ago. In an apparent emphasis of the importance of idea creation, the task force indicated that “intellectual properties are the raw material that leads to the creation of companies, jobs, and wealth”. Period. They also charted a way for New York based industries to talk to New York Universities. Julie Shimer, CEO of Welch Allyn, a New York-based medical equipment manufacturer and a member of the task force said “industries need to change the habit of waiting for researchers to come up with ideas, and instead should challenge them to develop ideas that would help our strategic needs and plans”. The idea is simply called “flipping the model”.

It is indeed a sad truth that there are tons of ideas sitting in the vaults of institution of higher learning, some of them have even obtained patents that are near expiring and without any takers for commercialization. And all those work paid from the people’s money! One of the obvious reasons is that academia is run for the sake of expanding education; it is not run to complement the industries. Looking at the heart and model of most universities, even some who are touted to be modern will show that academia is a traditional showpiece, one that has not changed its practice since the early days of education. It is a very inefficient machine. It creates mounts of books, research papers, most of which sits in the vaults, waiting for the day someone to pick it up and work on it. Unfortunately, there is no urge to change the system in these silver citadels because somehow or rather, the budget to run them is always available. You seldom see universities getting bankrupt! But just for how long, you may ask? This “flipping the model” idea might just be the start of the wind of change, and for good measure too.

Intellectual property rights might exacerbate world hunger!

There are an estimated 200 million hungry children in the world now, and most of them lived in squalid conditions in countries that are inundated with floods, drought and man made war. Their sustenance is being partially supported by world food aids from developed nations. But as these poor malnourished children numbers are increasing at an ever alarming rate, the availability of food aids is decreasing due largely to pilferage from organized corrupted groups operating with or without the knowledge of local authorities. So what can be done to alleviate the situation? What about those wonder foods created by biotechnology that the developed countries have been espousing?

True, there have been much progress in the development of genetically modified (GM) strains of corn, wheat and rice but there has been a great fear from the under developed countries that widespread cultivation of these wonder crops might shackled them to the patronages of companies who have made the GM possible. The reason is that GM species of food crop comes with intellectual property rights. The patents belonged to the companies, most of which are giants from the west. Developing countries would not like to be chained to their necks. Could they not develop their own varieties, even though they might not be as good as the GM species? But when you are poor, and in need of aids, there is no resource to develop it on your own and receiving aids is the only solution.

It does look as if the developed countries are just biding their time with their GM programs. They know that sooner or later, the poor and the destitute will have to plant these GM species. What not when the world’s weather pattern is rapidly changing with global warming. Freak weather report is almost as frequent as the local scandals, and mankind just can’t do anything about it in the short term. So feeding the world will become a big task and the only way is to plant better crops, with or without the blessings of the patent holders. Will a time come when the GM patent holders have to give away their properties just to avert world hunger and in somebody’s courtyard? Certainly not by any measure! So it would be good to assume that intellectual property rights will exacerbate world hunger instead of its stated intention of helping mankind to progress.

December 10, 2009.

Small is the only way to survive!

Here is the clincher. Apple sold seven million iPhones in third quarter 2009 and Nokia sold 113 million of theirs. But it defies logic when the profit Apple made is 1.6 billion dollars compared to Nokia’s 1.1 billion dollars! Some economists are scratching their heads because the doctrine that they espouse seems to be working in reverse. Yes, we have been told often that the most efficient way to go about anything is have economies of scale. It has always been true that it works out very costly if we will to just make one unit instead of making multiple units. Even a child will know that. But why then is Apple’s profit so much more than Nokia’s even though they are only churning out a small number of phones?

Ah, the reason could be that the profit margin for Apple is much higher than Nokia’s. Unfortunately, this is not a clear cut case as Nokia also have good margins for some of their smartphones. Perhaps, Nokia has grown too much and spreading it thin with churning out many models, some of which not selling too well. Indeed, almost three quarters of their models are considered duds and have to be withdrawn from the market prematurely. Obviously, Nokia is not the only example, nor the phenomenon is exclusive to the mobile phone industry. A look at the automobile market tells a similar story. We have the big threes like GM, Chrysler and Toyota having to trim down their productions during the financial crisis. Some of them even faces bankruptcies and had to be baled out by their governments. But look at the small players like Ferraris and Porsches! They are doing well with plenty of orders. So small is the way to go!

Small is indeed the preferred way. Smallness will ensure that a change in direction can be effected during trying times. A mouse can easily outwit an elephant. Going forward to the next decade, it would be useful for business schools to champion the small enterprise. It would be even better if they can operate in their niche area. In today’s economic climate, where competition is everywhere, there is a real need to create unique brands where people can associate with. No where will we find it truer than in the land of the middle kingdom (read China). Here you can find thousands of factories turning out similar looking goods with almost similar sounding brands with each trying to undercut each other in their prices. It is the norm here that for a product costing a hundred dollars, the production profit is around two dollars! So, before you jump into starting your business, first, think SMALL. It might be the only way for our troubled world.