Question 11: Among Member Countries Of The Organization

Page 1question 11tco A Among Member Countries Of The Organization

Explain how the globalization of markets affects the importance of innovation.

If you were in charge of a Research and Development (R&D) department for a large pharmaceutical company, would you encourage your researchers to do basic research or applied research? Provide the rationale for your answer.

Why is the installed base of users of a technology that requires complementary goods so important to a company’s future success?

Explain why it is that if a company's technology is adopted by users ahead of other technologies, it might be at a tremendous advantage and competitors will have trouble catching up.

Even though many aerospace manufacturing firms are very profitable, there are very few upcoming firms. Explain the reason using at least one force from Porter’s Model.

Explain why the cash flows (profits minus costs) for a project that are expected to continue for 20 years need to be discounted. Why not simply use the amounts as they are? Would it make a difference if 80% of the profits came in during the first 5 years?

Paper For Above instruction

The globalization of markets has significantly amplified the importance of innovation across industries. As markets become more interconnected, companies face increased competition not only locally but globally, compelling them to continuously develop new products, services, and processes to maintain competitive advantage. Globalization fosters an environment where innovation can serve as a differentiator, enabling firms to adapt swiftly to diverse consumer preferences and emerging technological trends. Moreover, in a globalized economy, innovations can be scaled and disseminated rapidly, creating opportunities to capture new markets and customer bases. This dynamic environment incentivizes organizations to invest heavily in research and development (R&D), as incremental or disruptive innovations can lead to increased market share and profitability in a highly competitive landscape.

In the context of a large pharmaceutical company's R&D department, choosing between basic and applied research hinges on strategic objectives. Basic research, which explores fundamental scientific principles, lays the groundwork for future innovations and can lead to breakthrough discoveries that redefine the industry. Applied research, on the other hand, focuses on developing practical solutions and products to meet existing market needs. Encouraging basic research can foster long-term innovation pipelines, leading to novel drug discoveries and technological advances that provide a competitive edge over time. However, applied research offers more immediate commercial benefits and aligns with current market demands. A balanced approach that emphasizes basic research for foundational scientific advances, complemented by applied research for product development, ensures sustained innovation and market relevance.

The installed base of users for a technology that requires complementary goods profoundly influences a company's future success. A large installed base creates network effects, where the value of the technology increases as more users adopt it. This, in turn, encourages third-party developers to create complementary products, like accessories or software, further enhancing the technology's utility and attractiveness. A substantial installed base also serves as a barrier to entry for competitors, making it challenging for new entrants to displace established solutions. Moreover, a widespread user base provides a critical mass for gathering feedback, improving the technology, and driving brand loyalty. Consequently, a robust installed base sustains ongoing revenue streams and positions the company favorably for future innovation and expansion.

The early adoption of a new technology confers a significant advantage to a company because it allows the firm to establish a dominant position in the market. Early adopters can set industry standards, build brand recognition, and develop a loyal customer base. This "first-mover advantage" enables firms to capitalize on network effects, where the value of the technology increases as more users join. Additionally, early movers can secure key partnerships, negotiate favorable supply chain terms, and allocate resources to refining their product, making it difficult for later entrants to catch up. Over time, these advantages compound, creating high barriers for competitors attempting to establish a similar market share and technological dominance.

Despite the profitability of mature aerospace manufacturing firms, the scarcity of new entrants can be explained by Porter’s Five Forces framework, particularly the high barriers to entry. The industry requires substantial capital investment in specialized manufacturing facilities, advanced technology, and skilled personnel, deterring potential new firms. Regulatory hurdles and high research and development costs further increase these barriers. Additionally, established firms often hold critical patents and proprietary technology, creating additional obstacles for newcomers. These factors collectively limit the number of entrants and preserve the profitability of existing companies, emphasizing the industry's high entry barriers identified in Porter’s model.

Discounting future cash flows (profits minus costs) over a long-term horizon like 20 years is essential because of the time value of money—a fundamental financial principle that prioritizes current money over future money. A dollar earned today has greater value than a dollar received in the future due to its potential earning capacity. Discounting accounts for risks, inflation, and opportunity costs, providing a more accurate valuation of a project's net worth. If 80% of the profits are concentrated in the first five years, the discounting process can reveal the true present value of these early benefits versus later ones. Neglecting discounting could lead to overestimating a project's viability, resulting in poor investment decisions. Proper discounting ensures that financial evaluations reflect realistic expectations and resource allocations over time.

References

• Porter, M. E. (1985). Competitive Advantage: Creating and Sustaining Superior Performance. Free Press.
• Rogers, E. M. (2003). Diffusion of Innovations (5th ed.). Free Press.
• Crane, F. G., & Mathews, P. (2017). Strategic Management of Technology and Innovation. McGraw-Hill Education.
• Shapiro, C., & Varian, H. R. (1999). Information Rules: A Strategic Guide to the Network Economy. Harvard Business Review Press.
• Barney, J., & Hesterly, W. (2015). Strategic Management and Competitive Advantage: Concepts and Cases. Pearson.
• Shleifer, A., & Vishny, R. (1997). The Limits of Arbitrage. Journal of Finance, 52(1), 35-55.
• Chesbrough, H. (2003). Open Innovation: The New Imperative for Creating and Profiting from Technology. Harvard Business School Press.
• Gopinath, D., & Parthasarathy, M. (2014). Business Valuation and Risk Analysis. McGraw-Hill Education.
• International Telecommunication Union. (2020). Measuring Digital Development: Facts and Figures 2020. ITU Publications.
• Barney, J. B. (1991). Firm Resources and Sustained Competitive Advantage. Journal of Management, 17(1), 99-120.