O. M. IMAPACT OF GLOBALIZATION ON LOCATION Globalization has been fuelled by the removal of trade restrictions. Multinational b. will need to examine several factors when deciding on their international location. Some of these issues present opportunities, such as: -production costs-the costs of labour and materials can be significantly cheaper in overseas markets. However, these benefits will need to be considered in reletion to potentially higher distribution costs from the new location -government rules and regulaton: direct investment in overseas location can help a b. to bypass government bureaucracy, such as import restrictions and duties(taxes). However, this would need to be weighed up against the costs of relocation -economies of scale: large international firms can gain huge cost savings by operating on a global scale However, the international location decision can also bring about its potential limitations, such as: -language -culture: a lack of culture awareness can get a b. into all sorts of trouble -regulations and legalities: it can be costly to get correct legal advice -social responsibilities
O. M -political environment and stability -communications: time zone differences and longer chains of command may be barriers to effective communication -economic environment: controlled inflation, unemployment, interest rates and exchange rates will all help a country to attract foreign direct investment The spread of technology and development in e-commerce have made international location decisions somewhat easier for many b.
INNOVATION O. M. Innovation-the commercial exploitation of new ideas and inventions. It can refer to both radical and incremental changes. Examples of innovation: -discovery of new production processes -successful implementation of creative ideas -introduction of new products -entering new markets Innovation can give any b. a large competitive advantage over its rivals and hence most b. will tend to devote time and resources to research and development TYPES OF INNOVATION -process innovation refers to changes in the way production takes place; the aim to improve the method of production -product innovation refers to new creations or the radical development of existing products -cost reducing innovation refers to improved processes that reduce the costs of production for a b. or industry. This has 2 effects on b. : the ability to increase supply and the scope to enjoy higher profit margins. The internet has also enabled many b. to cut their opearting costs. Consumers can also gain from innovation since they are able to access new goods and services(product innovation), better product functions(process innovation)and/or lower
O. M • Incremental innovation refers to minor improvements to products or work processes. • Radical innovation is much more disruptive and involves larger risks. COSTS, BENEFITS AND GOALS OF INNOVATION Benefits and goals -innovation can be a source of b. growth and evolution -process innovation can help to increase productivity=can give a b. an advantage over its competitors -can also give a b. or country a competitive edge over its international rivals -job creation: product innovation can create plenty of employmeny opportunities -social benefits: innovation can often improve the quality of life for many people in society -brand switching: this refers to the act of consumers turning away from rival products for the more appealing or innovative product Limitations: -high costs -high failure rate
O. M. RESEARCH AND DEVELOPMENT Research refers to investigating the unknown, such as new products or processes. Development refers to using research findings to create products that might be commercialized. Developmet can also mean improving existing processes or products, i. e. improvements in process innovation and cost reducing innovation. The most successful prototype is the most likely one to be commercialized. Benefits of R&D -can lead to the improved performance of an org. -it can lead to higher sales growth -value added is likely to improve -there is the possibility of increased market value -it can give a b. a first mover advantage R&D tends to pay off for b. that operate in sunrise industries. These are industries that have rapid growth potential, such as high-tech industries. By contrast, R&D expenditure in sunset industries(where there is negative or deteriorating growth potential)is likely to accelerate their decline. Firms that continue to conduct R&D are the ones most likely to thrive by having a competitive advantage where there is an upswing in the economy. Most of the spending on R&D comes from large firms operating in oligopolistic markets, i. e. industries where market share is dominated by a few large b.
O. M Successful R&D can give oligopolistic firms a competitive advantage in the form of cost advantage and/or quality improvements in the long term. INTELLECTUAL PROPERTY RIGHTS They act to protect the inventor or creator from others replicating their ideas. PATENTS A patent is the legal right to be the exclusive producer or user of a newly invented process or product, for a finite period of time. Not all applications for a patent are granted as they are not inventive or new, but are minor improvements on existing technologies or processes A patent can be held by an individual or by a b. Ownership of the patent can then act as a barrier to entry for other competitors as the patent prevents other firms copying the invention, without the prior consent of the patent holder. The patent holder is also entitled to sell the technology or invention to larger b. E. g. Tetra Pak-a famous patent The main drawback of using patents is that the whole process is time consuming and bureaucratic. Those b. that are granted a patent will have to pay for their renewal, often on an annual basis. Without patents, there could be very little incentive for innovation as other rival firms simply copy the invention without having to invest in the initial R&D costs. Alternatively, a b. might buy a patent from the inventor. This can be cost effective in relation to having to spend an uncertain amount of money on R&D.
O. M. COPYRIGHTS Provide legal protection for artists and authors by preventing others from using or copying their published work without permission. TRADEMARKS A trademark is a sign or logo that represents a b. or a product belonging to that b. Trademarks are often used as a form of branding. Today, the issue of intellectual property rights has become of greater concern for b. because of developments in internet technology. The practice of music and video downloads, for example, is still very hard for governments to police. FACTORS AFFECTING INNOVATION There are 2 main sources of innovation: -manufacturer innovation occurs when a person or a b. commercialises their invention or discovery -end-user innovation occurs when a person or a b. innovates for their personal use because there are no existing products that meet their needs or wants. Innovation can also come from competitive market pressures; such as the increased competition brought about by globalization. In rapidly changing markets product life cycles are very short and the demand of consumers is constantly changing
O. M Production costs tend to be very high, thereby making the risk of failure a real threat. Seeking new market opportunities through the creative skills of employees is a crucial source of innovation. DIFFUSION OF INNOVATION THEORY -Innovators: these are the technology enthusiasts who like to buy new things, simply because they are new. These consumers are prepared to pay a high price for such exclusivity. Marketing will focus on the newness of the product -Early adopters: this group consists of visionaries who buy a little later than the innovators who have already tried and tested the product. Marketers may allow tasters to encourage purchase -Early majority: marketers will have removed the emphasis on the newness of the product by this time. The b. may benefit from economies of scale by operating on a larger scale and therefore prices may have fallen to entice more adopters -Late majority: these are the rather conservative consumers who purchase the product only when they are confident that there are enough people who have already bought the product, which by this stage is considered as a best seller. Prices will have fallen by this stage -Laggards: those who doubt or fear technology, who only buy when almost everyone else has already bought the product, i. e. they are typically the last group of consumers to adopt the innovation
O. M INNOVATION AND BUSINESS STRATEGY Change and innovation are vital to the long-term survival of a b. R&D is expensive and there is no guarantee that it will generate profits for a b. Mistakes will be made and most products will fail to ever be commercialized. However, firms need new products and ideas to survive and grow. This is especially the case in markets where rapid and constant changes are commonplace, such as the high technology and fashion industries. Innovation is also affected by government policies that may either hinder or encourage innovation. Countries with lower corporation tax rates also tend to attract more foreign direct investment. Governments might also offer financial support to small b. to encourage innovation and entrepreneurship. Governments may increase their funding to universities to promote R&D. Governments can also provide incentives for innovation by effective administration and management of intellectual property rights. By holding the patent, the b. can set high prices to recoup the costs of R&D and to establish customer loyalty and high market share before rivals can enter the market. The changing nature of the b. environment has meant that innovation has become a continuous process. Shorter product life cycles and the use of innovation as a source of competitive advantage have led to b. placing a greater emphasis on being innovative
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