Access to Capital Essay

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A further factor, which is often cited as a key variable in explaining the divergent development of biotechnology in the USA vis-a-vis Europe and Japan is the availability of venture capital. It is commonly believed that lack of venture capital restricted the start-up activity of biotechnology firms outside the U. S. Clearly, venture capital — which is to some extent a largely American institution — played an enormous role in fueling the growth of the new biotechnology based firms, (or “NBFs”).

However, at least in Europe, there appear to have been many other sources of funds (usually through government programs) available to prospective start-ups. Additionally, although venture capital played a critical role in the founding of U. S. biotechnology firms, collaborations between the new firms and the larger, more established firms provided a potentially even more important source of capital.

(Malerba, Orsenigo; 2005 p. 13) Innovations are critical to the long run success of a firm.They can drastically change the competitive position of Companies, weakening or destroying giants, encouraging new entrants, and promoting new market leaders. For example, Xerox went from a nonentity to become a giant in the copier industry by its radical innovation in plain paper copying. Similarly Kodak became a colossus of the photography industry with its radical innovation in celluloid roll cameras. On the other hand, giants companies such as Underwood and Remington lost their dominant market positions because of their failure to cope with the next wave of technology.

Why are some companies better at product innovation than others? Size can be one of the main causes of innovation. However, despite decades of research, authors are undecided whether it is small firms, medium-sized firms or large firms that are more likely to produce innovations. There may be certain other organization factors are the key drivers of radical product innovation. The key factor that separates firms with strong radical product innovation records from others is their willingness to cannibalize specialized investments. Specialized investments are investments whose value is strongly tied to a particular product technology.Such investments could be in the form of physical assets, or less tangible organizational processes.

An innovation has the potential to destroy the value of such investments. Innovating organizations pursue the innovation even though doing so could involve cannibalizing specialized investments. Non-innovators, however, are unwilling to cannibalize. As firms build more specialized investments, they become less willing to cannibalize these investments. Large, incumbent organizations in a product market possess many specialized investments in the older product technology.Hence, other things being equal, they are less likely to be innovators.

Are incumbent firms with many specialized investments therefore doomed to die with their old technology? Not necessarily. Results from the study indicate that such firms can overcome their natural unwillingness to cannibalize by implementing three organizational features: 1) active internal markets, 2) influential product champions, and 3) future market focus. Firms with active internal markets provide considerable autonomy to business unit managers, and allow competition among their business units.Firms with influential product champions possess organizational systems that promote the activities of champions.

Firms with a future market focus emphasize future customers and competitors over current customers and competitors in their market research and decision-making. Large firms that possess these features are highly willing to cannibalize, even though they own many specialized investments. These results suggest a need to reconsider conventional wisdom on organizational size, cannibalization, core competencies, and organizational synergy. (Crespi; 2004,p. 8)

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