R & D Can Kill Malaysian SMIs
The companies’ graveyard is full of SMIs that rushed with full vigour into the nebulous world of Research and Development. R & D has become such a fashionable mantra that it is difficult to turn the pages of any newsworthy daily and not find oodles of encouragement for SMIs to surge into Research and Development in order to increase their competitiveness.
There is little doubt that the competitiveness of Malaysian SMIs is in a precarious situation. In the face of global mega-trends, Malaysian SMIs have little to rejoice over the impending challenges that are about to hit in the near future. Market liberalisation and globalisation initiatives are on the horizon. Earlier this year, Singapore signed a Free Trade Agreement with the United States, giving the republic a strategic advantage over Malaysia. AFTA and WTO are around the corner and will impel Malaysian companies to compete with foreign companies on home ground.
Rising production costs inhibit the ability of Malaysian SMIs to compete on price with low-cost producer countries such as China, Indonesia, Thailand and other Indo-China countries. Coupled with limited technological capability and compounded by financial constraints, Malaysian SMIs are grappling to find a competitive edge that can boost their ability to penetrate global markets. The situation is made even more complicated by the lack of authoritative and credible market intelligence that can serve as a radar for Malaysian SMIs to embark on a global journey to secure new profitable markets.
In a world where product life cycles are becoming increasingly shorter and customers rapidly gaining sophistication, the ability of any company to compete is constantly being questioned. The advent of the Digital Age and the onslaught of Information Technology has raised the stakes and poses further threats to Malaysian SMIs.
In the light of these challenges, it is understandable when well-meaning politicians, bureaucrats and academics take the centre stage and propound the virtues of R & D as a mechanism for increasing competitiveness and keeping Malaysian SMIs above the water level. This however, is a naive view and a knee-jerk reaction that can lead to the doom of Malaysian SMIs.
It is important to understand that R&D is both a silver bullet and a double-edged sword, depending on how it is undertaken and implemented. If undertaken as an innovation activity, R&D can transform a company and provide a sustainable competitive edge. If however, R&D is undertaken as an invention activity, it can quickly lead to the demise of the company. Conventional R&D, undertaken as a means of creating inventions, belongs to the realm of universities and large companies – SMIs have no business in this space.
Conventional R&D requires deep pockets and the staying power that few SMIs can afford or justify. Consider the invention of the aeroplane by the Wright brothers. It took almost 30 years for commercial flights to become a reality after their inaugural flight that lasted 12 seconds. The humble fax machine took 20 years before it entered the mainstream business world. The IBM PC took almost 10 years before reaching critical mass. Do SMIs have the financial ability to endure such long gestation periods? Clearly, they don’t.
The key lies in understanding the difference between invention and innovation. An invention is typically an original creation that has its roots in science and technology. The effort in coming up with the invention is extensive and can involve many work-years of basic or applied research. An invention results in new knowledge that can be published or patented. It is rarely an isolated activity and may involve various interrelationships with individuals or divisions engaged in different disciplines.
Interestingly, an invention may not have an identifiable market or clear commercial potential. This is more the case with university led R&D than it is with R&D departments of large corporations. The focus of university-led R&D is knowledge advancement, not necessarily the commercial viability of the invention.
Large corporations typically have a systematic and focused R&D agenda, aimed at either developing new products or improving their existing product range. The target end-result is usually well articulated on the outset itself and the task of the R&D division is to produce the desired outcome. Large companies and Multinational Corporations (MNCs) in developed nations excel at this activity. One has only to look at household-names such as Intel, Motorola, Nokia, Panasonic, Philips, Sony and other similar companies to see how they have profited handsomely from R&D focused on inventing new products and technologies. Examples of recent inventions from such corporations include microchips, video cassette recorders, CD and DVD technologies, digital TV systems, mobile phones, smartcards and countless others.
Given the enormous R&D budgets of these organisations, it will be foolhardy for SMIs to compete with these giants of inventions.
Before the age of large corporations, inventions were the result of lifelong devotion to R&D by exceptional individuals. Great minds such as Guglielmo Marconi, Thomas Edison and the Wright brothers have gone down in history as modern day inventors. Sadly, history also shows that few of such inventors profited from their inventions. Many were bled dry by the continuing investment in the invention process and did not live to see their inventions generate profits. It was a love of labour that drove these individuals.
This is where we must separate such outstanding individuals from SMIs – the main objective of SMIs is to generate wealth for their owners. While there are many other reasons to be in business, SMIs are owned and operated by entrepreneurs who have identified opportunities to create profits. In short, SMIs are in business to make money and therefore must focus and engage in activities that can and do make money.
Embarking on a long R&D journey fed by the desire to invent something new or revolutionary is admirable, but not appropriate for an SMI. This quest should wait until the SMI grows and develops into a larger organisation with healthier cash reserves and a strong network of partners.
For the time-being however, SMIs can profit enormously from a different type of R&D activity – one skewed towards innovation. This is how Malaysian SMIs can compete with low-cost producer countries and differentiate themselves. They can change the basis of competition from being cost-driven companies to being organisations that understand market demands and needs, producing creative and innovative products. Just as critical, embarking on innovation-led R&D is a strategy that can open the doors into the supply chains of MNCs.
The next article will examine the differences between invention and innovation, explore innovation-led R&D and how it can increase the competitiveness of Malaysian SMIs.
Source: Dr. Kamal Jit Singh is the Regional Director of British Telecom’s Asian Research Centre and specialises in using Innovation as a strategy for increasing competitiveness. He acknowledges his articles are provocative and challenge conventional thinking. Brickbats are welcomed at: email@example.com.