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Useful tools for understanding industry and technology structures and innovation opportunity

Useful tools for understanding industry and technology structures and innovation opportunity. The goal of a firm?. Is the goal of a firm has to be profit maximization?. The conflict between managers (self-interests) and stockholders (owners, profit maximization). The difference on risk taken.

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Useful tools for understanding industry and technology structures and innovation opportunity

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  1. Useful tools for understanding industry and technology structures and innovation opportunity

  2. The goal of a firm?

  3. Is the goal of a firm has to be profit maximization? • The conflict between managers (self-interests) and stockholders (owners, profit maximization). • The difference on risk taken. • Other conflicts (such as stock-sharing system). Pursuingsales maximum or market share maximum?

  4. Sales maximum vs. market share maximum

  5. Measurements of Industrial Structure (1) • Numbers of the firm：measure market power • Industry Concentration(產業集中度)：measure monopoly power • The four-firm concentration ratio: CR4 = Σ4Si ,0 ≦ CR4 ≦ 1

  6. Measurements of Industrial Structure (2) • Gini coefficient (or Lorenze curve) G = g/2S, 0 ≦ G≦ 1 g: Mean deviation by all firms in the industry (產業內各廠商的市佔率平均差) g = 2/n(n-1)【 (n+1) ΣSi - 2 Σ(n-i+1)Si】 S: Arithmetic average of market share in all firms(產業內各廠商市場佔有率的算術平均數) • The Gini coefficient, invented by the Italian statistitian Corado Gini, is a number between zero and one that measures the degree of inequality in the distribution of income (market power) in a given society (an industry). • The coefficient would register zero (0.0 = minimum inequality) for an industry in which each firm received exactly the same market share (i.e. perfect competition) and it would register a coefficient of one (1.0 = maximum inequality) if one firm got all the market share and the rest got nothing (i.e. monopoly). can be used to examine the dynamic evolution of an industry (a society).

  7. Measurements of Industrial Structure (3) • Herfindahl-Hirschman index (HHI) HHI = ΣnSi 2 Si: market share of firm i ( taking the number instead of percentage ,e.g. market share is 30%, Si 為30) • "HHI" is a commonly accepted measure of market concentration. It is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers. For example, for a market consisting of four firms with shares of thirty, thirty, twenty and twenty percent, the HHI is 2600 (302 + 302 + 202 + 202 = 2600).

  8. Herfindahl-HirschmanIndex • The HHI takes into account the relative size and distribution of the firms in a market and approaches zero when a market consists of a large number of firms of relatively equal size. The HHI increases both as the number of firms in the market decreases and as the disparity in size between those firms increases. • Markets in which the HHI is between 1000 and 1800 points are considered to be moderately concentrated, and those in which the HHI is in excess of 1800 points are considered to be monopoly. Transactions that increase the HHI by more than 1000 points in concentrated markets presumptively raise antitrust concerns under the Horizontal Merger Guidelines issued by the U.S. Department of Justice and the Federal Trade Commission. See Merger Guidelines § 1.51 .

  9. Measurements of Industrial Structure (4) • Lerner index L = (P – MC) /P P: market price; MC: Marginal cost When the industry is a perfect competition market, L = 0 When the industry is a non perfect market, P > MC, L > 0 Easy approach especially when the boundary of an industry is interfolded and complicated.

  10. Measurements of business performance • 營業收入(operational revenue) • 利潤總額 (net/gross profit) • 利潤率(profit ratios) • 價格成本差異(price-cost margin): market power of a firm • 淨收入/淨值(net income/equity): 股東權益報酬率 (ROE, return on equity) • 利潤/銷售額(profit/sales)：銷貨收入的獲利率 • 利潤/總資產額(profit/total assets)：總資產報酬率 (ROA, return on assets) • 成長率(Growth rate): sales; market share; profit • 其他(others)：專利權數目(number of patents)、新產品多寡(number of new products)、技術效率(technical efficiency)、員工生產力(productivity)等衡量。

  11. Technical efficiency • Technicalefficiency refers to the ability of a firm to produce maximum output given its inputs. Can be used to evaluate the performance of supply chain efficiency or technical efficiency across industries. Q: Does the larger size company enjoy greater technical efficiency than the smaller firms?

  12. Increasing return to scale (規模報酬遞增) • Undividable between machine equipment and production: high fix costs • Division of labour (degree of specialization)：higher productivity • Physical rule：inputs cost is lower than outputs cost • Economy of scale: inventory management, materials volume purchase • Technology progress: especially is often adopted by the new entrants

  13. Enter strategy for a new firm • 模仿 imitation: same technology, same product, similar market price • 創新 innovation: different technology, different product, different market price to cause impact on market share, market structure and resources allocation. Q1: What is the best strategy for a new firm? Q2: Does imitation strategy (e.g. OEM) necessarily has lower risks than innovation strategy (e.g. OBM)?

  14. What is the best strategy for a new firm? • Firstly, consider the industry cycle: where are you standing on? (Emerging, Growth, Mature or Decline stage) • External: the competition in the supply chain; industry concentration and market power… • Internal: Resource acquired capability (capital, product, cost, personnel, technology advantages and disadvantages……)

  15. Measurements of technology structure: Revealed Comparative Advantages (RCA) • The formula to measure a country’s (industry A) revealed comparative advantage (RCA) RCAi= (Xi, Taiwan/SX, Taiwan) / (Xi, World/SX, World) RCAi= revealed comparative advantage for good i. Xi, Taiwan= exports of good i by Taiwan SX, Taiwan= total exports by Taiwan Xi, World= world exports of good i SX, World= total world export • If RCAi> 1, then Taiwan (or Industry A) has a comparative advantage in good i • If RCAi< 1, then Taiwan (or Industry A) has a comparative disadvantage in good i.

  16. Measurements of technology structure: Revealed technology advantages (RTA) RTAi= (Ti, Taiwan/ST, Taiwan) / (Ti, World/ST, World) RTAi= revealed technology advantage for technology i. Ti, Taiwan= patenting number of technology i by Taiwan (company A) ST, Taiwan (company A)= total patenting number by Taiwan (company A) Ti, World= world patenting number of technology i ST, World= total world patenting number What else? Patents data provides a useful information for understanding industrial technology structure.

  17. Citation Tree – Patent Number

  18. US EP DE WO Citation tree - Authorities EP, DE, WO and JP cites can now be easily identified within the citation trees. JP only shows up in back cites • Utility: • find global technology linkages, • find licensing or enforcement opportunities

  19. Citation Tree- IPC ( New technology fields emerging) IPC analysis clearly demonstrates a new use for a particular technology and knowledge transformation, moving from the field of “specialized building structures” (EO4H) to “specialized furniture construction” (A47B)

  20. Citation tree - Assignees The citation tree can also be customized by showing the assignee, document ID, inventor, IPC code, filing/issue date or title for each patent document

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