IPR as a Tool for Competitive Advantage with Special Reference to Indian Small and Medium Industries


By

Dr. Sudhindra Bhat
MBA, MFM, ACS, CFA, PGDIR&PM, M.Phil, PhD
Internationally Acclaimed Professor, Researcher, Consultant and Corporate Trainer
Director-ABS
 


ABSTRACT

In the post liberalization era Indian market has become highly competitive. Many multinational companies have entered in to the Indian market in areas like FMCG, Consumer Durables, Automobiles, Pharmaceuticals, Insurance and Financial Services. With the elimination of the Licence Raj the Indian small and medium industries are facing real threat from multinational companies. India being member nation of WTO and participant of TRIPS has to modify her statutes to make her IPR regime TRIPS compliant. Indian companies have to become highly innovative and harness IPR for strategic competitive advantage. In the above context the paper analyses the impact of TRIPS on Indian small and medium industries and the strategies to be adopted by Indian industries to meet the challenges of multinational and transnational companies.

Introduction:

Indian Business environment has become fiercely competitive in the post liberalization era. Indian companies are competing with the multinational companies in FMCG, engineering, automobiles, durables, biotechnology, pharmaceuticals, IT, banking, insurance and finance sectors. Indian companies must make total shift from cost to innovation to remain competitive.

Today India has become potential market for many multinational and transnational companies. India's middle class of 300 million is bigger than the countries of the U.K, Italy, and France combined.

Intellectual Property Rights overview:

The General Agreement on Tariffs and Trade (GATT) was established in 1948 (India was the founder member), its objectives being removal of trade barriers promotion of world trade and resolution of trade disputes. A strong multilateral trading system was evolved through a series of negotiations on rounds held under GATT. The 1986-94 Uruguay round led to the creation of the world trade organization (WTO). The WTO, the successor of GATT came in to existence on January 1, 1995.  It has a membership of 144 countries (as of January 2002).

Many products that used to be traded as low-technology goods or commodity now contain a higher proportion of invention or design in their value and creators can be given 'Intellectual Property Rights' (IPR) or the right to prevent others from using their invention, designs or other creations. The WTO's Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) is an attempt to protect their rights around the world. The rules state how copy rights, patents, trade marks, geographical names used to identify products, industrial designs, integrated circuits lay-out designs and undisclosed information such as trade secrets should be protected where trade is involved. As a participant in the TRIPS Agreement, India is obliged to modify her statutes to make her IPR regime TRIPS compliant. A general transition period of five years was granted to member countries with an additional five years to developing countries like India.

The property components falling under the purview of each IPR are given in box. 1

Box.1

Patents
Process, Products
Apparatus capable of industrial application

Designs
Shapes, Ornamentation

Trade Marks
Marks to distinguish goods - words, signs or combinations

Copyrights
Musical work, Artistic work
Literacy Work, e.g. books, periodicals, lectures, plays, maps, art, reproductions, models, photographs, computer software.


Indian Industries in post liberalization era:

India is one of the fastest growing economies in the world. According to recent Goldman Sachs study India along with China, Russia and Brazil (BRIC) will dominate the global economy in the next fifty years. Taking into considerations the present growth in GDP, this is around 7%, the Indian economy in on its way to realizing its immense potential. Since 1991, the GDP has grown from Rs. 6.93 lakh crore to Rs. 22.94 lakh crore. 

Indian manufacturers may be of a disadvantage in terms of capital cost and infrastructure, but there is tremendous potential in labour-intensive industries, whose exports according to Accenture could increase from $12 billion to $57 billion by 2006.

After liberalization, Indian government has come out with trade policies to promote foreign direct investments and to reduce trade barriers. The Indian government has joined the global mainstream by de licensing industries and inviting foreign investment. This has helped the Indian companies to improve their competitiveness by following best of the industry practices. The strength of the Indian industry lies in the low cost of production, availability of skilled manpower.

Winning strategies for small and medium industries:

Indian small and medium industries are facing real threat in the open economy. Each company must find its winning formula and work on it to succeed in its endeavor to success. The Indian companies who have adapted their strategies to the market requirement have proved their competitiveness. The companies have to come out with the strategies to optimize the return in their respective businesses.

The following chart in fig.1 shows the method


Innovation the winning mantra:

The companies must innovate and introduce periodically products with greater differentiation. The companies must explore new markets for the existing products. New products may be the line extension of existing core businesses. The careful process of screening new ideas, developing the product, thoroughly testing prior to launch would ensure success. Corporate and competitive strategies are formulated taking into consideration both organizational objectives and the opportunities and threats perceived in the environment. The possible strategies should match with the resources available. Effective strategic management requires congruence between environment values and resources.

Indian companies should build their own brands and differentiate their products with innovative features and benefits. This would help the companies to increase their market share.  Effective pricing, distribution, advertising and sales promotion strategies should follow this


The implementation of a strategy results in a series of plans, programmes, and projects. Resource allocation is done for implementing these. Implementation control may be put in to practice through identification and monitoring of strategic thrust such as an assessment of the marketing success of a new product after pretesting or checking the feasibility of a diversification programme after initial attempts at seeking technological collaboration. Patenting is a result of the business needs of an organization its technology focus, research concentration and proactive and reactive response to its competitors.

Appropriate, timely patenting and an effective patent portfolio would help the companies to derive competitive advantage. Norio Ohgma, Chairman and CEO of Sony once said, "At Sony, we assume all products of our competitors will have basically the same technology, price, performance and features. Design is the only thing that differentiate our product from another in the market place." Indian companies have to patent new designs for differentiating their products from competitors. Indian companies must harness IPR for competitive advantage and face the challenges of 21st century.

IPR as a tool for competitive advantage:   

The companies must patent their innovative products to differtiate their products. This would help the company to position the product as a premium product and can adopt skimming pricing strategy.  The innovative products also would influence the channel partners and companies will get required support from both channel members and sales people.

This would also increase the entry barrier and give sufficient time to recover R&D cost and earn considerable profit. Companies marketing communication should highlight on product differentiation with advantages and benefits. Companies have to implement Customer Relationship Management for better customer relations and services. They should first retain existing customers and then look for new customers.

Today's competitive business environment makes the Indian companies vulnerable to the competition from multinational and transnational companies.  According to Christopher Lorenz "The old weapons for achieving real differentiation have become inadequate. No longer can comparative advantage be sustained for long through lower costs, or higher technologies…. The design dimension is no longer an optional part of marketing and corporate strategy, but should be at their very core".

Tom Peters in his book titled 'The circle of Innovation' says, "I spend a lot of time in India. To learn my way around, I read up, at least a bit, on Hinduism. Its three principal gods are Brahma (Creator) Vishnu (Preserver) and Shiva (Destroyer). This troika describes just about all you need to know about business (or perhaps anything else… as the Hindus would have it). Every enterprise, public or private is about balancing system/infrastructure/regularity/consistency…i.e., preservation and remembering …and inventing the new… i.e. creation… and forgetting the old…i.e., destruction." Indian companies must take inspiration from this and strive to innovate and excel in their respective businesses.

It is imperative that Indian companies come out with innovative products and protect these new products through appropriate intellectual property rights (IPR). This would help the Indian companies to overcome the competition from multinational and transnational companies.

Reference:

1. Colin Barrow and Robert Brown, Principles of Small Business, International Thomson Business Press, London, U.K

2. Prabuddha Ganguli, Gearing up for Patents The Indian Scenario, Universities Press (India) Limited, Hyderabad

3. Tom Peters, The Circle of Innovation, Alfred A. Knopf, Publisher, New York, USA

4. WTO Website www.wto.org.

5. Rupachandra, IPR: Pharmaceuticals, Management Review, September 2002, IIM, Bangalore pp 60-72

6. Business Today, January 19, 2003.
 


Dr. Sudhindra Bhat
MBA, MFM, ACS, CFA, PGDIR&PM, M.Phil, PhD
Internationally Acclaimed Professor, Researcher, Consultant and Corporate Trainer
Director-ABS
 

Source: E-mail February 17, 2010

          

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