Hey everyone!
My other blogs have not gone into the academic side as much as this one (hopefully) will so I hope you still find it interesting, i'll add pictures and diagrams to make it more interesting :)
The picture above shows the team that won the MotorTrader Industry Aftermarket award for innovation in 2011 for their work at the Devonshire Mitsubishi factory. "The Aftermarket Innovation award recognises the best innovations in customer car, marketing and business management to generate sales growth and profitability." Carpages [online] accessed 30/11/11. The award is given to companies that look for "new aftermarket programmes which are taken up by the consumer, to boost revenue streams and show clear signs of innovative thinking", but is it fair to assume that there is a link between innovation and trade performance? Is it the case that if you are more innovativ,e your companies trade performance will increase? The best way to look at it is by examining a few theorists views on this topic.
The first theory i'll be looking at is called the "self-reinforcing feedback mechanism". Jon Fagerberg in 1994 considered "the relationship between variables such as R&D and their comparative advantage" Wakelin, K (1997:75) and is one theorist who mentions this theory when describing innovation.
"Innovation should result in greater productivity because a larger quantity or better product is produced. Firms that achieve higher productivity relative to the average of their industry gain a competitive advantage over less productive rivals, thereby increasing their propensity to access distant markets " Fagerberg (1994) as cited in TLAinc [online] accessed 1/12/11. In theory this makes sense, for example if we look at the graph below:
What it shows is the correlation between the proportion of spending the top 40 Australian clothes manufactuers spent on R&D and their export proportion. Although it may not seem to suggest anything to begin with, if we look at the graph again with a line of best fit drawn in:
we can see a positive correlation between an increase in R&D spending and an increase in exports- in other words the more a company spent on R&D, the greater amount of exports experienced by the company. This data backs up Fagerbergs theory in the case that this R&D has led to innovative processes within the company and thus the self-reinforcing feedback mechanism has been fulfilled. The self-reinforcing feedback mechanism has also been backed up by theorists such as Feldmen, who in 1999 looked into R&D spendings in Silicone valley and concluded that "R&D output spilled over into other areas, increasing performance" Contesttheory [Online] accesed 1/12/11.
However, just how realiable is this data? Many errors can occur with measuring innovation leading to these results potentially being incorrect. For example, "practical difficulties in disentangling the direct impact of innovation from other effects on a firm’s productivity " is one, how can we be sure that it was innovation that caused the witnessed changes and not another factor? Also, "innovation in practice is incremental, consisting of small, mundane improvements to a product or process that may not produce patents" Cornish, 1997; Kleinknecht, 1990; Porter, 1990.
So there we go, I hope this blog has been somewhat useful or interesting, I think my next blog I'll focus on when innovation does not lead to success as a sort-of part 2 of this blog :)
All the best :)
Reference List:
Carpages [online], found at: http://www.carpages.co.uk/mitsubishi/mitsubishi-dealer-19-07-11.asp, accessed 30/11/11
Contesttheory [Online], found at: http://www.contesttheory.org/viewappendix.php?id=59&ap=1 accessed 1/12/11
TLA Inc [online] found at: http://www.tlainc.com/articlsi9.htm accessed 1/12/11
Wakelin, K (1997)"Trade and Innovation: Theory and Evidence", published by: Edward Elgar Publishing Ltd
