In the case of indeterminate supply markets a partnership or lean supply strategy may not be functional. There is evidence that such rigid supply structures may offer static efficiencies in terms of cost savings, quality improvement and reduction in development lead time, but may suffer dynamic inefficiencies when it comes to developing novel technologies products and processes. On the one hand, the increase in the global sourcing of technology has reduced the chance that an existing partner will be the most appropriate supplier, and on the other hand the nature of technological knowledge suggests that a market transaction would be inadequate. Therefore where innovation is the primary objective of the supply relationship and the supply market is neither homogeneous nor clearly earmarked, a temporary, ad hoc relationship with a supplier may be more appropriate. These have some features common to horizontal strategic alliances, in that they are clearly focused, project based forms of collaboration. Loose attachment is appropriate where multi-technology products are characterized by uneven rates of advance in the underlying technologies and in such cases technology consultants or systems integrators act as a buffer between the suppliers and users of the technology. For suppliers, technological competencies and problem solving capabilities are associated with high gross margins and a larger share of overseas business. A survey of companies offering specialist services to support new product development found that the most common service offered was industrial design, but 30% offered a complete range of services, including R&D, market research, design, development and development of production processes.
The management practices found to contribute to a supplier relationship for successful new product development. This list suggests a number of good practices common to partnerships but non-committal these practices form the need for long term stable co-dependent relationships. The relatively high ranking is the need for consensus that the right supplier has been chosen.
Licensing offers a firm the opportunity to exploit the intellectual property of another firm, normally in return for payment of a fee and royalty based on sales. Typically, a technology license will specify the applications and markets in which the technology may be used, and often will require the buyer to give the seller access to any subsequent improvements in the technology.
Licensing-in a technology has a number of advantages over internal development in particular lower development costs, less technological and market risk, and faster product development and market entry. Potential drawbacks to licensing-in include restrictive clauses imposed by the licenser, loss of control of operational issues such as pricing, production, volume and product quality, and the potential transaction costs of search, negotiation and adaptation.
In practice, the relative costs and benefits of licensing-in will depend on the nature of the technologies and markets and strategy and capability of the firm. A survey of more than 200 firms in the chemical, engineering and pharmaceutical industries found that the most important reasons for licensing were related to the speed of access, rather than cost. Factors such as quickly acquiring knowledge required for product development, keeping pace with competitors and increasing sales were found to be most important, and factors such as the cost of development least important. The study found that the most significant problems associated with licensing-in are entry costs such as the choice of suitable technology and licenser, and the loss of control of decision making. Differences in emphasis exist across sectors; for example, pharmaceutical firms experience higher search costs than engineering firms, and engineering firms place greater emphasis on the potential for reducing the cost and improving the speed of market entry.
In some cases, however there is reluctance to license-in technology which may adversely affect the differentiation of end products if customers became aware of the fact. Many firms express concerns regarding the constraints imposed by international licensing agreements, specifically the common requirement to ‘grant-back’ any improvements made to the technology. For example, ABC Co. claims increasing globalization and concentration within the chemical industry as reducing the scope for licensing technology. For these reasons an increasing number of firms are careful to license only components of any process or product in order to allow scope for subsequent improvement. For example, Mitsubishi Chemical licensed a well-established process technology from a US competitor, but chose not to license the catalyst or polymer design. This allowed the company to avoid having to grant-back its subsequent improvements to the catalyst and polymer design to the American competitor.
However, this approach to licensing is only viable where the technology can be easily unbundled. For example, a Japanese food and drink manufacturer, finds that in most cases it is able to negotiate and exploit simple licenses for its brewery and food businesses, but not for its pharmaceutical products. The company prefers formal joint ventures to develop new pharmaceutical products because of the complex interrelated technologies, patents and skills required.
Technology, Research and search for a company who can grant license goes together world wide.