Innovation, competition and regulatory change: Assessing interrelationships at the industry level

Abstract

Abstract and Key Results * This paper focuses on the overall themes of the issue to examine the interrelationships between innovation, competition and regulatory change in international business. * It provides a synthesis by highlighting recent interlinked developments in two contrasting industries dominated by large multinationals--pharmaceuticals and automotives, with specific reference to cars. * This industry based assessment highlights the technical, economic and regulatory forces that have together changed the business environment, innovation processes and nature of competition in the pharmaceutical and automotive industries. Key Words Innovation, Competition, Regulation, Pharmaceuticals, Automotives Introduction The AIB (UK) conference call for papers on Innovation, Competition and Change, particularly regulatory change, in International Business--the themes on which this focused issue is based--generated a record number of submissions. The focus of the individual contributions was very varied and typically addressed some specialist aspect within one, or at most two, of the three areas, as reflected in the preceding papers. Other major issues covered within the innovation stream elsewhere in the proceedings included sources of product innovation, innovation in information and communication technologies and knowledge acquisition in international business. The competitive opportunities and challenges faced by Western multinationals from the fast growth, emerging economies, unsurprisingly, received substantial attention, as did the role of outsourcing and impact of joint ventures and acquisitions. The competitive behaviour of entrepreneurial small firms, networking and clustering activity also attracted a range of contributions. Intellectual property protection and corporate governance was an important concern among papers dealing with regulatory changes as well as the extent to which firms might need to go beyond the increasing demands of regulation to meet the moral challenges of global capitalism. International business is a process and, in general terms, while it is clearly necessary to isolate individual aspects of the process in order to study them (see Buckley 2005), the parts are interconnected so it is also important to synthesise them in order to see the interrelationships. In the same way, we felt that while the conference contributions naturally tended to be specialist studies of individual aspects of innovation, competition or regulatory change, it would be useful to draw attention to the interconnections between these processes (and the specialised areas within them) at a broader level. This final paper therefore explores the significance of and interrelationships between aspects of innovation, competition and regulatory change in international business. The paper focuses on pharmaceuticals and automotives, both of which are very significant industries globally and are dominated to different extents by large multinationals. The pharmaceuticals industry was chosen as the classic example of a high-tech industry that is strongly reliant on product innovation for revenue and heavily regulated because of its impact on human health. The automotive industry is the world's largest manufacturing activity and is more mature, suffering from excess capacity. Whilst characterised by incremental product differentiation on a century old dominant design, it has experienced very significant process innovation and change in inter-organisational arrangements. It has frequently been affected by trade and investment regulation and now faces increased regulatory pressures associated with rising environmental standards. Both industry cases highlight some of the interlinked technological, economic and regulatory forces that have affected competition resulting in new managerial challenges. Pharmaceuticals The large, research based pharmaceutical firms compete primarily on the basis of quality and effectiveness of the new drugs produced for profitable markets in high income countries. …