Unit 8 ENT600 Commercialization

8/10/2019 Unit 8 ENT600 Commercialization

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Unit 8:Commercialization of New

Technology-Based Product

1Entrepreneurship Dept,FBM (2009) ENT 600/UNIT 8: COMMERCIALIZATION

TECHNOLOGY ENTREPRENEURSHIP

(ENT 600)



Introduction

• The word technology-based product in this unit

encompasses physical products, services andprocesses.

• New technology-based product is the outputdeveloped from innovative activities that take place in

a successful R & D (research and development).

• Research and development activities may take placein public universities or research institutes owned by

government or private research institutions.




Technology-based Industry In Malaysia

• The future of Malaysian technology-based

industry is very much dependent on locally

developed technology-based ventures.

• The success of home-grown technology-

based venture is determined by the strength

and efficiency of commercialization of R&D

(research and development) output andenforcement of intellectual property (IP) law

in Malaysia.

3EntrepreneurshipDept,FBM (2009)

ENT 600/UNIT 8: COMMERCIALIZATION



Commercialization of Research &

Development

• The products of R&D will not generate revenueunless they are successfully commercialized.

• Commercialization of Research and Development

refers to efforts taken to introduce new technology-based products to the market with the aim of gaining

commercial return.

• The commercial value of a research is measured bythe contribution of the research findings to the

development of new process, new service or product.

4EntrepreneurshipDept,FBM (2009) ENT 600/UNIT 8: COMMERCIALIZATION



Taking R & D Output To The Market

There are two approaches through which research findingscould be brought to the market by:

1. Disseminating innovation freely through academic

publication such as journals and proceedings of

research conference. This approach does notpromise maximum benefit to the innovator

2. Allowing the researcher (innovator) to monopolize

the benefits of research and development in theform of intellectual properties (IP) and

commercialization of the IP.





Options To Commercialize Research &

Development

There are five (5) options to commercialize R & D:

1. Outright sale of the R&D output before securing IP (intellectual

properties)

2. Get into licensing agreement with established private organization

after securing IP

3. Get into Assignation agreement with buyer

4. Spin-off by starting a new venture from within the established

research organization.

5. Spin-out by starting a new venture independent of the research

organization where the new technology-based product was

developed.





Commercialization Pattern of R&D

Spin-off

Company

Established

Licensing Agreement

Established with Existing

Private Sector

Organization.

Production

Patent Application

R & D Outright sale ofresearch product

before securing IP

Spin-out

Company

Established

Assignation Agreement

Established with

Existing Private Sector

Organization.





Commercialization Options:

Outright Sale of The R&D Output

The researcher may decide to sell the R&D output before applyingfor patent rights due to any of the following reasons:

• Cost to secure a patent right is higher than the product potential

value

• The new technology-based product is competing with a

promising substitute product (the developed technology is

already mature and facing substitution stage)

• High market development cost required because market is notyet ready for the product.

• To avoid the hassles associated with patent application






Licensing A Patent

• Licensing a patent to an established business organization isconsidered as one of the most viable means of commercializing

a new technology-based product.

• A patent holder who licenses his patent is known as the licensor,

while the person to whom the patent is licensed to is called thelicensee.

• When a patent is licensed to a licensee, the licensee is given

“the exploitation right “.

• “Exploitation right “ means the right to create, market and sell

something based on what the patent protects.






Licensing A Patent..continue

• In return, the licensor will expect financial return in the form of

royalties from the licensee.

• A patent license basically is a legal contract that spells out

terms and conditions for examples:

The area of exploitation allowed by the licensing

agreement.

Performance obligation demanded by the licensor over the

licensee in order to ascertain consistent financial return.

The amount and frequency of royalties to be paid by thelicensee.

• In this context a license is revocable or cancellable if certain

terms and conditions are not met.






Patent Assignation

Patent assignation is an irrevocable exploitation right given by

an assignor to an assignee. The assignor refers to the originalpatent holder, whereas the assignee is one who receives an

assignment of the patent.

Assignation is not like licensing:• Assignation entails the sale or outright transfer of the patent

by the assignor to the assignee.

• Assignation is sought if an irrevocable exploitation right is

needed by the parties involved.

The disadvantage of patent assignment is that when an

assignee failed to pay royalties, this will not revoke the rights

that are already assigned to the buyer.





Valuing a Patent

Determining the monetary value of a patent is very importantbecause it helps the patent holder to determine:

• The right value to sell the patent to an assignee

• The right amount of royalties to be charged to patentlicensee.

How much a patent is worth depends on the following

factors:

1. The size of the potential market.

2. The value of comparable patents.





3. Validity of the patent (the risk of the promoted patent tobe invalid if the inventor does not meet the statutory

requirement for obtaining the patent).

Example:• He was not the inventor

• Had published the information about the invention

• Had offered the invention for sale before the date of

application



Valuing a Patent….continue



Valuing a Patent….continue

4. Determine if the patent overlaps with other patents - thehigher the probability that a patent may overlap with

another, the lower the value of that particular patent.

5. Assess how much it costs for someone to use the nextbest patent instead of buying or subscribing license of

your patent.

6. Determine the reasons for selling or licensing the patent.






Spin-Off Into A New Venture

• Alternative to licensing and assignation, an innovator may choose

to commercialize his invention through the creation of a new

technology-based venture.

• In this context, the innovator assumes the role of a technopreneur

by creating a new venture from within an established organizationlike a university or a company

• In venturing into the spin-off company, the technopreneur himself

“exploits” the patent rights he had secured.

• Prior to venturing into a new technology-based business, a

technopreneur needs to develop a business plan, determines

financial requirements and seeks sources of financing.






Spin-out Into An Independent New Venture

• Besides venturing from within the established R&D institutions,

universities or established business organizations, the innovatorsmay also have the option to leave the parent organization and

established an independent new venture to commercialize the

patent he owned. In this context, the innovator assumes the role

of a technopreneur by creating a new venture independently

• Similar to a spin-off venture, in a spin-out venture the

technopreneur himself “exploits” the patent rights he had secured

and needs to develop a business plan prior to venturing into the

new venture.

• However, in the case of a spin-out venture, the technopreneur

has to bear the risk of the new venture alone.





The Risk of A New Venture

• In spinning off or spinning out into a new venture, the

technopreneur faces the following risks:

1. Technological uncertainty

2. Strategic uncertainty

3. Uncertainty in first time buyers

1. Technological uncertainty is associated with:

– To determine order winning product configuration. – To determine the most efficient production technology

– To determine the level of difficulty to develop this

technology.

EntrepreneurshipDept,FBM (2009)

ENT 600/UNIT 8: COMMERCIALIZATION 17



The Risk of A New Venture (continue)

2. Strategic uncertainty

New products are often characterized by the absence of a

proven marketing strategy. Hence, firm needs to utilize

more resources in order to ensure success.

3. Uncertainty in first-time buyers

Customers of a new venture normally are first time

buyers. The marketing task is to substitute what buyers

used to purchase and to encourage these buyers to makeinitial purchase of the new products.





Barriers To Entry• A new venture may face difficulty to establish entry into a

particular industry.

• Entry barriers refer to the accessibility of a new venture

into a particular industry. Factors that contribute to entry

barriers are: – The cost of adopting technology in the industry

– Access to distribution channel

– Access to raw material

– Cost inefficiency due to lack of experience – The cost of capital required to launch the new venture

• Some of these barriers disappear as the industry develops.





Considering Business Incubators To Increase The

Chance For New Venture Survival

• Business Incubator means a facility with adaptable space that

a new venture can lease on flexible terms and at reduced

rental rate.

• The purpose of an incubator in the early stage of the new

venture is to increase the chance of survival for new start upbusiness.

• Business incubators offer financial, managerial, technical,

and administrative support services which are available on

sharing basis.• Most incubators limit the time for new venture occupying

space in the facility ranging from two to five years





Technology Life Cycle

• The performance of technology and product has arecognized pattern over time

• This pattern can be very helpful in the strategic

planning process of the technology-based venture

• Thus, managing a technology venture requires

deep understanding of the life cycle of thetechnology, product, process and system.





Technology Life Cycle (continue)

• A technological rate of performance improvementis dependent on the effort such as research and

development devoted to the technology

improvement.

• A newer technology may have higher limit of

performance for the same parameter and may

replace the older technology at certain period oftime.





Technology Life Cycle (continue)

• Technology performance is expressed in terms ofany attribute such as density in electronic industry(for example, number of transistor per chip), speedin mile per hour, energy consumption in K Wattper hour or fuel consumption in mile per Km.

• The technology performance becomes vulnerable

to substitution or obsolescence when a new orbetter technology emerges.

23EntrepreneurshipDept,FBM (2009)ENT 600/UNIT 8: COMMERCIALIZATION



Technology Life Cycle

Physical Limit

Time

Technology

Performance

Parameters

NEW

INVENTION

PERIOD

Embryonic

Technology

Improvement

period

Growth

Maturity

Mature

Technology

Period

Aging

The S-curve of technological progress

Source: Tarek Khalil (2000), “Management of Technology; the Key Competitiveness

And Wealth Creation”, McGraw-Hill International Ed., Singapore, (pg 81).




Stages in the TLC

Technology progresses through a three-stage

technological life cycle (TLC):

1. The new invention period known as the

embryonic stage.

2. The technology improvement period, also known

as the growth stage.3. The mature technology period or maturity stage.




TLC Stages:

New Invention Period or Embryonic Stage

• The new invention period is characterized

by a period of slow initial growth. This is

because experimentation and initial

problems are worked out of the system.

EntrepreneurshipDept,FBM (2009)ENT 600/UNIT 8: COMMERCIALIZATION 26



TLC Stages:

Technology Improvement Period

or Growth Stage

The technology improvement period is

characterized by rapid and sustained

growth.

Also known as the growth stage


ENT 600/UNIT 8: COMMERCIALIZATION27



TLC Stages:

Technology Mature Period

or Maturity Stage

• The mature technology period starts when

the upper limit of the technology is

approached and progress in performanceslows down. This occurs when the

technology reaches its natural limit.





TLC Stages:

Technology Mature Period or Maturity Stage (cont)

• The technology becomes vulnerable when

technological substitution takes place or when

the technology becomes obsolete. That is when

a better new technology emerges.

• Investment in the on-going technology at this

stage may be riskier even though some may

thrive in the declining technology.





TLC and the Market

• In commercializing a new technology or product,

one must identify the stage of the technology in its

life cycle.

• Technology under development stage has no realincome-producing value and the technology that is

not being marketed (technology on the shelf)

provides no return.

• When a technology reaches the market it generatesincome.





The Technology Market Life-cycle

• As technology develops along with the

recognized technology life-cycle, the

technology begins to penetrate its market

and subsequently experiences marketgrowth.

• The corresponding market growth phases of

the technology is called the TechnologyMarket Life-cycle and is expressed as

market volume





The Technology Market Life-cycle Phases

• Over time the technology will experiencesix phases of market life-cycle:

A. Technology development phase

B. Application launch phase

C. Application growth phase

D. Technology mature phase

E. Technology substitution phase

F. Technology obsolescence phase




Technology Market Life-cycle

Technology Development Phase

• At the Technology Development Phase, the market doesnot recognize the technology at all.

• During this time, the researchers are putting in much

effort and utilizing significant amounts of resources tocreate the technology, develop prototype and testing the

new technology.

• During this period, revenue is not generated and whereever possible, time spent in this phase has to be reduced.





Application Launch Phase

• This is the phase where the technology islaunched in the market as a new application

(e.g. a new product or process)

• Once the new technology application is

launched, the market volume will pickup with the

path of the technological progress.

• It is characterized by a slow beginning and

followed by rapid growth.

34Entrepreneurship Dept,,FBM (2009) ENT 600/UNIT 8: COMMERCIALIZATION




Application Growth Phase

• In the Application Growth Phase, the

technology application will begin to penetrate

or go deep into the market

• Extend of penetration of the technology into

the market will depend on the rate of

innovation and the market needs of the new

technology.






Technology Mature Phase

• In the Technology Mature Phase, the

market growth rate slows down as the

technology approaches its maturity. Themarket volume may reach a peak and

then start to decline.






Technology Substitution Phase

• The Technology Substitution phase is

characterized by declining market volume

as the technology is faced with being

substituted by new technologies

• Companies that continue to utilize the old

technology will begin to experience adecline in market share and revenue.






Technology Obsolescence Phase

• In the Technology Obsolescence Phase,

the technology application has become

obsolete and has little or no value at all.

• Investment in the technology during this

phase is not attractive

38EntrepreneurshipENT 600/UNIT 8: COMMERCIALIZATION

Unit 8 ENT600 Commercialization

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