Support manufacturing and scaling, as well as start-ups, or you’ll lose the ability to innovate, warns Saïd Business School academic

As the Government makes £15 million available to establish new University Enterprise Zones across the country, an Oxford academic has warned that too great a focus on short-term innovation could damage its long-term ability to innovate and grow. New policies are needed to encourage longer-cycle innovation and local production.

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Hiram Samel

When firms scale new technology overseas they leave little trace of capabilities for future innovators, decreasing local investment, jobs, new businesses and ultimately economic growth.

Oxford, Oxfordshire (PRWEB UK) 10 February 2014

‘Liberal market economies such as the UK and USA believe primarily in supply-side policies in which laissez-faire venture capital markets and technology-push research funding drive innovation,’ said Dr Hiram Samel at Saїd Business School. ‘This over stimulates short-term innovation so we get thousands of app builders, but does less for the long-term, more complex innovation that yields national competitive advantage and local employment and growth. Our research in the USA has shown how a start-up culture leads companies with novel technology to move overseas at the crucial manufacturing and scaling stage, taking with them important knowledge, skills, and capabilities. Start-ups are great, but the Government should also look at policies to encourage longer-cycle innovation and scale-up.’

Dr Samel’s comments arise from a major study of the growth patterns of start-up companies in the USA. He says that the lessons drawn from this work indicate that the UK should implement new policies now to ensure that manufacturing keeps pace with innovation.

In a new article Samel and his co-author, Elisabeth B. Reynolds, executive director of the MIT Industrial Performance Center, revealed the preliminary results of their study of 150 start-up companies that licensed MIT technology between 1997 and 2008. They looked at growth patterns and, particularly, at the crucial move from the research and development phase to manufacturing, when it is common for companies to move overseas. According to the paper, ‘When firms head overseas to scale their products, the US loses the knowledge, skills, and capabilities that come with this next stage, and this diminishes its ability to innovate in the future.’

According to their research:

  •     Although the availability of financing in the USA is conducive to start-ups, most investors, particularly venture capitalists, want to exit their investments within about seven years. This does not fit with the longer time-frames involved in scaling novel technology, such as advanced materials, life sciences, energy and semiconductors.
  •     Being part of innovation ‘ecosystems’, such as Silicon Valley, Boston, or Austin, gave firms access to specialised resources and experienced suppliers which enabled companies to get their ideas into early-stage production.
  •     However, companies faced financial constraints as they tried to scale. Only 6% raised funds through IPOs, with most finding the capital they needed from corporate investors, including multinational companies and governments. As a result of these new relationships with investors, companies often started their scaling up operations in the new partner’s country or production centre.

‘Our research took place in the U.S., but many of its lessons are applicable to other countries with a similar attitude to research and innovation,’ said Samel. ‘When young firms head overseas to scale-up, they often take their tacit knowledge - the knowledge that has taken years to develop - with them. The originating country loses not only that knowledge, but also the chance to learn the skills and capabilities that come with the scaling stage. In the past, young companies scaled domestically and these capabilities stayed within the local industrial ecosystem, playing crucial roles in succeeding generations of innovation.

‘When firms scale new technology overseas they leave little trace of capabilities for future innovators, decreasing local investment, jobs, new businesses and ultimately economic growth. The nature of future innovation may be uncertain but we do know that it is built upon a foundation of continually evolving industrial capabilities. Once the centre of gravity for industries shifts to the manufacturing countries, so does the best talent and the most innovative technologies. The UK, USA, and other similar economies need to do more to make themselves compelling locations for scaling innovative, production-oriented companies.'

To speak with Hiram Samel or for more information on the research, please contact the press office:

Clare Fisher, Head of Public Relations, Saïd Business School
Mobile: +44 (0) 7912 771090; Tel: 01865 288968
Email: clare.fisher(at)sbs(dot)ox.ac.uk

Josie Powell, Press Officer, Saïd Business School
Mobile +44 (0)7711 387215, Tel: +44 (0) 1865 288403
Email: josie.powell(at)sbs(dot)ox.ac.uk or pressoffice(at)sbs(dot)ox.ac.uk

Notes to editors
1    About the article
The article ‘Invented in America, scaled-up overseas’, published in Mechanical Engineering in November 2013, https://www.asme.org/engineering-topics/articles/manufacturing-processing/invented-america-scaled-up-overseas

2     About Hiram Samel http://www.sbs.ox.ac.uk/community/people/hiram-samel

3    About Elisabeth B. Reynolds http://ipc.mit.edu/people/elisabeth-reynolds

4    About Saїd Business School
Saïd Business School at the University of Oxford blends the best of new and old. We are a vibrant and innovative business school, but yet deeply embedded in an 800 year old world-class university. We create programmes and ideas that have global impact. We educate people for successful business careers, and as a community seek to tackle world-scale problems. We deliver cutting-edge programmes and ground-breaking research that transform individuals, organisations, business practice, and society. We seek to be a world-class business school community, embedded in a world-class University, tackling world-scale problems.

In the Financial Times European Business School ranking (Dec 2013) Saïd is ranked 12th. It is ranked 13th worldwide in the FT’s combined ranking of Executive Education programmes (May 2013) and 23rd in the world in the FT ranking of MBA programmes (Jan 2014). The MBA is ranked 5th in Businessweek’s full time MBA ranking outside the USA (Nov 2012) and is ranked 5th among the top non-US Business Schools by Forbes magazine (Sep 2013). The Executive MBA is ranked 23rd worldwide in the FT’s ranking of EMBAs (Oct 2013). The Oxford MSc in Financial Economics is ranked 6th in the world in the FT ranking of Masters in Finance programmes (Jun 2013). In the UK university league tables it is ranked first of all UK universities for undergraduate business and management in The Guardian (Jun 2013) and has ranked first in nine of the last ten years in The Times (Sept 2013). For more information, see http://www.sbs.ox.ac.uk/

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