of SMEs patenting activities: a survey of British firms suggest that smaller firms are ... 2010) and the fact that SMEs account for 95% of the business population, ...
PROTECTING INTELLECTUAL PROPERTY TO ENHANCE FIRM PERFORMANCE: DOES IT WORK FOR SMES?* Agostini Lara, Filippini Roberto, Nosella Anna Department of Management and Engineering, University of Padua (Italy)
ABSTRACT In this century, characterized by increasing level of global competition and high technological development, the ability of firms to develop and exploit their innovative capabilities is widely recognized as a critical determinant of firm performance and competitive advantage. Intellectual Property (IP) represents knowledge which can be protected by recognized rights, called intellectual property rights (IPRs) which encompass patents, trademarks, design and copyrights. Our paper aims at studying the relationship between two different IPRs, patents and trademarks, and economic and financial performance of SMEs in two different Italian industries. It helps fill the gap about the use of IPRs by SMEs, which is still under-researched. In line with previous studies, we propose an approach that uses crosssectional time series regression, supported by a t-test, to investigate the relationship between the dependent and independent variables. Drawing on the results, we hypothesize explanations of our findings and suggest directions for future research. Keywords: SMEs, intellectual property, patents, trademarks, economic and financial performance
* Accepted by Knowledge Management Research & Practice Please cite as: Agostini, L., Filippini, R. and Nosella, A. (2014). Protecting intellectual property to enhance firm performance: does it work for SMEs?. Knowledge Management Research & Practice, 14, 96-105.
1
1.
INTRODUCTION
In this century, characterized by increasing level of global competition, decreasing product life cycle and high technological innovation, the ability of firms to develop innovation is widely recognized as a critical determinant of firm performance and competitive advantage (Bettis & Hitt, 1995; Artz et al., 2010). Fully exploiting the private benefits of innovation requires firms to protect their new knowledge from imitation in this way avoiding the inventions become diffused throughout the relevant markets. Intellectual property rights (IPRs), such as industrial designs, trade secrets, patents and trademarks grant firms temporary private monopoly rights over their innovations, in this way delaying any immediate imitation during the period of their temporary monopoly (Greenhalgh & Longland, 2005; Gooderham, 2007). Since IPRs are costly to acquire and enforce, it is often outlined that small and medium size firms (SMEs) are disadvantaged in their ability to apply for and use them (Jensen & Webster, 2006). As far as patenting activity is concerned, literature shows that even though large firms are generally more inclined to make use of patents, there are still many evidences of SMEs patenting activities: a survey of British firms suggest that smaller firms are more than proportionally active in acquiring IPRs assets than large firms (Greenhalgh et al., 2001; Hanel, 2006), while in US small firms also have higher patenting rates than larger ones when measured on a per-employee basis (Audretsch, 2002). As far as patenting activity in Italy is concerned, on the whole Italian firms show a growing trend in patenting activity from 2002 to 2011 (own elaboration from EPO data). Furthermore, EU institutions are paying increasing attention to this issue, at the point that government and non-government institutions have included intellectual property (IP) services within their program of support for SMEs (Burrone, 2005). If we consider trademarks, there are also strong evidences of SME’s increasing use of this type of IPR particularly in industries “where patenting data provides no reliable information about innovation activities, as in many service sectors and also in low-tech industries where smaller firms contribute to most of the final output” (Mendoca et al., 2004, pg. 1392): as stated before, trademarks can be seen as a proxy of innovation (Greenhalgh & Longland, 2005), since they are targeted at differentiating certain products from those sold by other firms, partially reflecting the introduction of new offerings aimed at convincing potential buyers that current available products are not able to fully solve the range of their needs. Thus, applications for new trademarks, or for 2
new product categories of existing trademarks, are frequently related to the introduction of new products to the market, providing a good indication of the firm innovative activity (Greenhalgh & Longland, 2005). In this way, by capturing the introduction of new product varieties, “trademarks supplement the picture provided by patents, which are by law confined to being awarded only for novel, inventive steps, which are capable of industrial application” (Greenhalgh & Rogers, 2007). Taking into consideration the evidence that both the use of patents and trademarks as a way to protect innovation by SMEs seems to show an increasing trend (Hughes & Mina, 2010) and the fact that SMEs account for 95% of the business population, little attention has been provided to investigating the impact of these two different typologies of IPRs on SMEs economic and financial performance, an issue also outlined by some authors (Mendoca et al., 2004; Rogers et al., 2007). Since SMEs have to invest some resources to register and renew their rights in national and international offices, the impact of these decisions on SMEs performance is worth investigating. Thus, this paper aims at studying the relationship between two different IPRs, patents and trademarks, considered as a proxy of innovation, and SMEs performance in two different industries. In particular, the paper analyzes two sectors in Italy: the former is the mechanical industry, a medium and high-tech industry, which is proven to be patenting active (Hughes & Mina, 2010); moreover, in Italy this sector has a leading position in the manufacturing industry (Unicredit Corporate Banking, 2010) and shows a relevant number of patents with an increasing trend during the last years (own elaboration from EPO data). The latter is the fashion industry, a market-driven and lowtech one, where trademarks are the main IPRs (Mendoca et al., 2004). The analysis is carried out using a panel regression model over a period of 6 years (2005 to 2010), testing the impact of patent/trademark applications on firm economic and financial performance (Ernst, 2001; Greenhalgh & Rogers, 2007). The paper first deals with the analysis of the literature concerning the relationship between patents/trademarks and firm performance in order to formulate the hypothesis; after analyzing the method, it presents the analysis and discusses the results in order to draw the conclusions and suggest opportunities for further research.
3
2.
LITERATURE AND HYPOTHESIS
2.1 The relationship between patents and firms performance Patents, that consist of a set of temporally exclusive rights granted to an inventor, can be regarded as the output of the successful knowledge generated by the research and development (R&D) activities (Ernst, 2001); literature widely discusses this issue, sustaining whether patents proxy innovative ideas or whether they simply measure R&D input. In the last decade, this debate has been enlarged to include also the investigation of the relationship between patents and firm performance, even though the relationship seems still unclear with conflicting results. Some authors find patents do not show any effects in increasing firm economic and financial performance, measured in terms of ROA (Return On Assets), sales growth and market value (Griliches et al., 1991; Rivette & Kline, 2000; Kretschmer & Soetendorp, 2001) or are negatively associated with them (Artz et al., 2010), while others find patents positively and significantly influence firm performance (Austin, 1993, 1995; Ernst 1995, 2001; Bessler & Bittelmeyer, 2008). The most investigated independent variables are patent applications and patents granted, even though quality of patents seems to discriminate between a positive or negative influence of patents on firm performance. Furthermore, to better investigate the contrasting results obtained, some papers focus the analysis on a specific industry and/or country, thus reducing variability (Ernst, 2001). As far as the country is concerned, USA, UK and Germany are the most analyzed ones, while the most studied industries are the pharmaceutical (Mansfield, 1986; Narin et al., 1987; Cheng et al., 2012) and the manufacturing (Rothwell, 1979; Hall, 1987; Leo & Stainer, 1995; O’Mahony, 1998); indeed, industry specificity seems to play an important role in moderating the effect of patents on firm performance. With respect to the mechanical industry, Ernst (1995) carries out an analysis on 50 medium German machine tool manufacturers between 1984 and 1992 and finds national patent applications lead to sales increases with a time-lag of 2 to 3 years after the priority year. The studies on this issue are almost silent about the impact that patenting activities have on small firms performance (Greenhalgh & Rogers, 2007; Rogers et al., 2007); as MacDonald (2004) sustains, the patent system does not equally suit the requirements of all industries and firms, being quite appropriate for large pharmaceutical firms but much more inadequate for small firms. Up to now, the few studies (Lefebvre et al., 1998; Tether & Massini, 1998; Del Monte & Papagni, 2003) carried out on SMEs are not 4
industry-specific and mainly consider medium-size firms, where R&D and patenting resources can be quite different from small firms; additionally, these studies employ different indicators in order to proxy innovation (i.e. R&D on sales, propensity to innovation, product innovation) and do not reach an agreement in investigating this phenomenon. Often SMEs use patents as a means to protect against competitors imitation instead of a way to exploit a successful innovative output at the point that MacDonald (2004) draws the conclusion that for SMEs the positive effect of patents on performance is without foundation. Based on these considerations, the first hypothesis of the paper focuses on the relation between patent applications and SMEs economic and financial performance in a specific medium and high-tech industry.
H1: Patent applications are not associated with SMEs economic and financial performance in the mechanical industry.
2.2 The relationship between trademarks and firms performance Literature about the impact of trademarks on firm performance is scarce even if recently firms trademark activity has sharply increased (Greenhalgh & Rogers, 2007); innovative firms in the EU consistently use more trademarks than non-innovative firms, and more trademarks than patents (Mendonca et al., 2004). This backs the fact that trademarks can be used as a proxy for innovation, since, as we have already explained, trademarks are frequently related to the introduction of new products to the market, providing a good indication of a firm innovative activity (Greenhalgh & Longland, 2005). Landes and Posner (1987) are the first ones who investigate the influence of trademarks on firm performance in the sense that a firm uses trademarks to show its products are of quality, so that “search costs” of customers decrease and the firm can charge a higher price and, thus, have a profits increase; this model highlights that trademarks may encourage firms to increase investment in improving the quality of their goods, so expecting higher returns. Griffiths et al. (2005) find that the stock of trademarks is a significant determinant of profits, but with a smaller impact than either patents or registered designs. Seethamraju (2003) analyzes the value of trademarks in 237 US firms from selected industries in 1993-97, finding a positive role for trade marking on sales and also market values and similar results have been also reached by Krasnikov et al. (2009) for trademarks on cash flows, Tobin’s q, ROA and stock returns of large firms. Finally, 5
Greenhalgh and Rogers (2007) assess the links between trademark activity and market value and productivity using standard econometric methodologies and find stock market values are positively associated with trademark activity of UK manufacturing and service sector large firms and firms that trade mark have significantly higher value added than non-trade markers (by between 10% and 30% across all firms). Moreover, UK trade marking seems associated with higher rates of firms subsequent growth. Younger SMEs show the largest association: being a UK trade marker is associated with 7% higher asset growth and much higher turnover growth. This paper expands on the issue regarding IPRs and SMEs, though it is multi-industry and does not carry out a time series analysis. Since trademarks are cheaper to obtain than patents, it is likely that a much larger group of SMEs will be involved in applying for trademarks than in applying for patents (Mendonca et al., 2004); additionally, Millot (2011) finds that SMEs account for the majority of trademark applications in the reference period analyzed. These evidences suggest that trademarks represent an interesting field for research which has been examined mainly within the context of large firms; for this reason, the above mentioned authors suggest further research might address also the SME context which seems to rely on this type of IPRs. Based on this body of literature, hypothesis two focuses on the relationship between trademark registrations and firm performance of SMEs in a market-driven industry.
H2: Trademarks are positively associated with economic and financial performance of SMEs in the fashion industry.
Most of the papers focusing on the relationship between trademarks and firm performance carry out the analysis considering quite low-technology industries without paying attention to high-technology firms. Indeed, within this context, some authors (Aaker and Joachimsthaler, 2000; Pandey, 2007) assert that customers chose products such as electric motors, industrial lubricants, or high-tech components through an objective decision-making process that only accounts for the so-called hard facts like features/functionality, benefits, price, service, and quality, etc. However, other authors,such as Kotler and Pfoertsch (2007) and Anderson and Narus (2004), highlight that brands serve the same general purpose in B2B markets as they do in consumer markets: they facilitate the identification of products, services and businesses as well as 6
differentiate them from the competitors. Though, while “borrowing” a theory from an adjacent field may be a valid avenue for theory development, branding concepts from a consumer context might not be suitable for the B2B context, because B2B markets require a specific branding approach (Keränen et al., 2012). On this basis, recently a stream of research examining this issue for B2B industries has started to develop. The study by Greenhalgh and Longland (2005), one of the few papers on this issue, finds that high-technology firms do not show any association between trademarks and firm economic and financial performance. Although it is much more usual to analyze patent activity in technology-driven industries and it comes natural to think about branding activity in market-driven industries, as anticipated, recently Millot (2011) finds that in terms of sectors the use of trademarks is relatively higher in technology or knowledgeintensive sectors: firms in high-tech manufacturing sectors are twice as active in trademarking as low-tech manufacturing firms. Among the few studies regarding trademarking activities of SMEs in the B2B, Merrilees et al. (2011) find that branding capability has a positive influence on marketing capability which in turns positively influences financial performance. Within this context, we aim to respond to an explicit call for research suggesting further examination of the relationship between different IPRs and SME performance within B2B context, making particular reference to trademarks which are tightly related to brands since the former represent the legal basis upon which the latter build (Sandner and Block, 2011). Based on these considerations, hypothesis three focuses on the relation between trademark registrations and SMEs performance in a medium and high-tech industry.
H3: Trademarks are positively associated with SMEs economic and financial performance in the mechanical industry. 3. 3.1
METHODOLOGY SAMPLE
The impact of patents and trademarks on firm economic and financial performance is investigated using a panel data set of Italian SMEs, defined as firms with a turnover from 2 to 50 million euros (from the definition of the European Commission). In addition to the turnover, firms are selected based on the ATECO2007 code, referred to the mechanical and fashion industries, and their geographical position, that is the North7
East of Italy since there are a number of mechanical and fashion industrial districts. The panel data in this study contains patents, trademarks and financial data of 203 firms belonging to the mechanical industry and of 170 firms belonging to the fashion industry which span the period from 2005 to 2010.
Measures 3.1.1 DEPENDENT VARIABLES In this study, firm economic and financial performance is measured by Return On Assets (ROA) and average sales growth (SALES_GR). ROA has been largely used in innovation studies (Krasnikov et al., 2009; Artz et al., 2010) and it shows the capacity of a firm to generate profits from its assets. Average sales growth (over a three-year period) has also been used in past studies (Ernst, 1995; Artz et al., 2010) to assess the impact of innovation activities on firm’s growth. Data of both performance measures from 2005 to 2010 are achieved from AIDA, the Bureau Van Dick database containing companies financial and business data. Tables 1 and 2 summarize some descriptive statistics of the sample firms belonging to the mechanical and fashion industries. 2005
2006
2007
2008
2009
2010
Mean SALES [M€]
8,420
9,653
10,661
11,007
8,421
9,707
Mean SALES_GR
10,00%
18,24%
20,26%
13,59%
-0,84%
24,58%
Mean ROA
7,67%
8,29%
9,10%
7,30%
4,02%
5,65%
Mean Sales growth is calculated over a three-year period
Table 1. Descriptive statistics of the sample (Mechanical industry)
2005
2006
2007
2008
2009
2010
Mean SALES [M€]
7,731
8,166
8,603
8,298
7,541
7,945
Mean SALES_GR
6,39%
7,93%
9,67%
6,00%
1,15%
5,84%
Mean ROA
6,46%
6,94%
7,85%
5,85%
3,65%
4,56%
Table 2. Descriptive statistics of the sample (Fashion industry)
Both samples are mainly constituted of small firms (less than 10 million euros of turnover following the indications of the European Commission), but they show different behaviors. While firms in the mechanical industry register increasing performance from 2004 to 2008, firms in the fashion industry follow a stable trend. Both industries undergo a sharp decrease in 2009 with a subsequent recovery in 2010.
8
3.1.2 INDEPENDENT AND CONTROL VARIABLES This study uses two independent variables to measure innovation activities: patents and trademarks. Some of the advantages in using patents and trademarks are related to their objectivity, to their public availability and to the information provided (Greenhalgh & Longland, 2005; Belderbos et al., 2010). Data for patents are obtained by Espacenet, the EPO (European Patent Office) database containing global patent data and the UIBM, the Italian patent and trademark database. In this study, we employ patent applications since they give a broader measure of the variety of the technological activities of the firm (Belderbos et al., 2010). We also take into account the increasing importance given to patent value considering family size which may be particularly well suited for this purpose (Putnam, 1996). To account for the potential explanatory power of “family size”, we count each single application in each patent office, so that the invention of a firm having filed the correspondent patent both at the Italian office (UIBM) and the European Patent Office (EPO) is counted twice. Data for trademarks are gathered from Romarin, the international trademark system and UIBM, the Italian patent and trademark database. After collecting data for both industries, a panel database containing the number of patents and trademarks, as well as financial and economic performance for each firm and for each year in the investigated period (i.e. 2005-2010) is created. Tables 3 and 4 summarize some descriptive statistics of the sample firms belonging to the mechanical and fashion industries. The descriptive statistics show that 27.1% of firms belonging to the mechanical industry has filed at least one patent between 2005 and 2009, and 19.7% has at least one trademark. In the fashion industry, firms having at least one trademark represent 54.7% and the mean number of trademarks per trademarking firm is 2.64. Due to the variability of data, we consider the stock of patents and trademarks aggregating the number of patents and trademarks of two, three and four subsequent years inside the investigated period (i.e. 2005-2010). The rationale behind using the sum of patents and trademarks of two, three and four subsequent years, which means using a stock measure instead of a flow measure, is that the benefits deriving from these IPRs may show a cumulative effect and are likely to persist into future years (e.g., Eng and Keh, 2007). This is particularly true in the case of SMEs which face resource
9
constraints and are more likely to need a longer time to reap the benefits of their investments. Table 5 shows the details of the tested models.
N°
Rate
Firms with patents
56
27.6%
Firms without patents
147
72.4%
Total number of patents
163
Mean number of patents per patenting firm
N°
Rate
Firms with trademarks
38
19.7%
Firms without trademarks
165
81.3%
Total number of trademarks
59
Mean number of trademarks
2.91
per trademarking firm
1.55
Table 3. Descriptive statistics of the sample (Mechanical industry), n = 203 N°
Rate
Firms with trademarks
77
54.7%
Firms without trademarks
93
45.3%
Total number of trademarks
203
Mean number of trademarks per trademarking firm
2.64
Table 4. Descriptive statistics of the sample (Fashion industry), n = 170
Model 1
PAT, TM
Model 2
Model 3
2005,
2006,
2007,
2008,
2005,
2006,
2007,
2005,
2006,
2006
2007
2008
2009
2006,
2007,
2008,
2006,
2007,
2007
2008
2009
2007,
2008,
2008
2009
SALES_GR, ROA
2007
2008
2009
2010
2008
2009
2010
2009
2010
FIRM SIZE
2007
2008
2009
2010
2008
2009
2010
2009
2010
Table 5. Details of year aggregates included in the models
The introduction of firm size as a control variables is frequent in empirical studies on the relationship between IPRs and firm performance (e.g. Eng and Keh, 2007). We measure firm size through the logarithm of the total assets which were collected from AIDA.
3.2
DATA ANALYSIS
In line with previous studies, we propose an approach that uses a panel regression model to investigate the relationship between patents and trademarks and firm financial and economic performance, the dependent variable. After testing the assumption by carrying out the Hausman Test which is used to decide between fixed or random effect, 10
we selected the fixed effect model, also known as least square dummy variable (LSDV), which removes all between-firm variance and thus controls for any time invariant unobserved heterogeneity among firms (Chang et al., 2012). Thus, we use a fixed effect model with firm and year dummy variables to control for multiple observations per firm and per year (Artz et al., 2010). The following panel models have been employed in order to estimate the fixed effect for the aggregation of patents (PAT_2, PAT_3, PAT_4) and trademarks (TM_2, TM_3, TM_4): (1) Performancet = β0 + β1(PAT_2t-1) + β2(TM_2t-1) + β3(FIRM SIZEt) + Firm Dummies + Year Dummies + Error term (2) Performancet = β0 + β1(PAT_3t-1) + β2(TM_3t-1) + β3(FIRM SIZEt) + Firm Dummies + Year Dummies + Error term (3) Performancet = β0 + β1(PAT_4t-1) + β2(TM_4t-1) + β3(FIRM SIZEt) + Firm Dummies + Year Dummies + Error term
Where performance variables are Sales growth and ROA in period t, and t=1,2….T represents the number of time periods. Independent variables are the aggregations of patents with a lag of one year with respect to performance. β0 is the intercept and β1, β2, β3 the regression coefficients. Lags among these two independent variables and performance are particularly important and common in innovation and marketing studies (e.g., Ernst, 2001), since considering the impact of patent and trademark registration on the performance of the same year could be misleading. For this reason, we considered a lag of one year between the aggregation of the independent variables and the dependent variables. Before performing the regression, we control the assumptions of the regression analysis and transform both dependent and independent variables using logarithms because of normality problems. After every regression analysis, we also carry out the analysis of residuals in order to make sure every hypothesis of the model are respected. All statistical data analysis are carried out using STATA software. Moreover, in order to provide further evidence of the influence of patents and trademarks on firm performance in the investigated industries, we perform a different analysis. The samples of SMEs in the mechanical industry is divided into two groups
11
based on their possessing patents or not in the period going from 2005 to 20091. A t-test is carried out in order to compare the means of sales growth and ROA of the two groups. The same is done for trademarks in both the mechanical and fashion industries. As a result, data regarding sales growth and ROA in 2010 are compared for the following pairs: -
Firms with patents vs firms without patents in the mechanical industry;
-
Firms with trademarks vs firms without trademarks in the mechanical industry;
-
Firms with trademarks vs firms without trademarks in the fashion industry.
Always using STATA software, the equality of variances between groups is tested before choosing the most appropriate t-test (with equal or unequal variances between groups).
4.
RESULTS
Results are presented for the mechanical and fashion industries separately. 4.1
MECHANICAL INDUSTRY
Table 6 contains the correlation coefficients related to the variables of the model.
SALES_GR
ROA
PAT_2Y
PAT_3Y
PAT_4Y
TM_2Y
TM_3Y
SALES_GR
1.0000
ROA
0.0495
1.0000
PAT_2Y
-0.0218
-0.0334
1.0000
PAT_3Y
-0.0000
-0.0631
0.8817*
1.0000
PAT_4Y
-0.0072
-0.0745
0.8049*
0.9524*
1.0000
TM_2Y
-0.0243
-0.0465
0.0712
0.0937
0.1043
1.0000
TM_3Y
-0.0414
-0.0612
0.0976
0.1170
0.1379
0.8659*
1.0000
TM_4Y
-0.0420
-0.0853
0.1185
0.1395
0.1611
0.7498*
0.8795*
TM_4Y
1.0000
Table 6. Correlation matrix, *Level of significance < 0.05
Even if correlation coefficients among the aggregation of patents and trademarks are significant, multicollinearity does not present a problem in the subsequent regression analyses since the relationship between each aggregation and performance indicators is tested separately. 1
We consider the sum of patents and trademarks from 2005 to 2009 in order to create the groups to be compared on the basis of the performance of 2010.
12
Table 7 shows the results of the panel regression testing the impact of patents and trademarks on sales growth and ROA.
Dependent variable: Sales growth Model 1 (2Y)
Model 2 (3Y)
Model 3 (4Y)
-0.0124
-0.0081
0.0001
(0.324)
(0.556)
(0.999)
-0.0124
-0.0021
-0.0137
(0.632)
(0.934)
(0.716)
0.1127
0.0371
0.1703
(0.203)
(0.746)
(0.185)
R-squared
0.11
0.19
0.28
Number of observations
926
742
557
Model 1 (2Y)
Model 2 (3Y)
Model 3 (4Y)
-0.0004
-0.0025
-0.0013
(0.693)
(0.077)
(0.505)
-0.0021
-0.0041
-0.0036
(0.377)
(0.113)
(0.354)
0.0202*
0.0198*
0.0293*
(0.016)
(0.048)
(0.029)
R-squared
0.62
0.65
0.68
Number of observations
990
792
594
PAT
TM
FIRM SIZE
Dependent variable: ROA
PAT
TM
FIRM SIZE
Table 7. Panel Regression Models, *Level of significance < 0.05, **Level of significance < 0,01 Basing on these results, we cannot predict whether patents and trademarks can have a positive or negative impact on sales growth and ROA. An additional analysis is, thus, particularly relevant in order to shed more light on this issue. Table 8 shows the results of the t-test comparing the means of sales growth and ROA of the two groups of SMEs in the mechanical industry created on the basis of their possessing patents and trademarks or not in the years between 2005 and 2009.
Sales growth
ROA
PAT
TM
0.0271
0.9741
(0.9784)
(0.3313)
0.7416
1.0756
(0.4592)
(0.2834)
Table 8. Values of the T-test (p-value), *Level of significance < 0.05
13
The test is significant neither for patents nor for trademarks. This means that the mean values of sales growth and ROA of SMEs having filed patents and trademarks are not significantly different from the group of SMEs having not, which provides support for H1. On the contrary, H3 is not supported.
4.2
FASHION INDUSTRY
Table 9 contains the correlation coefficient related to the variables of the model used to test the impact of trademarks on the performance of firms belonging to the fashion industry.
SALES_GR
ROA
TM_2Y
TM_3Y
SALES_GR
1.0000
ROA
0.1925
1.0000
TM_2Y
0.0803
-0.0342
1.0000
TM_3Y
0.0805
-0.0457
0.8712*
1.0000
TM_4Y
0.0453
-0.0588
0.7905*
0.9161*
TM_4Y
1.0000
Table 9. Correlation matrix, n = 1162, *Level of significance < 0.05, (p-value)
Table 10 shows the results of the panel regression of trademark applications on sales growth and ROA in the fashion industry.
Dependent variable: Sales growth Model 1 (2Y)
Model 2 (3Y)
Model 3 (4Y)
0.0000
0.0009
0.0049
(0.989)
(0.925)
(0.700)
-0.0218
0.1741
0.0939
(0.770)
(0.118)
(0.576)
R-squared
0.24
0.25
0.38
Number of observations
662
496
331
Model 1 (2Y)
Model 2 (3Y)
Model 3 (4Y)
0.0000
0.0004
0.0013
(0.944)
(0.818)
(0.602)
0.0039
0.0033
0.0146
(0.760)
(0.860)
(0.656)
TM
FIRM SIZE
Dependent variable: ROA
TM
FIRM SIZE
14
R-squared
0.75
0.77
0.81
Number of observations
663
497
332
Table 10. Panel Regression Models, *Level of significance < 0.05, **Level of significance < 0,01, (p-value)
H2, which predicts a positive impact of trademarks on firm performance, is not supported since none coefficient linking trademarks to sales growth and ROA is significant without any difference related to the year aggregate. Table 11 shows the results of the t-test comparing the means of sales growth and ROA of the two groups of SMEs in the fashion industry created on the basis of their possessing trademarks or not in the years between 2005 and 2009.
TM Sales growth
2.3548* (0.0198)
ROA
1.9439 (0.0537)
Table 11. Values of the T-test (p-value), *Level of significance < 0.05
In the fashion industry, the T-test results significant as far as sales growth is concerned, thus meaning that the mean value of sales growth of the group of firms having registered at least one trademark in the period from 2005 to 2009 is significantly different from the group of SMEs having not; in particular, the former group shows a higher mean value (p=0.099). Instead, the test regarding the ROA is not significant, suggesting that having registered a trademark or not has no influence on the mean value of profits in terms of ROA.
5.
DISCUSSION AND CONCLUSION
The objective of this paper is to investigate the influence of patents and trademarks on economic and financial performance of SMEs belonging to two Italian specific industries, the mechanical and fashion ones. The results indicate that possessing or not patents or trademarks does not have a direct impact on the mean value of sales growth and ROA in the mechanical industry. Instead,
15
SMEs with at least one trademark in the investigated period show higher mean values of sales growth than SMEs without any trademark in the fashion industry. Our results concerning the relationship between patents and firm economic and financial performance in the mechanical industry are in contrast with previous (not recent) studies analyzing the impact of innovation on firm performance in this sector: in particular Ernst (1995) finds national patent applications lead to sales increases with a time-lag of 2 to 3 years in Germany and Rothwell (1979) who finds the rate of R&D on sales has a positive impact on the rate of export on sales in UK. A possible explanation of these contrasting results may be related to the different size of firms, indeed we consider mainly small firms while above mentioned papers focus on medium or large firms. Our findings could be explained following MacDonald’s perspective (2004) sustaining that the patent system is quite appropriate for large (pharmaceutical) firms but much more inadequate for small firms; as a matter of fact, these large companies, that mostly use explicit knowledge, chose the patenting system not only as a defense mechanism, but also as an effective way to exploit the results of the invention (Gonzalez-Alvarez & Nieto-Antolin, 2007). On the contrary, often small firms use patents only as a means to protect against competitors’ imitation and also reduce the risk of imitation instead of a way to exploit a successful innovative output, at the point that MacDonald (2004) draws the conclusion that for SMEs the positive effect of patents on performance is without foundation. As far as trademarks are concerned, the lack of positive association between trademarks and firm performance in the mechanical industry is in contrast with the few previous studies finding positive association. However, again, previous studies have been carried out in the context of large firms, with the only exception of the study by Greenhalgh and Rogers (2007) which shows a positive association between trade marking activity and profitability for UK younger firms belonging to different industries. Another possible reason is that small firms, overall in the B2B sector, do not have a structured brand strategy and most of times they register a trademark not before launching a new product but only when they have already received/got a positive feedback from sales and they want to protect themselves from imitation, or even only when they want to break a stalemate. That means marketing still tends to be more reactive, in terms of responding to customer needs, rather than proactive for SMEs in the B2B context (Carson & Gilmore, 2000). A trademark registration is not enough to pursue a brand strategy, a communication and valorization strategy is also necessary, which is quite difficult to 16
sustain for small companies due to resource constraints. Thus a defensive strategy often prevails. This hypothesis, although backed by some firms we discussed our results with, deserves further investigation. In the fashion industry, due to the contrasting results of the regression and the t-test, further research about this issue is compulsory in order to shed light on our findings. Indeed, after not significant regression coefficients, the t-test suggests a positive impact of trademarks on sales growth might exist. This evidence is in line with the study on SMEs belonging to two specific industries by Greenhalgh and Rogers (2007), despite it employs a different methodology. We have seen that SMEs in the fashion industry register much more trademarks than firms in the mechanical, which indicates a more sustained use of trademarks in this sector, as it was logical to expect. Generally, these evidences seem to underline the lack of a valorization strategy of IPRs, which can have different causes. One of these may be the lack of managerial competences within SMEs, and this aspect could represent an interesting area of investigation in order to discover the real reasons why SMEs are not able to convert their intellectual capital and knowledge assets into financial and economic performance. Our findings have several implications for managers as well as researchers. First, it seems that SMEs in the B2B context are not able to valorize their patents and still do not make use of trademarks in order to charge a higher price and, thus, have a profits increase, as Landes and Posner (1987) posit; in this context, we question if SMEs possess both all necessary competences required to exploit the value of their innovation deriving from its protection and awareness of the potential benefits of using trademarks also in the B2B context. Second, from a theoretical point of view, we have found no correlation between patent applications and subsequent changes in economic performance variables, which questions if patent data is a proper output indicator for explicit knowledge and R&D activities of SMEs. Third, the methodology that uses a stock measure (i.e. the year aggregates) instead of a flow measure for the independent variable (i.e. the annual count of patents and trademarks) can be found interesting and useful to better capture the effect of IPRs on SME economic and financial performance. Our paper has some limits that open new areas of inquiry. First, we take into consideration the impact of IPRs on the financial and economic performances, while some other dependent variables might be considered in the analysis such as the firms’ innovative output (e.g. number of new developed technologies, number of new products launched) as well as the customer and marketing performances (e.g. customer 17
satisfaction, customer retention), to better investigate the effect of adopting an IPRs strategy. Second, qualitative studies or quantitative ones based on primary data could also shed light on why SMEs register a patent/trademark, which could be an interesting matter since there seems to be something wrong with the present way firms use IPRs, or the barriers SMEs encounters when dealing with IPRs. Moreover, future studies investigating, on the one hand, the issue of patent quality in the SME context, and, on the other hand, whether SMEs make aware decisions regarding trademarks, considering both corporate brand and product brand strategy (Mercer, 2010), may reveal useful insights. Third, we use only a sample referred to two specific industries and one country and future studies can extend this analysis to other industries and countries. Finally, only a limited part of knowledge can be legally protected by formal intellectual property rights such as patents, copyrights and trademarks (Valkokari et al., 2012), thus the investigation of different methods used to protect innovative activity (i.e. appropriability regimes) of SMEs could be another interesting area of research. Acknowledgments: The research is part of the project “Developing capabilities for dual innovation: integrating incremental and radical processes of new product development” (cod. CPDA109359/10), funded by the University of Padua.
REFERENCE Aaker DA and Joachimsthaler E (2000) Brand Leadership The Free Press, New York, NY. Anderson JC and Narus JA (2004) Business Market Management: Understanding, Creating, and Delivering Value Pearson Prentice-Hall, Englewood Cliffs, NJ Artz KW, Norman PM, Hatfield DE and Cardinal LB (2010) A longitudinal study of the impact of R&D, patents, and product innovation on form performance Journal of Product Innovation Management 27, 725-740. Audretsch DB (2002) The dynamic role of small firms: evidence from the US Small Business Economics, 18(1), 13–40. Austin DH (1993) An event-study approach to measuring innovative output: the case of biotechnology American Economic Review 83(2), 253–258. Austin DH (1995) The power of patents Resources 119, 2–5. Belderbos R, Faems D, Leten B and Looy BV (2010) Technological Activities and Their Impact on the Financial Performance of the Firm: Exploitation and Exploration within and between Firms Journal of Product Innovation Management 27(6), 869-882. Bessler W and Bittelmeyer C (2008) Patents and the performance of technology firms: Evidence from initial public offerings in Germany Financial Markets and Portfolio Management 22, 323-356. Bettis RA and Hitt MA (1995) The New Competitive Landscape Strategic Management Journal 16, 7–19.
18
Burrone E (2005) Intellectual property rights and innovation in SMEs in OECD countries Journal of Intellectual Property Rights 10, 34-43. Carson D and Gilmore A (2000) Marketing at the Interface: Not ‘What’ but ‘How’ Journal of Marketing Theory and Practice 8(2), 1–7. Chang KC, Chen DZ and Huang MH (2012) The relationships between the patent performance and corporation performance Journal of Informetrics 6, 131– 139. Del Monte A and Papagni E (2003) R&D and the growth of firms: empirical analysis of a panel of Italian firms Research Policy 32(6), 1003-1014. Eng LL and Keh HT (2007) The effects of advertising and brand value on future operating and market performance Journal of Advertising 36(4), 91-100. Ernst H (2001) Patent applications and subsequent changes of performance: evidence from time-series cross-section analyses on the firm level Research Policy 30, 143–157. Ernst H (1995) Patenting strategies in the German mechanical engineering industry and their relationship to firm performance Technovation 15(4), 225–240. González-Alvarez N and Nieto-Antolín M (2007) Appropriability of innovation results: An empirical study in Spanish manufacturing firms Technovation 27(5), 280-295. Gooderham PN (2007) Enhancing knowledge transfer in multinational corporations: a dynamic capabilities driven model Knowledge Management Research & Practice 5, 34–43. Greenhalgh C and Longland M (2005) Running to Stand Still? – The Value of R&D, Patents and Trade Marks in Innovating Manufacturing Firms International Journal of the Economics of Business 12(3), 307-328. Greenhalgh C and Rogers M (2007) Trade Marks and Performance in UK Firms: Evidence of Schumpeterian Competition through Innovation Oxford Intellectual Property Research Centre. Greenhalgh C, Longland M and Bosworth D (2001) Technological Activity and Employment in a Panel of UK Firms Scottish Journal of Political Economy 48, 260-282. Griffiths W, Jensen P and Webster E (2005) The effects of firm profits of the stock of intellectual property rights Melbourne Institute Working Paper 4/05. Griliches Z, Hall BH and Pakes A (1991) R&D, patents, and market value revisited: is there a second technological opportunity factor? Economies of Innovation and New Technology 1, 183–201. Hall B (1987) The relationship between firm size and firm growth in the US manufacturing sector Journal of Industrial Economics 35, 583–606. Hanel P (2006) Intellectual property rights business management practices: a survey of the literature Technovation 26(8), 895–931. Hughes A and Mina A (2010) The impact of the patent system on SMEs UK Intellectual Property Office Report. Jensen PH and Webster E (2006) Firm Size and the Use of Intellectual Property Rights Economic Record. 82(256), 44-55. Keränen J, Piirainen KA and Salminen RT (2012) Systematic review on B2B branding: research issues and avenues for future research Journal of Product & Brand Management 21(6), 404-417. Kotler P and Pfoertsch W (2007) Being known or being one of many: the need for brand management for business-to-business (B2B) companies Journal of Business & Industrial Marketing 22(6), 357-362. Krasnikov A, Mishra S and Orozco D (2009) Evaluating the Financial Impact of Branding Using Trademarks: A Framework and Empirical Evidenc, Journal of Marketing 73, 154–66. Kretschmer M and Soetendorp R (2001) The strategic use of business method patents: a pilot study of out of court settlements Journal of e-Business 2(1), 9–38. Landes WM and Posner RA (1987) Trademark law: An economic perspective Journal of Law and Economics 30(2), 265-309.
19
Lefebvre E, Lefebvre LA and Bourgault M (1998) R&D-related capabilities as determinants of export performance Small Business Economics 10, 365–377. Leo H and Steiner V (1995) Technological Innovation and Employment at the Firm Level WIFO, Austrian Institute of Economic Research, Vienna. MacDonald S (2004) When Means Become Ends: Considering the Impact of Patent Strategy on Innovation Information Economics and Policy 16(1), 135–158. Mansfield E (1986) Patents and innovation: an empirical study Management Science 32, 173-181. Mendonca S, Pereira T and Godinho M (2004) Trademarks as an indicator of innovation and industrial change Research Policy 33, 1385-1404. Mercer J (2010) A mark of distinction: Branding and trade mark law in the UK from the 1860s Business History 52(1), 17–42. Millot V (2011) Firms' intangible assets: who relies on trademarks? Analysis of French and Germand firms' trademarking behavior DRUID-2011 Conference. Narin F, Noma E and Perry R (1987) Patents as indicators of corporate technological strength Research Policy 16, 143–155. O’Mahony M (1998) Anglo-German productivity differences: the role of broad capital Bulletin of Economic Research 50(1), 19–36. Pandey M (2003) Is branding relevant to B2B? Brand features–brandspeak 27. Putnam J (1996) The value of international patent rights Ph.D. Thesis, Yale University, Yale. Rivette KG and Kline D (2000) Rembrandts in the Attic: Unlocking the Hidden Value of Patents Harvard University Press, Boston, MA. Rogers M, Greenhalgh C and Helmers C (2007). An analysis of the association between the use of intellectual property by UK SMEs and subsequent performance, Report. Rothwell R (1979) The relationship between technical change and economic performance in mechanical engineering: some evidence. In: Baker, M.J. (Ed.), Industrial Innovation: Technology, Policy Diffusion. MacMillan, London. Sandner PJ and Block J (2011) The market value of R&D, patents, and trademarks Research Policy 40(7), 969-985. Seethamraju C (2003) The value relevance of trademarks. J. R. M. Hand, B. Lev, eds. Intangible Assets: Values, Measures and Risks. Oxford University Press, Oxford, UK. Tether BS and Massini S (1998) Employment creation in small technological and design innovators in the UK during the 1980s Small Business Economics 11, 353–370. Unicredit Corporate Banking (2010) I distretti della meccanica. Valkokari K, Paasi J and Rantala T (2012) Managing knowledge within networked innovation Knowledge Management Research & Practice 10, 27–40. http://www.epo.org/about-us/statistics.html http://ec.europa.eu/enterprise/policies/sme/facts-figures-analysis/sme-definition/index_en.htm
20
