Lead Markets: Drivers of the Global Diffusion of Innovations

Multinational corporations are often faced with regionally varying market conditions, local environments and demand preferences. This paper presents the lead markets concept of developing global innovation that takes advantage of the lead market phenomenon. A lead market is a regional market that is first to adopt global innovation designs. A system of five lead factors explains the lead role of a market: a demand advantage, a price advantage, an export advantage, a transfer advantage and a market structure advantage. The system of lead market factors is then evaluated in a detailed case study of the cellular mobile telephone industry. It is suggested that companies can harness lead markets for the development of global innovations. By developing and refining innovations in close interaction with the local environment of a lead market, a company can focus on a narrow range of preferences and feedback, lowering the risk of being locked into idiosyncratic environments, and generate true global innovations.International diffusion of innovation, R&D internationalisation, Market entry strategy

The International Adoption of Photovoltaic Energy Conversion Is Japan a Lead Market?

This paper explores on the basis of a case study on photovoltaic energy conversion (PV) whether countries can actively create a lead market for new technology. Solar energy conversion has fascinated people and politicians as an alternative to oil and nuclear energy. Since the discovery of photovoltaic cells that directly convert solar irradiation into electricity it is expected that the mass market for photovoltaic energy conversion will emerge soon. With lots of sunny, at and vacant regions and an electricity-hungry and high-income population, the United States looked to be the natural lead market for solar energy. Yet, two countries that are less favorably endowed with solar energy, Japan and Germany, embarked on establishing a mass market for solar energy conversion through high public subsidies. This paper discusses the prospect of these two countries to set off a bandwagon among all other nations? Reviewing the traditional mechanisms of the international diffusion of innovations, the tentative answer given in this paper is that while local markets have been created, this has not ensured the international success of PV. For its international success, it would be essential to demonstrate that the adoption of PV systems is continuing without subsidies. With the energy production cost of solar cells unlikely to come close to that of conventionally generated electricity in the foreseeable future, the United States looks like the test market for solar energy, where the fate of PV will be answered.Eco Innovations, International Diffusion, Photovoltaic

Trends in the Internationalisation of R&D: The German Perspective

In this paper we present latest facts about the R&D activities of German multinational companies abroad and R&D activities of foreign companies in Germany. These results confirm that Germany is still an attractive location for R&D activites of multinational companies in many technological fields. However, the internationalisation of R&D is closely linked with the internationalisation of sales and production. In the commonly accepted eclectic theoretical approach by Dunning direct investment is pushed by companies that have advantages over their competitors in the host countries, where also attractive locational advantages exist. Since R&D is a source of both ownership and locational advantages, it was suggested earlier that instead of owning a technological advantage, companies with technological weaknesses start R&D in countries, which possess a technological advantage, to get access to new technologies. In contrast we found that German firms prefer to do R&D abroad in technological fields in which they hold a technological lead, e.g. in chemicals, pharmaceuticals and motor vehicles, but that they tend to perform R&D in countries which are also strong in these fields. Our results suggest that in most cases it is not the technological superiority of the host country itself which is the decisive locational advantage to attract multinationals' R&D but the lead-market function of that country or region.Multinational company, R&D, Internationalisation

Lead Markets of Environmental Innovations: A Framework for Innovation and Environmental Economics

Environmental regulations often want to stimulate the generation and adoption of ecoefficient innovations. An important argument in the public debate is also the creation of new markets for environmentally benign products, processes and services that other countries adopt and therefore generate export opportunities for the pioneering country. The research so far concentrated on the question on how national environmental regulation can induce innovations. The question addressed in this paper is whether environmental regulations can create lead markets, enabling local firms to export innovations that are induced by local market conditions and national regulations. We identify relevant factors for lead markets of environmental innovations. So far, the lead market concept in innovation economics has only been applied to innovations in general. We extend the lead market model to environmentally friendly innovations, considering their peculiarities, in particular the public good character of environmental benefits and the role of regulations. The approach is applied to two case studies: fuel-efficient passenger cars and wind energy. In both cases, one country adopted the innovation first. Later, other countries followed the same innovation design favoured by the lead market. The lead market became a large exporter in the wind generation and car industry respectively. We discuss the regulations employed and the reasons for the international success of the innovations induced by them. We find that strict regulation has created lead markets when it was supported by a global demand or regulatory trend. --Lead markets,technological progress,environmental innovation,wind energy,fuel-efficiency

Public research and industrial innovations in Germany

This paper deals with the effects of publicly funded research at universities, polytechnics and federal research labs on industrial innovations in Germany. We discuss the characteristics of companies that benefit from the findings of public research institutions. In questioning 2,300 companies we found that less than one tenth of product or process innovating firms introduced innovations between 1993 and 1995 that would not have been developed without public research. These new products amount to approximately 5 percent of all new product sales. Regressions show that firms? own R&D support the ability to absorb the findings of public research and turn them into innovations. Contrary to the widely held opinion that proximity to public research institutions does promote collaboration between firms and public research and increase the amount of received knowledge spillovers, we found no higher probability of publicly supported innovations for firms in Germany that are located near universities or polytechnics. -- Wie viele industrielle Innovationen bringt die öffentliche Forschung hervor? Die vorliegende Untersuchung versucht, diese Frage zu beantworten und damit die wirtschaftliche Rechtfertigung für Finanzierung und Durchführung von natur- und ingenieurwissenschaftlicher Forschung in öffentlichen Forschungseinrichtungen empirisch zu überprüfen. Hierfür wurden rund 2.300 Unternehmen in der vierten Innovationserhebung von ZEW und infas im Jahr 1996 gefragt, ob sich unter ihren zwischen 1993 und 1995 eingeführten Innovationen neue Produkte und Prozesse befanden, die ohne die neueren Forschungsergebnisse von Hochschulen und anderen öffentlichen finanzierten Forschungseinrichtungen nicht oder nur mit zeitlicher Verzögerung von mehr als einem Jahr aufgenommen worden wären. Knapp 9 % der Unternehmen mit Innovationen in dem betrachteten Zeitraum bejahten diese Frage. Mit den Produkten, die nur mit Hilfe der öffentlichen Forschung zustande kamen, wurden 1995 allerdings weniger als 5 % des gesamten Umsatzes mit neuen Produkten gemacht. Der Technologietransfer von den öffentlichen Forschungseinrichtungen wird dabei entscheidend von den eigenen FuE-Aktivitäten der Unternehmen begünstigt. Sie sind nötig um die wissenschaftlichen Ergebnisse im Unternehmen in marktgerechte Innovationen umzusetzen. Dagegen wirkt sich die räumliche Nähe zu Forschungseinrichtungen, die unter dem Stichwort regionale High-Tech-Agglomerationen diskutiert wird, nicht auf den Technologietransfer aus.technology transfer,industrial innovation,knowledge spillovers

Local User-Producer Interaction in Innovation and Export Performance of Firms

There is ample evidence that user-producer interaction is an important factor for successful innovations. It is often claimed that user-producer interaction is most effcient in close proximity. On the other hand, innovations are a major determinant for the export performance of firms. Does this mean that intense local user-producer interaction always leads to exports? In contrast to this reasoning international marketing studies stress the problem of responsiveness to local preferences. In order to generate global innovation, an international firm should look for the global common denominator of national preferences. This paper investigates the question to what extend local demand is able to induce innovations that are export effective. We investigate data from the ZEW Innovation survey of 4,786 firms in the manufacturing and service industries. These firms were asked about the sources of their innovation and their exporting activities. We find evidence that the export orientation of the domestic market of innovators such as and the degree of competition stimulate export success. For multinational firms these results are important as well, because they can assess country markets in terms of the leverage effect of domestic demand and market conditions to generate global innovations. --Export Performance,Innovation Activities,User Producer Interaction

National Environmental Policy and the Global Success of Next-Generation Automobiles

In this article, we identify the most crucial factors for the potential world market success of different alternative car designs: fuel cell vehicles (FCVs), hybrid electric vehicles (HEVs), battery electric vehicles (BEVs), and conventional fuel efficient vehicles (FEVs). We first assess which vehicle concept is favoured under which regulation regime. We suggest that the global success of a certain technology critically depends on the ability of a regional lead mar-ket to leverage and transfer its local success, through large cost reductions or the international diffusion of a pioneering environmental regulation for instance. Although FCVs are still in the demonstration phase, the US has set the stage for a direct switch to FCVs. The Japanese regulatory regime favours HEVs as the next-generation engine design, while the development of the traditional combustion engine towards enhanced fuel efficiency is most likely in Europe. Due to the high cost of FCVs and the lack of strict regula-tion supporting this radical innovation, incremental innovations such as new versions of con-ventional combustion engines and hybrid cars have the best chances of becoming globally successful.Lead market, Environmental technologies, Zero emission vehicles, Fuel efficient cars

Assessing the Lead Market Potential of Countries for Innovation Projects

This paper presents an approach to assessing the potential of countries to increase the likelihood that locally preferred innovation designs become successful in other countries, too. The concept suggests that for many innovations lead markets exist that initiate the international diffusion of a specific design of an innovation. Once a specific innovation design has been adopted by users in the lead market chances are that it subsequently becomes adopted by users in other countries as well. Lead markets can be utilised for the development of global innovation designs. By focusing on the design of the innovation which responds to the preferences within the lead market, a company can leverage the success experienced in the lead market for global market launch. In order to follow a lead market strategy of new product development, it is necessary to assess the lead market potential of countries before an innovation is developed and tested in the market. This paper presents an indicator-based methodology that approximates the lead market attributes of countries. This assessment methodology was applied to two innovation projects at the truck division of DaimlerChrysler AG. The method produces information that is of importance for the development phase and the market launch of globally standardised innovations.Innovation, Global Diffusion, Market Entry

Local User-Producer Interaction in Innovation and Export Performance of Firms

There is ample evidence that user-producer interaction is an important factor for successful innovations. It is often claimed that user-producer interaction is most effcient in close proximity. On the other hand, innovations are a major determinant for the export performance of firms. Does this mean that intense local user-producer interaction always leads to exports? In contrast to this reasoning international marketing studies stress the problem of responsiveness to local preferences. In order to generate global innovation, an international firm should look for the global common denominator of national preferences. This paper investigates the question to what extend local demand is able to induce innovations that are export effective. We investigate data from the ZEW Innovation survey of 4,786 firms in the manufacturing and service industries. These firms were asked about the sources of their innovation and their exporting activities. We find evidence that the export orientation of the domestic market of innovators such as and the degree of competition stimulate export success. For multinational firms these results are important as well, because they can assess country markets in terms of the leverage effect of domestic demand and market conditions to generate global innovations

Trends in the Internationalisation of R&D: The German Perspective

In this paper we present latest facts about the R&D activities of German multinational companies abroad and R&D activities of foreign companies in Germany. These results confirm that Germany is still an attractive location for R&D activites of multinational companies in many technological fields. However, the internationalisation of R&D is closely linked with the internationalisation of sales and production. In the commonly accepted eclectic theoretical approach by Dunning direct investment is pushed by companies that have advantages over their competitors in the host countries, where also attractive locational advantages exist. Since R&D is a source of both ownership and locational advantages, it was suggested earlier that instead of owning a technological advantage, companies with technological weaknesses start R&D in countries, which possess a technological advantage, to get access to new technologies. In contrast we found that German firms prefer to do R&D abroad in technological fields in which they hold a technological lead, e.g. in chemicals, pharmaceuticals and motor vehicles, but that they tend to perform R&D in countries which are also strong in these fields. Our results suggest that in most cases it is not the technological superiority of the host country itself which is the decisive locational advantage to attract multinationals' R&D but the lead-market function of that country or region