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les Nouvelles Article of the Month

Can Developed Nations Make A Fortune By Licensing New Technologies To The World’s Poor?

Richard MammoneRichard Mammone

Rutgers, The State University of New Jersey, Associate Vice President for Innovation and Professor of Business and Engineering, New Brunswick, NJ, USA

Jeffrey RobinsonJeffrey Robinson

Rutgers Business School Assistant Director, The Center for Urban Entrepreneurship & Economic Development and Assistant Professor of Management & Global Business, New Brunswick, New Jersey, USA

Marcus CrewsMarcus Crews

Rutgers, The State University of New Jersey, Office of Technology Commercialization, New Ventures Program Coordinator, Piscataway, NJ, USA

Marc FriedmanMarc Friedman

Dentons US LLP, Partner, Short Hills, NJ, USA

Atif KhanAtif Khan

Robert Wood Johnson Medical School–(RWJMS-UMDNJ), Cancer Institute of New Jersey (CINJ), Assistant Professor of Radiation Oncology, New Brunswick, NJ, USA

The World Health Organization (WHO) [1] lists breast cancer as the major cancer in women in both the developed and the developing world. They recommend early detection as the best strategy to improve breast cancer outcome and survival rates. Mammography is recommended for countries with good health infrastructure [2, 3] that can afford a long-term program such as that generally found in developed countries. On the other hand, they recommend that women become more aware of the early signs and symptoms through self-breast examination (SBE) and clinical breast examination (CBE) for low- and middle-income countries. The use of mammograms has been shown to offer an increase in survival rates whereas SBE and CBE have been found not to offer a measureable benefit in survival rates [4, 5]. Thus, a third option is desired by developing countries [6, 7] that would offer the benefit of mammograms in terms of increasing survival rates but at a much lower cost. This is one example of how an unmet need of developing economies could benefit from a technology innovation that is more likely to come from a developed country. In collaboration with Atif J. Khan, a board-certified radiation oncologist and M.D. with expertise in breast cancer, one of the authors (RM) has invented a new low cost hand held ultrasound device that could potentially solve the technical problem of providing a low cost alternative to mammograms.

The process of jointly licensing the technology from the Robert Wood Johnson Medical School-UMDNJ and Rutgers University was expedited efficiently, providing a seamless transition to the next stage in commercializing the technology. The challenge is how to get the new product distributed to developing countries.

The more general question is how can we encourage technology transfer from developed to developing countries on a wider scale [8]? In this article, we explore the inherent challenges in diffusing technology to developing economies and based upon subjective considerations of market needs, the product, and the nature of the technology prescribe a path of diffusion.

C.K. Prahalad defines the Bottom of the Pyramid (BOP) as the world’s 4 billion poor—people who live on far less than $2 a day in his seminal book “The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits” [9]. He recommends the profit motive can be used to incent developed countries to address these types of issues for developing countries. He states, “The BOP, as a market, provides a new growth opportunity for the private sector and a forum for innovations. Old and tired solutions cannot create markets at the BOP.”
Figure 1

The trilogy model of technology change [10, 11, 26] consists of three stages: invention, innovation, and diffusion. Invention is the process of creating a new idea for a product or process, innovation involves the development of new ideas into marketable products and processes, and the diffusion stage is the spreading of the new products or processes across the potential market. Developed countries like the United States have evolved highly developed innovation infrastructures [8] or “innovation ecosystems “ which include sources of research and development for example in universities and corporations, venture capital networks, government policies and the entrepreneurial culture needed to help speed new products through all three stages of technology change. Developing countries, as their name implies, are developing these innovation ecosystems and can currently use help from the more developed nations in migrating up the technology food chain. These innovation ecosystems can be viewed as a spillover effect of domestic R&D activity. Traditional methods for developed nations to produce these positive network externalities in developing countries include licensing technology, foreign direct investment (FDI), and international trade (e.g., through imports of capital equipment) [8, 21]. Developed nations can increase the value to developing nations of these spillover effects through more open trade policies.

In addition to the direct benefits of open trade policies, developed countries can influence the degree to which developing nations adopt and diffuse technological innovations in a number of ways by providing technical assistance and establishing incentives to innovate and diffuse technology. They can help developing countries improve their absorptive capacity; provide grants, low-interest loans, or other forms of assistance to the least developed countries; offer tax relief and other incentives to companies who trade or partner with firms in developing countries; use fiscal policies and other measures to promote joint research and collaboration; and, contribute to a global fund from which LDCs can receive financial assistance to purchase technologies. Developed countries can improve their awareness of unmet needs of developing countries by hosting events like “Invent for Humanity” [31]. Multi-National Corporations (MNC) have implemented a number of innovative programs to help them learn more about this underserved BOP market. For example, The Mexican cement manufacturer Cemex launched an initiative that enables low-income rural Mexican households to buy the cement to build a house [12]. The purchase includes low-weekly payments and consultation and inspections from Cemex architects. The initiative allows a great deal of flexibility and assistance to the poor, who would not have been able to construct a house at traditionally fluctuating market prices [13]. Hewlett Packard has articulated its “e-inclusion” initiative, which focuses on providing technology, products, and services appropriate for the world’s poor [14]. Intel has a team of ethnographers [15] traveling the world to provide input into designing or redesigning products to fit different cultures and demographic groups Following this logic, IBM has developed a $12 microprocessor and simple network computer that it supplies to Chinese companies that then sell computers and Internet access services in rural parts of the country; Hewlett Packard has agreed to install Poland’s new computerized drivers’ licensing system using a pay-as-you-go scheme. In these ways, poor consumers can and will drive modular innovation in production technologies, business models, organizational management, and marketing and distributional strategies.

Developing countries can also help accelerate the creation of innovation ecosystems in their own countries in several ways. They can help speed of the diffusion of technology by supporting:

  1. Micro financing for technology consumers, in our case for nurses to purchase or lease the ClearView breast cancer screening product.
  2. Government grants and support to help hospitals purchase equipment and help patients get reimbursed
    for breast cancer screening.
  3. Social Venture Capital funds should be encouraged to form.
  4. Stronger IPR protection.

Developing countries can use micro financing to support economic activity [16] in cases where access to credit is often unavailable. There exists a considerable amount of academic literature exploring the value of access to credit [22-24] and its impact on the adoption of agricultural technologies as a case study in low-income countries [22, 23]. Business development loan funds (BDLFs) are one embodiment of micro finance programs that are particularly well suited for implementation in developing nations [24] and have been shown to improve the quality of community facilities in under-served markets [24] and support economic development and business growth in low-income areas [25]. For example, Grameen Bank pioneered an economic development model in Bangladesh that raised income levels and the number of small businesses [17].

Policies and government incentives also play an instrumental role in furthering international technology transfer (ITT). For example, trade-related investment measures (TRIMS) serve as one policy recommendation to promote ITT by levying import tariffs on foreign producers. The imposed tariffs and government incentives are put in place to make sourcing from these countries more attractive with the caveat of transferring the required knowledge to produce the goods to the inhabitants [8]. Stoneman and Diederen (1994) [26] outline policy interventions government could implement to reduce information gaps, account for market structure effects, and reduce the impact on negative externalities in reaching an “optimal diffusion path.” In the case of implementing the ClearView technology for breast cancer screening, government grants or tax incentives for hospitals and healthcare facilities that replace broken and/or out-of-service medical equipment, which comprises on average 38 percent of medical equipment in developing nations [27], or adopt new technology would aid both the facilities and the patients through the provision and use of more efficient medical technology.

The emergence and proliferation of social venture capital funds, which engage in the practice of impact investing, will also play a key role in encouraging technology diffusion in developing nations. The report on impact investing identifies potential impact investors/institutions, policy challenges, and communicates the concept of social return on investment which incorporates metrics for social well-being in addition to or in lieu of traditional financial investment metrics [20] in measuring the success of an investment. These funds often support initiatives that address the Bottom of the Pyramid. Whether as a standalone entity or part of a broader community development financial institution (CDFI), social venture capital funds can provide access to equity financing and affordable credit needed to launch and grow small businesses in low-income areas [24]. They also support the growth of enterprises in developed nations that aim to do business in developing nations.

Studies [8, 19] suggest that while stronger IPR protection can ultimately reap rewards in terms of greater domestic innovation and increased technology diffusion in developing countries with sufficient capacity to innovate [8], it has little impact on innovation and diffusion in those developing countries without such capacity [28] and may impose additional costs. There is a considerable incentive, therefore, for countries at different stages of development to use the flexibilities in the TRIPS Agreement [8, 18] to maximize its net benefits for their development. The TRIPS Agreement, an agreement implemented by the WTO that establishes minimum standards for IP regulation, can serve as a basis for domestic IP policies that could translate to and/or concordantly interact with policies of the broader international community thereby reducing the risk of doing business in the developing country.

In closing, what are the concrete steps that can be taken to help diffuse ClearView’s new handheld ultrasound breast screening technology to developing nations? The optimal diffusion path relies on selecting countries with the appropriate R&D infrastructure, IPR protection, business infrastructure, and healthcare infrastructure to support use of the device. China, India, Brazil, and South Africa serve as strategic beachheads into the East Asian, South Asian, Latin American, and African markets, respectively [29]. Taking into account an individual firm’s strategic objectives and technology needs and weighing them against a potential market’s capacity to support diffusion using the National Innovation Capacity Indexes and Subindexes [30], one could select additional countries to expand into. ClearView’s optimal diffusion path would involve licensing to local manufacturers, distributing to point-of-care health practitioners, and marketing through mass media. ■


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