Open Innovation Meets Iranian SMEs: Should We Praise Economic Sanctions?

Transcription

1 Open Innovation Meets Iranian SMEs: Should We Praise Economic Sanctions? Introduction and literature review Maral Mahdad 1 Seyed Kamran Bagheri Andrea Piccaluga Mehdi Goodarzi Numerous governments and multinational entities impose sanctions against Iran. Following the Iranian Revolution of 1979, economic sanctions came into force, and were expanded in 1995 to include firms dealing with the Iranian government. Economic sanctions encompass both banking and insurance transactions (including those with the Central Bank of Iran), shipping, web-hosting services for commercial endeavors, and domain name registration services. This situation has created a new image of a nationally innovated system in Iran. s and enterprises have faced difficulties maintaining their previous trade strategies. Under this economic pressure, firms have started to struggle for survival in the market. This is especially true for those that were dependent on relationships with international partners. One of the approaches to overcome this issue was to focus on universities. Universities were the only entities with sufficient scientific capabilities and expertise to meet the industry s need. As a result, firms in this contextual capacity started applying different open innovation strategies that included outsourcing and collaboration. In addition Iran s scientific growth increased drastically during the last decade although an opposite trend influenced patenting activities in Iran. The country, therefore, represents a very interesting research area for innovation studies (Bagheri et al, 2015). To respond to the industry s needs for technology and science, the government encouraged collaborative strategies. Consequently, an open innovation ecosystem was formed in a closed structure. Many universities established science and technology parks in collaboration with these industries. The transfer of technological activities was accelerated with the help of the government. As of 2012, Iran had 31 science and technology parks nationwide, and by 2014, 1 Corresponding author

2 Iran had established 930 industrial parks and zones. Thus, the imposed sanctions against Iran, a primary aim of which was to cut off technology transfer to the country, has caused Iranians to initiate new efforts to foster indigenous science and technology capabilities. Therefore, the particular situation of Iran s innovation system and more specifically, its open innovation ecosystem has become an interesting field to investigate. The remainder of the extended abstract will cover a brief literature review, methodology and data, findings and results, and conclusion. The publication of the seminal book of Henry Chesbrough in 2003, open innovation became one of the most debated topics of innovation studies. This concept challenged the closed innovation mindsets because it defined a new approach to the innovation strategy, in which companies combined internal research with external knowledge. This helped develop innovation and/or to commercialize their valuable ideas in a faster and more profitable way. One commonly used definition of open innovation is: the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and to expand the markets for external use of innovation, respectively (Chesbrough et al., 2006). According to Chesbrough (2003), the open innovation may derive from valuable ideas that come from inside or outside the firm, and may lead to products that go to market. Gassmann and Enkel (2004), went even further by identifying three core processes of open innovation: 1) the outside-in or outbound process, 2) the inside-out or inbound process, and 3) the dual combination. We identified four main strategies that influence various firms business models, based on the following literature: 1) Collaboration (West et al.(2014), Oakey(2013), Antikainen (2010), 2) Knowledge and Technology In/Outsourcing (Chesbrough et al. (2006), Lichtenthaler (2011), Gassmann et al. (2010)), 3) Licensing (Lichtenthaler (2015), Michelino et al. (2015), Cassiman et al (2015), West et al. (2014), and 4) Trading (Cooke (2005), Huizingh (2011)). We build our semi-structured in-depth interviews according to these strategies. We analyze how Iranian firms use such strategies inbound and outbound. Economic pressure has been defined as the time period in the economy of a country or a nation when economic indicators are not in a favorable condition. We finally describe if economic sanctions enable or disable such open innovation strategies. 2 2 The extended version of the literature review remains in the full paper.

3 This is the reason why the extent to which the economic pressure affects firms openness, has come to the front stage in the present situation. This paper contributes to the prior research on open innovation strategies, and takes into consideration, the particular settings where these strategies occur. This paper answers the question of how economic pressure has enabled open innovation ecosystem in Iran. Data and methodology As explained before, the following exploratory research question is derived from the research gaps and issues identified in the literature review in the case of Iran: RQ1. How Iranian firms use open innovation strategies to overcome the challenges under economic pressure (sanctions) Research design Trying to answer the above question, an exploratory multi-case study approach was chosen. This approach was selected according to the need to gather in-depth, data rich information on the phenomenon (Yin, 2003). As Eisenhardt (1989) indicated, the qualitative approach is useful for understanding the rationale or theory underlying relationships. Exploratory research is also appropriate here, since open innovation strategies in the closed innovation system of Iran is a poorly researched subject and little is known about it in academic literature. The multi-case study approach allows us to understand differently employed strategies along with the different circumstances and motives for them (Silverman, 2000). Our research relies on theoretical sampling. In other words, the selected cases are chosen for theoretical, not statistical, reasons. As Pettigrew (1988) suggested, considering the limited number of cases that can usually be studied, it makes sense to choose cases such as extreme situations and polar types. Accordingly, we chose our cases in a way to cover as diverse sectors/technological fields as possible. Sector/technology diversification has enabled the research to consider differences in a number of open innovation strategies. Our research was carried out in 2014, in Iran. We compared and contrasted findings based on ten in-depth case studies. As mentioned earlier, our research was focused on firms that

4 have at least one patented and commercialized technology. This approach enabled us to better identify and track the strategy in question, throughout the innovation process. Data collection The main data collection method used by our research team was semi-structured interviews using an open-ended interview protocol. The semi-structured interviews allowed the interviewees to express their comments freely; therefore, in-depth data and insights were collected. In designing the interview questions, we focused on a selected set of dimensions extracted from the literature. However, as it is common in case study research, new dimensions started to reveal themselves in the course of the interviews. In our face-to-face interviews, we asked the inventors/entrepreneurs to describe the history of their innovation process. In particular, we asked them to describe the strategies that they used in consideration of the economic sanction. Then we asked them to explain their motives and factors that influenced them in opening up their business models. In accordance with our agreement with some of the interviewees, we cannot disclose all the names of the studied technologies and their owners. Interview data was transcribed and combined with questionnaire and archival data, including published and unpublished reports, and media coverage to reconstruct the open innovation journey of each case. Data analysis We started our analysis by deep diving into each case as a stand-alone entity. An extended case report was then written for each case. Descriptive codes were used to identify, label, and cluster data related to each construct. This data reduction approach led to the identification of core data categories. After codifying the data, we made an explanatory effects matrix for each case that highlighted the summary of the case. This matrix allows threads of causality to emerge. As a result, two matrixes were built: (1) Company Profile; and (2) Open Innovation Strategy Profile that describes our results. In the company profile section, we report some of the most relevant features of the company. For instance, in analyzing each case, it is important to consider and assess their level of success in the innovation process. Issues of company size and experience may also affect the strategy and decision-making process and effectiveness of each strategy. Table 1 summarizes the main characteristics of each case.

5 Commercializing channel IP knowledge Entrepreneurial knowledge Collaboration with other firms Collaboration with universities Research continuity Market size (International) Market size (national) Age Size Sector 1 Food and beverage Average Big Yes Yes Yes Good Low Product 2 Electronic/medical device Big Big Yes No Yes Good Average Product 3 Polymer and 60 6 Smal Average chemical industry l Yes Yes Yes Low Low Product 4 Oil and Gas Big - Yes Yes No Good Low Product 5 ICT Average - Yes No No Low Low Product 6 Nanotechnology 40 4 Product/L Average - Yes Yes No Good Average icense 7 Oil and Gas 12 3 Small - Yes No Yes Low Low Product 8 Electronic 10 2 Small - Yes Yes No Low Low Product 9 Pharmaceutical 3 3 Small - Yes Yes No Low Low Product 10 Civil/construction 3 4 Small - No No No Low Low Product Table 1: Company profile matrix Finding and results In the open innovation strategy profile, instead, we focused on the strategies and the effects of sanction on these strategies. The description of results can be seen in Table 2. Our exploratory multiple-case design allows us to investigate the distinct phenomena of open innovation strategies under economic pressure. The lack of preliminary research, especially in the case of Iran, enables research in a new field of scientific investigations.

6 Open Innovation strategies The effect of sanctions OI strate gies Collaboration Sourcing Licensing Trading I O I O I O I O o o o o o o o 4 + o o o o Sanctions as enabler Science park ecosystem Forming partnership with an Asian firm to continue the existing collaborations within Europe Collaboration with Fraunhofer Institute was formed/ Decision to join incubators Sanctions forced the firm to absorb university knowledge for the development phase Very close contact with universities (multitude of research contracts). Collaboration is the only way we can stay in the market - The firm is located in the science park, benefiting from consultancy of experts. International competitors do not have access to the national market. We are benefiting from sanctions. - Sanctions as disablers Cancelation of international partnership Costly strategies should be taken into account Asian firms avoid collaborating due to the fear of sanction s impact Outsourcing the knowledge outside of the country became costly and difficult. The firm only is willing to approach international collaboration for licensing out the patent. The technology has potentials of international commercialization but currently this procedure is impossible. Many international firms even avoid communicating with us; collaboration comes much later in time. Being excluded from international competitions created an advantage for the firm to be the first and the only player in the market. Costly and difficult process of patenting abroad. Disability of following our

7 10 + o o + According to the CEO of the firm: The only way to fast growth, is being acquired by a larger firm. Table 2: Open Innovation strategies profile and the effect of sanctions patent infringement abroad. The failed due to the barriers in trading caused by sanctions. The existence of an OI strategy: + The willingness to perform OI strategy: o I = Inbound, O = Outbound Looking at the open innovation strategies of Iranian firms and the factors affecting it, it s evident to see that in all ten cases, despite some differences between cases, the open innovation strategies were strongly affected when economic sanctions came into force. This indicates that the application of various strategies is influenced by a complex interaction of case-specific factors. Although all the studied cases varied in their sector, those employed strategies to remain in the market, follows a very similar pathway. Surprisingly, in consideration of the age and the size of the company, no different patterns of adoption to open innovation were discovered. That might be the cause for the need to seek for external sources of knowledge or expertise when sanctions affect international relations of firms. When talking about external sources of knowledge and capabilities, we mean opening up at the national level only. During interviews with entrepreneurs/ceos/inventors we discovered that the necessity of strategically changing the innovation process was significantly influenced by the economic pressure. In order to survive in the market, companies moved from a closed business model to a more open one. The study also shows that all of our 10 cases adopted open innovation strategies as the preliminary international source of knowledge or expertise disappeared. The case study evidence also revealed that sanctions were advantages for some firms. International players not have access to National boundaries the national market, but these sanctions created an opportunity for the national players. In the context of such architecture, open strategies still take closed innovation place. Open Innovation activities of Iranian firm World open innovation ecosystem

8 Sanctions, indeed, were a source of motivation for firms to start collaboration with other firms and universities. Figure 1 explains the picture of an open innovation ecosystem in Iran. Conclusion, implications and suggestion for future research Figure 1: Open innovation ecosystem in Iran In this research, we looked at open innovation strategies of Iranian firms in a closed architecture. By following multi-case study methodology, we tried to see which effective strategies were used by innovative SMEs in a closed innovation system where economic sanctions influenced international trades and relations. Furthermore, we analyzed these strategies by looking at whether economic sanctions act as an enabler or a disabler factor. While we do not generalize our case study findings, we believe that our observations offer deep understanding of the phenomena in its natural contextual setting. From the results of the cross-case analysis of the ten case studies, it was concluded that such an economic pressure encouraged application of at least one open innovation strategy at the national level. Moreover, due to the unique circumstances of each case, a golden list of generalized open innovation strategies cannot be identified as always causing success or, always preventing failure. Our case study findings placed significant emphasis on the need to consider the motives of open innovation adoption. We found that some of the implemented strategies have been, indeed, of vital importance in firms survival in the market. The two strategies with the greatest number of perceived effectiveness included the inbound university collaboration and the inbound technology sourcing. The decision of being located in science parks and receiving services from incubators, were an undeniable influence of economic pressure.

9 Our results also revealed, for the first time, although some of the strategies were taken unconsciously, sanctions positively influenced an Iranian open innovation ecosystem. The interview data across all ten cases showed that there existed the culture and willingness to adopt open innovation, even at an international level. These findings should be further tested through additional cases or qualitative research in this setting. Moreover, future research should also take into consideration, unsuccessful strategies of open innovation so as to give a better and more profound understanding of the Iranian phenomenon in context.

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