Innovation is an important factor in the modern business world. Innovations push businesses forward, and every business should adopt some innovative practices in order to stay in the competition. International business is not an exception. Moreover, both international corporations and national companies that are involved in international trade are affected by innovation as a factor in markets and in development. Innovation may involve new technological solutions (e.g. inventions) or new managerial practices (e.g. new business models). The importance of innovation for international business will be assessed from three perspectives: cooperation, competition, and development.
First of all, innovation is important for international business because innovation requires cooperation, and international businesses that work on innovation are brought closer together. Hovhannisyan and Keller (2015) found that international business traveling is capable of promoting innovative technologies and business practices in developing markets if entrepreneurs from developed markets travel to developing markets.
It is important that despite the availability of modern communication technologies, such as video chat and instant messaging services, many businesspersons today still prefer to negotiate face-to-face. This practice of traveling to other countries personally for collaboration is an important component of innovative projects in technology transfer that promote international trade. Upon discovering that business air travel increases innovation, Hovhannisyan and Keller (2015) suggest that making air travel cheaper for entrepreneurs can contribute to the economic growth of different countries.
In the context of cooperation, it should be noted that innovation often deals with advanced technology or complicated systems for which the resources of just one country’s market may be insufficient. As businesses recognize that more extensive cooperation is needed to succeed in innovative projects, they are more encouraged to work across borders. Further, as their business connections are established in innovative projects, those businesses are likely to extend their cooperation and engage in continued international trade. However, businesses do not have to work on innovations alone.
There are research institutions and specialized science- and technology-related organizations that may not be affiliated with a particular business but serve the needs of different international businesses. Kang and Park (2012) found that, in the process of promoting innovation through funding research institutions, international business connections were stronger than domestic business connections. It shows that not only international business is a good environment for innovations, but also working on innovations is a good environment for promoting international business cooperation.
Concerning research institutions, Hewitt-Dundas (2013) explored the role of proximity in the cooperation between businesses and universities for innovation and found that those businesses were more successful than engaged in international cooperation with universities from other countries. Further research is required to explain the findings. However, what is evident from the research results is that, although businesses tend to cooperate with customers and suppliers rather than with universities for innovation, universities are organizations that can seriously improve businesses’ achievements in terms of innovation. Having connections with strong research institutions is an advantage in businesses’ pursuit of innovation. To obtain this advantage, they are likely to engage more willingly in international cooperation.
Finally, it should be mentioned that innovation is not only important for developing international connections among businesses in different countries but also important for developing the networks of existing international businesses. Innovation does not only apply to technological advancements; managerial practices and business models can be innovative, too. Today’s international businesses are large and complicated structures that involve production, management, leadership, communication, and many other areas of activities. Such businesses are constantly looking for ways to improve their operation and to make it more efficient.
For this, they resort to innovative practices. According to Schneider and Spieth (2013), innovative business models attract the interest of international businesses, and there are three areas that should be explored in further research. First, there is the need to explain what enables businesses to conduct business model innovation. Second, it is needed to understand more profoundly the process of business model innovation. Third, the consequences of business model innovation need to be examined. However, what is evident already is that business models are “an important means to commercialize innovations” (Schneider & Spieth, 2013, p. 1). Therefore, innovation is important for international business in terms of improving organizations’ performance.
Also, innovation is important for promoting and improving competition in international business. Competition is a crucial factor in business development, and it has been recognized within recent decades that a successful strategy for a business is to gain a unique competitive advantage instead of pursuing relative advantages. This strategy is called the blue ocean strategy (Pitta & Pitta, 2012).
Red oceans are portions of the market in which competition is tight, and the industry participants should constantly look for opportunities to gain relative advantages that will bring them ahead of their competitors for a while. In this situation, a business’s competitor is its benchmark. It is important to understand that this racing of competition is due to the nature of the demand: organizations in red oceans compete for essentially the same demand which any of them can address more or less successfully.
However, when a business discovers an uncontested demand, it creates a “leap in value” (Pitta & Pitta, 2012, p. 37), and the business rapidly grows because competition becomes irrelevant. It is called entering a blue ocean. The blue ocean strategy may not apply to all industries and portions of the market, but it is beneficial for businesses to consider breaking the existing cycle of advancement and competition and to offer something to customers that no-one else offers.
From this perspective, it may not necessarily be about discovering an uncontested demand, but it also may be about creating new demand. Instead of monitoring and analyzing what potential customers say they want, blue ocean businesses offer something that the customers will want, and those businesses will have the privileged position of being out of competition in offering this something.
Further, the role of competition in this process can be assessed. Competition is the environment in which businesses operate and an important factor to be always considered when making any business decisions. However, to compete successfully, a business should identify the competitors correctly. For example, if a company produces chocolate treats, its competitors are not only other producers of chocolate treats because not all the customers who buy them look for chocolate treats exactly. Instead, those customers may be interested in buying a sweet snack, and the producers of whatever lies next to the chocolate treats on a shelf are the company’s competitors, too.
This vision refers to defining a company’s scope of operation. According to Boone and Kurtz (2013), there is the phenomenon of marketing myopia in which a company fails to recognize correctly in which industry it operates. It makes the company lose its customers because the company adjusts its operation to irrelevant competition-related considerations.
For example, there is a railroad company that experiences difficulties because of new means of transportation that decrease the demand for railroad services. If the company continues to define itself as a railroad company, its operation and profit will decrease along with the decrease in demand. However, the company may choose a different vision: not all of its customers want to travel by train exclusively; some just need a means of traveling. If the company defines itself as a transportation company instead, it will be able to address the same demand it addressed before but from a new perspective.
This way, companies grow into something bigger, relevant, and contemporary instead of falling behind competitors. Another major example is the history of Netflix (Adhikari et al., 2012). The company started from selling DVDs by mail, but instead of staying a DVD seller, it defined itself as an entertainment company, and further shifted to streaming, as the technology was developing. For two decades, the company has been serving its customers because, instead of competing with other DVD sellers, it realized that what the customers actually wanted was to watch movies and series, and the company addressed this need with the most advanced tools available.
It shows that innovations, such as technological advancements that introduce new products and services, take the competition to new levels. Innovations enable businesses to leave the sectors of tight competition and enter new areas in which demand is uncontested, and opportunities are abundant. Also, international businesses involved in developing innovations occupy a special position in their competition.
According to Dunning (2012), governments protect companies that produce commercial knowledge (i.e. engage in a certain type of innovation) from competitors. This is an example of additional support that innovation provides to international businesses. Also, Verbeke (2013) claims that “[c]ontinuous innovation and effective exploration of innovation is required to stay ahead of the competition” (p. 39). It shows that innovation remains a remarkable factor in identifying a business’s competitive advantage.
Finally, innovation is important for international business because it promotes the development of international organizations and the development of international business practices overall. It has already been shown that innovation facilitates cooperation among international businesses and among national businesses that operate internationally. Also, it has been shown that innovation takes competition among businesses to new levels.
However, the contribution of innovation to the development of international business is not limited to these two influences. According to Frankenberger, Weiblen, Csik, and Gassmann (2013), business model innovation can help companies achieve “superior performance” (p. 249). However, the authors stress that, in order to understand how this works, the process of innovation should be specifically studied.
The importance of the innovation process was stressed by de la Mothe and Paquet (2012), too. They proposed the concept of “process rather than structure” (de la Mothe & Paquet, 2012, p. 2). This is to emphasize that, while many researchers focus on the functioning of innovative systems, the process of innovation, which is not linear and depends on networks of cooperation, is often overlooked and should be addressed, too. Therefore, how innovative practices are distributed (e.g. who is in charge of them and who reports to whom) is less important than how the practices are carried out and how they actually modify the operation of a business.
Also, the authors explain that innovations are largely about learning. Innovative practices and processes cannot immediately function the way they are supposed to in an ideal model because their introduction takes getting used to and training. However, once the staff understands how innovative practices are designed, how they are intended to work, and what benefits their application brings, it can be expected that these benefits will be demonstrated.
The adoption of these practices should be closely monitored by managers. Jenkins (2013) writes that, in launching a new product, “control over the flow of innovation acquires a crucial importance” (p. 93). In exercising this control, businesses develop better strategies for evaluating their performance and acquire better tools for managing all the processes that are within their operation. Therefore, innovation helps businesses gain a better understanding and a more profound insight not only into the adoption of innovative processes but also into the management of all existing processes. This is one of the ways in which businesses grow and develop.
In conclusion, innovation can promote cooperation among businesses that operate internationally, modify and improve the conditions of competition, and help businesses develop. Cooperation is promoted by encouraging businesses to work together because innovations require combined efforts. Competition is improved because innovation takes it to new levels by discovering uncontested demand or creating new demand. Also, innovations can provide businesses with competitive advantages. Finally, innovation facilitates development because businesses gain better tools for controlling and improving their operation. Therefore, international businesses should be willing to engage in innovations.
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