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Do We Need To Rethink Open Innovation In The Face Of Global Changes?

With trade policies changing and previous relationships changing, do we need to rethink collaboration?

30Jan

Open innovation has changed the way that many companies work in the past few years. We have seen some of the largest companies in the world adopt the approach, with Samsung, GE, Lego, and P&G lighting the way for many others to take a more open approach.

This has led to some considerable successes, with new products, revenue streams and management practices all coming from the approach. However, since these companies have begun this program the world has changed and open innovation may become an entirely different entity.

Much of this change is going to be reactionary and necessary given market conditions created by political changes like Brexit and Donald Trump’s economic policies. At the moment both are undecided, but given the rumbles coming from Theresa May and Donald Trump, both seem like they will be drastically changing the way that Britain and the US (3rd and 4th respectively in the Global Innovation Index 2016) do business and hence work through their innovation process.

We have seen in recent days that Donald Trump is thinking about paying for the promised border wall by placing a 20% tax on everything imported from Mexico, in essence, pricing goods created in Mexico out of the market. However, according to the Office of the United States Trade Representative, Mexico is the USA’s third largest trading partner, with goods totally $531 billion in 2015, with $296 billion coming from Mexico to America and $236 billion coming the other way. With a large tariff on all Mexican goods, the Mexican government are likely to respond in kind, essentially creating a stalemate where both countries lose out.

However, regardless of the economics, one of the biggest challenges is going to be innovation within several of the US’ top brands. Take one of the most American brands - Ford - and their most American car - The F150 - as a prime example. According to Cars.com, who conduct a survey of the ‘Most American Car’, it was disqualified from the list because fewer than 70% of its components were made in the US. Of the 30% of parts that weren’t US made, the majority came from Mexico.

These Mexican-made parts are manufactured and developed in a country which is going to offer a hostile business environment, minimizing the innovation opportunities for Ford in their existing Mexican plants as they may be forced to seek new manufacturers for these parts in the US or incur a 20% increase in those imported from Mexico. Given the innovations that come from having a long-term manufacturing partner, a move to a new supplier could both lose the innovations that have occurred in the past that haven’t been fully communicated (think something basic in the manufacturing processes like timings or even machine placement) and slow down innovations in the future as the new manufacturers need to catch up to previous levels before they could even consider trying something new.

Open innovation between suppliers and manufacturers is one of the most common and ultimately fruitful and given that the average hourly wage in Mexico is $2.43, compared to $24.57, it is obvious why US companies choose to have many of their components made in the country and have done for many years. Breaking this relationship is likely to do significant damage to the Mexican economy, but will equally do a huge amount of damage to US companies in turn.

Similar in scale to Donald Trump’s presidency is going to be Brexit, which is going to have a huge impact on the collaborative efforts of UK and European countries. As mentioned earlier, the UK is 3rd on the Global Innovation Index 2016, behind only Switzerland and Sweden in terms of innovation, which shows how important innovation is to the country. However, one of the key elements of the success the UK has in this area could be its EU membership and the collaboration that it allows.

Of the 10 leaders on the Global Innovation Index 2016, 7 are in the European Union, and with the freedom of movement and labour, this naturally leads to close collaboration between companies. It has created unlikely, but ultimately profitable, partnerships, such as Italian bicycle maker Pinarello and British car maker Jaguar Land Rover. Due to their sponsorship of the same cycling team, both worked together to develop new bike technologies, such as a new form of suspension, and improve aerodynamics for the bikes that their team won hundreds of races on. This collaboration allowed both companies to work together for a shared goal which in turn increased their ROI on the sponsorship of the same cycling team.

It is not only in the business world where EU collaboration has allowed innovation to thrive, it has also been in scientific research. Since 1981 the number of scientific publications has increased from under 40,000 to over 100,000, with this increase directly coinciding with the number of different collaborators from the EU and other countries. Making it harder for those from the EU to collaborate may have the effect of damaging the innovation capacity of the scientific community, which then feeds into the corporate world.

However, all is not lost and these two elements that on their surface seem like major problems could, like all good innovations, see the US and UK making the most of difficult situations.

For instance, a survey from the CBI found that 70% of UK businesses are planning to increase or maintain their innovation budget despite the threats that Brexit poses. This is a sign that shows they do not see innovation as a disposable department and idea, even in the face of potential business downturns, and perhaps a viable way to cope with a changing marketplace. Equally, in the US we are likely to see a significant decrease in the amount of tax paid by businesses, which is likely to see more money pouring into innovation efforts for companies across the country.

It is often during the most difficult times that people are forced to think laterally and come up with new solutions that then develop into successful policies and products. With suppliers from Mexico potentially priced out of the market for US manufacturers, they will be forced to look internally or to countries other than Mexico. Given that manufacturers have been so reliant on Mexico, damaging US industries in the process, it means that there will likely be supply issues for all companies in particular sectors. This could lead to a necessity of cooperation amongst many companies, who are likely to get better deals if they work together. This could work in a similar way to Tesla’s Gigafactory, which addressed the growing demand for lithium-ion batteries by looking to partners such as Panasonic, who will also be using the factory to make batteries. This kind of collaboration and open innovation may become a necessity for every industry that currently relies on Mexican manufacturing.

Both Brexit and potential trade tariffs in the US are likely to be massive disruption events in the coming years, but it isn’t all doom and gloom. Putting aside the potential impact that these moves could have on society and economies, companies are consistently looking for ways to disrupt, so lets see if they can innovate their way through the potential minefields that lie ahead. 

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