Just recently I was on a panel that was deliberating the role of creativity and innovation in Karnataka's economy by 2020. I cannot blame you for wondering what business I had being part of an innovation debate. Here is a slice of a United Nations report that might explain the anomaly.
The World Intellectual Property Report (WIPO) for 2013 titled 'Brands - Reputation and Image in the Global Marketplace' states that in the US, for the first time, investment in brands has surpassed investment in R&D and design. This is a dramatic change in the orientation of what constitutes long term value. A defining moment in the history of the world's largest economy.
The WIPO has been around since 1967. It is the UN institution that is dedicated to global intellectual property (IP). The body recognises IP as the heart of a healthy business and indeed the vital role that it plays in creating long term wealth. Until recently, IP was largely construed to mean patents and proprietary technology. Pharma molecules and operating software would be two big examples. A body like WIPO tracks the number of patents registered as a means of assessing growth in innovation. (It generates maps depicting the innovation rich parts of the world). But by this logic IP is restricted to product innovation alone. This is limiting, simply because new ideas that don't find traction with the market have little potential to create wealth.
But of late the WIPO realised something that has expanded their focus quite dramatically. The body has been tracking the growth of trademark registration and realised that brands create tremendous intangible value and need to be included in the ambit of intellectual property. Every good brand is based on a proprietary notion, and if there is no protection of that idea as represented by the trademark then the copying of brands would be rampant. This would discourage entrepreneurs from starting new businesses, thereby slowing down growth in economies. Those of us who have seen counterfeits of our brands in the market would appreciate exactly how annoying and discouraging this is. This is one of the primary reasons why economies that respect trademarks tend to dominate the global economy.
Over the last three decades, trademark registration has soared across the world. As recognition of brands contributes to value in the marketplace, they began to be recognised and protected as intellectual property. Between 1985 and 2012, the number of filings for trademarks quadrupled globally. What is really interesting is that middle income countries were the disruptive contributors of this growth. In the same period, China saw filings rise 30 times and Turkey 20 times. India saw a 12 fold rise in trademark applications from 1985 to 2012.
Obviously, businesses have recognised that enterprise value does not necessarily come from technological innovation (product differentiation) as much as how the market engages with it. This is not to suggest that they are at cross purposes. By generating demand and willingness to pay, branding enables firms to profit from investing in technology and design. Branding thus emerges as an important element of a vibrant innovation ecosystem.
One could argue that even tech companies like Google and Intel use R&D as a means of furthering their brand idea - 'search' and 'faster chip speed' respectively. Viagra would have been of little use to Pfizer as Sildenafil Citrate. Clearly these giants realised that long-term value will derive from owning consumer mindspace for these benefits, long after the patents have run out.
President & Chief Knowledge Officer, EQUITOR Value Advisory