SMEs must __________ to be competitive in our new economy. Fill in the blank with any of the words above and you get a headline that is too often seen in the news. Much ink has been spilt by the media on how business models and paradigms must change in order for companies to remain relevant in the face of rapid technological advancements and increasing global connectivity. Much less has been written on how exactly SMEs can transform their business.
In this article, I will share one way for SMEs to transform using its existing assets, simply by reimagining the business with intellectual property (IP).
Let us take the example of an SME that manufactures and sells portable air filtration units for the consumer market. Using experience gained from manufacturing these air filtration units, the SME developed a new material and microstructure for a filtration membrane that is more efficient and effective than those available in the market. Traditionally, the SME can monetise its invention in two ways:
- Manufacture and deploythe filtration membrane in its own air filtration units.
- Manufacture and sell the filtration membrane as a standalone product.
The new filtration membrane is well-received. However, the SME lacked the financial capital and resources to scale up manufacturing to meet additional demand and did not have the logistics networks in place to ship the products to new markets. In the end, the SME did not manage to expand beyond its existing markets. This dilemma will not be unfamiliar to many SMEs, and it limits the return that SMEs are able to reap from its investment in R&D.
Leveraging IP Licensing to Grow the Business
However, what if we reimagine the business as one that deals with IP, rather than one that sells physical products? What if we reimagine the filtration membrane not as a physical product, but as a composite of different IPs?
In this reimagined business, new monetisation opportunities are unlocked. In addition to deploying or selling the filtration membrane, the company can now license the technology (and the IP rights protecting the technology) to third parties in return for royalties, creating an entirely new revenue stream. For example, the company could:
- License the technology to companies that manufacture industrial air filters.
- License the filter material to companies for new uses in other products (e.g., water filters).
- License the portable air filter (all the IP comprised in the new filter membrane and the portable air filter) to a third party for manufacture and sale in new markets the company has not entered.
In all the scenarios above, the IP is licensed to third parties that do not compete directly with the company’s core consumer business. The company also enjoys several benefits with this reimagined business model, including:
If this reimagined business proves successful, the company may even decide to shift away from manufacturing its own products to focus on R&D and IP licensing. This is the model of ARM Holdings, which is valued at more than USD$30Bn1 and dominates 90% of the mobile application processors market2 by licensing its innovative chip technologies.
Support on Engaging IP Services
That said, there are costs to implementing a licensing business, such as the cost to market the company’s IP and to enter into licensing negotiations with potential licensees. The company’s IP would also need to be strong enough to attract licensees. IP protection, exploitation and negotiation strategies can quickly turn complex, and companies embarking on licensing for the first time may require external assistance to navigate these issues.
The good news is that help is at hand. There are many IP service providers in the market that can support companies on this journey to reimagine its business, and government support is available for engaging these services.
The licensing model may not be suitable for your company, but this is just one way amongst many to reimagine your business and generate greater returns using your IP.
As the expertise and enterprise engagement arm of IPOS, IPOS International helps enterprises and industries use IP and intangible assets for business growth. To learn how to leverage on your IP, email them at firstname.lastname@example.org or call +65 6330 8660.
1 As of 1 August 2019.
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