In the transfer of licensed innovations, the process can be complicated in the same way as the incentive to proceed with this move (Ludema & Takeno, 2007) Some opportunities resulting from information asymmetries, particular investments as well as limitations are critical in the exchange of technology. In the technological market, the right to adopt an invention is faced with a challenge by both the inventor and supplier. The issue is that the contract between the two ends is based on maximizing profits based on the opportunities that both parties will enjoy. In asymmetric technology, the licensee becomes reluctant to be involved in a particular investment if there lacks the assurance of profitability (Ludema & Takeno, 2007). On the contrary, as the less knowledgeable party, they are aware of the licensor’s intentions of conveying misinformation. For instance, in manufacturing, a problem seen is that the licensor may be highly optimistic about the commercial value of a licensed technological innovation (Zhu & Weyant, 2003). This research paper will focus on the problems of asymmetric technologies as faced by companies and loaners. The topic has been chosen due to its credibility in providing a streamline in technology development.
Importance of the Study
Technology is an important element of economic development (Zhu & Weyant, 2003). Therefore, for start-up companies, one way of realizing the success of their innovation is creating partnerships with loaners and international firms that have knowledge of actualizing concepts. Similarly, technological collaborations lead to an improvement in the quality of the shared idea (Urwyler, 2006). Therefore, different partners create contractual agreements based on equity participation and in turn royalty payments are discussed. On the other hand, technology processing, development, and testing is cheaper compared to market penetration. As such, companies require partners that have the know-how to enforcing concepts to potential clients. Although in most cases, technology companies hide some of the critical details of their innovations, eventually, they get the assistance they need to kick start their development during the early stages (Urwyler, 2006). More so, such firms get cushioned from the risk of closure as a result of financial loss in the event of a market crisis. In turn, they get a helping hand and company employees to continue with technology developments as opposed to being sent home (Ludema & Takeno, 2007). Eventually, both the technology developer, financier of collaborators enjoy the financial benefits asymmetrically.
The methodology of this paper borrows from one case study which was used to determine the research design. In the design of case studies, the focus is on understanding the dynamics that are present in individual settings. Different cases provide varying insights that may be helpful in answering key issues. Furthermore, case studies may be used for exploration purposes when investigating propositions (Zhu & Weyant, 2003). In particular, three distinct conditions determine a reasonable study approach. First, the case study provides a reliable means of answering how and why queries. The reason is that they are involved with matters that have been traced for a given duration. Second, a study case is preferred when investigations need to be done during contemporary events for which there lacks stored data. Lastly, it provides an excellent starting point for researchers when they cannot control their investigation elements. More so, there is a range of evidence to deal with such as interviews.
The research borrows extensively from secondary sources where interviews from the company in the case study were used. They were conducted using a stratified sampling method where people from different departments were interviewed. They comprised of CEOs, software developers, and project managers. However, three interviews were held where the CEO, CTO, and a top project manager. All these interviews were open and structured to ensure that the correct information was obtained. More so, it makes it easy for the respondents to give their responses. Some specific questions were asked via email during data collection. However, data was gathered at different times. Most importantly, to reduce instances of bias during the interview, some of the individuals that were involved in the launch of the start-ups were interviewed.
Analysis Presentation of the Case Study
In the case study, one company was used, Adnovum. It is a sophisticated and highly innovative software firm that targets to offer quality solutions in Switzerland (Urwyler, 2006). More so, it has delivered major IT solutions to different customers. At the time of the case interviews in 2001, this firm was active in the telecommunication and financial sectors where they relied on open-source standards for their development.
Adnovum was started in 1988 by a group of five students as a small IT company in Zurich. It had the goal of creating technology-driven solutions with the potential for engineering (Urwyler, 2006). The company specialized in the evaluation, integration, and development of the secure portal and web solutions. More so, the offered tailor-made intranet, extranet and internet solutions in collaboration with telecommunication and financial companies. The company went through various developmental phases and in the process employed 65 workers before the economic crisis of 2000 (Urwyler, 2006). Most of the developers used by the company have degrees in Software Engineering from the Swiss Federal Institute of Technology.
Problems of Asymmetric Information
The company described in the case study identified an opportunity in the field of IT and went for it. At first, it was easy for this firm to thrive since there was little competition. During those times, few information technology companies were in operation. Therefore, these it had not created partnerships where contracts were to be used to bind their agreements. As such, in 2000 the economic crisis in Zurich hit Adnovum Company. In turn, the growing firm was forced to reduce its employees to cover for the loss that it suffered. If a partnership existed, the loss would have been cushioned by both parties.
Similarly, the lack of adoption of asymmetric information as in the case of Adnovum meant that skilled workers were not insured. As such, in the event of a crisis, it is highly likely that they may suffer from a lack of finances. For instance, one may be unable to foot their medical bill as well as that of their immediate family. As such, it is unfair to employees who dedicate a lot of their time towards the productivity of a company to suffer from a lack of proper medical services. In some instances, information asymmetry could lead to moral hazards (Zhu & Weyant, 2003). For example, in the event where the above company entered into a partnership with a lender then failed to provide ample information; then in future, a conflict might arise. Such may occur when the minor party realizes that crucial information was being withheld thus making it a small beneficiary of a significant partnership (Zhu & Weyant, 2003). Therefore, in such a scenario, the business may end or ruin the relationship of a company with others.
Attempts to Solve the Problems and Advancing Solutions
When the economic crisis happened in Zurich, the Adnovum firm almost closed as a result of the loss. One solution that would have been used is taking a loan. In this case, the company was fully aware of what was happening and while the lender may have wanted the full information; the company had the control of what to give. As such, this agreement would have allowed Adnovum to recover from the loss it experienced fast without the need to fire some of its staff. Similarly, it would have the opportunity to get future funding for projects if established good relations with their money lending partner. However, the only challenge is that the lenders would have to charge more interests to compensate for the unforeseen risks.
The adoption of asymmetric information comes as an advantage to employees of a company (Ludema & Takeno, 2007). They will enjoy opportunity costs which would lower their aggregate output levels. As such, their standard of living would drop allowing them to survive on limited salaries. More so, the specialized workers will have the opportunity to get the most out of their expertise (Ludema & Takeno, 2007). As they advance their skills so should they get more privileges at work? Similarly, solving information asymmetries can be achieved by creating partnerships with equal partners. In so doing, a company will not feel intimidated by the other causing it to keep valuable information from the other.
In businesses today, companies protect their interest by all means irrespective of whether they are in a partnership. Therefore, one party remains unaware of the full details of the technology or business being shared. As a result, it receives fewer gains from such a relationship. However, while keeping information about the operations of a company is important, at times it compromises a company. For instance, Adnovum would not have been forced to reduce its employee if it had a good lender. In such a case, it would have been provided with financial assistance to recover from the economic crisis that happened in Zurich. More so, experienced employees would not have been laid off without proper compensation. As it is, skilled and hardworking employees need proper rewards for their input in a company. In that case, companies should learn to prioritize matters, for instance, protect their employees when entering into partnerships. Eventually, that would enhance the reputation of such an organization. Similarly, workers would be motivated since their interests are protected, and the company would earn more from endeavors.