I am writing on the flight back from St. Petersburg where I attended the annual holiday party of Biocad Ltd., a Russian biopharmaceutical company. Biocad has made a quantum leap in the past year or two from being a regional powerhouse to a major global player throughout the BRIC countries and MENA region. While the company’s first decade of growth followed a fairly standard trajectory, Biocad is now embarking on a truly pioneering pathway, fundamentally reinventing the biopharmaceutical business model. I shouldn’t have been surprised, but I was.
Localization of Intellectual Capital
In the US, economic development professionals at the state and local levels are always trying to bring in high-tech companies doing value-added manufacturing to create jobs in their regions. The idea is that there is a trickle-down effect that impacts other sectors of the local economy, adding to the ‘rising tide that raises all boats’ in the area. Clusters nucleate around new corporate centers as new companies are formed or relocate in close proximity to an anchor. The result: a robust ecosystem generating diverse, economic growth.
This approach isn’t limited to North America or Europe: the same holds true for transition and developing economies. In Saudi Arabia, I worked with key stakeholders trying to get away from importing ‘black box’ technology. By ‘black box,’ I mean finished high-tech products with little or no local content, or knowledge spillovers into the domestic economy. Offset and reinvestment programs are designed to incentivize partnerships that go beyond mercantilistic buy-sell transactional relationships. However, these resources are often invested in activities tangential to the company’s core value proposition. Companies see their co-investment as part of the cost of goods sold, not an opportunity for deepening collaboration and knowledge sharing.
Yet, there remains a resounding interest in localization of intellectual capital and building the wealth-creating capacity for innovation. This represents a definite ‘pull’ from developing countries and emerging markets. I have pointed out the need for public and private sector players to reinvent partnerships, to fundamentally change the paradigm, such that innovation is truly open and inclusive. This changing paradigm demands a new distributed system for sharing and deploying new knowledge, technology and innovation.
On the public-sector side in the international development agenda, science & technology has been overshadowed until fairly recently by concerns such as poverty and hunger alleviation, basic healthcare and education delivery, etc. Although the architects of international development policy are now paying more attention to applying innovative solutions to developing world problems, there is still too little emphasis on harnessing the creative surplus of the developing world. I have called for the international development community to pay more attention to technology as a wealth-creation engine in which developing world innovators are full participants.
Upstarts in Emerging Economies
What was truly shocking – although it shouldn’t have been – is that Biocad is changing the paradigm. True business model innovation is coming not from established corporates. It is coming from upstarts in transition and emerging economies like Biocad. One has only to review the debate surrounding intellectual property rights versus the provision of life-saving HIV/AIDS drugs to Africa to see that Big Pharma is proceeding on a business-as-usual pathway. The fundamental primacy of IPR to its zero-sum business model has not changed. But Biocad is turning the pharmaceutical business model upside-down.
How is this possible? It starts with recasting core competitive advantage. When Biocad threw out the Big Pharma playbook, it became possible to find wealth-creating win-wins through distributed production, and knowledge and technology transfer.
With the rise of the sharing economy and the Information Age, human capital – not intellectual capital – is at the heart of innovation ecosystems. For Biocad, human capital prevails: the hallmark of the shift from IPR-based competitive advantage to a cooperative advantage paradigm.