Unit 8 Commercialization (FINAL VERSION) (Compatibility Mode) PDF

UNIT 8 COMMERCIALIZATION OF NEW TECHNOLOGY
TECHNOLOGY ENTREPRENEURSHIP
(ENT 600)
UNIT 8:
COMMERCIALIZATION OF NEW
TECHNOLOGY-BASED PRODUCT
Entrepreneurship Dept,FBM (2009) ENT 600/UNIT 8: COMMERCIALIZATION 1
Introduction
• The word technology-based product in this unit
encompasses physical products, services and
processes.
• New technology-based product is the output

developed from innovative activities that take place in
a successful R & D (research and development).
• Research and development activities may take place

in public universities or research institutes owned by
government or private research institutions.
PREPARED BY ASSOC. PROF. DR HJ. NAWAWI MOHD. JAN 1

Technology-based Industry In Malaysia
• The future of Malaysian technology-based

industry is very much dependent on locally
developed technology-based ventures.
• The success of home-grown technology-

based venture is determined by the strength
and efficiency of commercialization of R&D
(research and development) output and
enforcement of intellectual property (IP) law
in Malaysia.
Entrepreneurship ENT 600/UNIT 8: COMMERCIALIZATION 3
Dept,FBM (2009)
Commercialization of Research &

Development
• The products of R&D will not generate revenue
unless they are successfully commercialized.
• Commercialization of Research and Development

refers to efforts taken to introduce new technology-
based product to the market with the aim of gaining
commercial return.
• The commercial value of a research is measured by

the contribution of the research findings to the
development of new process, new services or
product.
Dept,FBM (2009)

Taking R & D Output To The Market

There are two approaches through which research findings
could be brought to the market by:
1. Disseminating innovation freely through academic
publication such as journals and proceedings of
research conference. This approach does not
promise maximum benefit to the innovator
2. Allowing the researcher (innovator) to monopolize

the benefits of research and development in the
form of intellectual properties (IP) and
commercialization of the IP.

Dept,FBM (2009)
Options To Commercialize Research &

Development
There are five (5) options to commercialize R & D:
1. Outright sale of the R&D output before securing IP (intellectual
properties)
2. Get into licensing agreement with established private organization

after securing IP
3. Get into Assignation agreement with buyer
4. Spin-off by starting a new venture from within the established

research organization.
5. Spin-out by starting a new venture independent of the research

organization where the new technology-based product was
developed.

Dept,FBM (2009)

Commercialization Pattern of R&D

R&D Outright sale of
research product
before securing IP
Patent Application
Assignation Agreement Licensing Agreement Spin-off Spin-out

Established with Established with Existing Company Company
Existing Private Sector Private Sector
Established Established
Organization. Organization.
Production

Dept,FBM (2009)
Commercialization Options:
Outright Sale of The R&D Output
The researcher may decide to sell the R&D output before
applying for patent rights due to any of the following reasons:
• Cost to secure a patent right is higher than the product

potential value
• The new technology-based product is competing with a

promising substitute product (the developed technology is
already mature and facing substitution stage)
• High market development cost required because market is

not yet ready for the product.
• To avoid the hassles associated with patent application

Dept,FBM (2009)

Licensing A Patent
•Licensing a patent to an established business organization is
considered as one of the most viable means of commercializing
a new technology-based product.
•A patent holder who licenses his patent is known as the

licensor, while the person to whom the patent is licensed to is
called the licensee.
•When a patent is licensed to a licensee, the licensee is given

“the exploitation right “.
•“Exploitation right “ means the right to create, market and sell

something based on what the patent protects.

Dept,FBM (2009)
Licensing A Patent..continue
•In return, the licensor will expect financial return in the form of
royalties from the licensee.
•A patent license basically is a legal contract that spells out

terms and conditions for examples:
• The area of exploitation allowed by the licensing
agreement.
• Performance obligation demanded by the licensor over the
licensee in order to ascertain consistent financial return.
• The amount and frequency of royalties to be paid by the
licensee.
In this context a license is revocable or cancellable if certain

terms and conditions are not met.

Dept,FBM (2009)

Patent Assignation
Patent assignation is an irrevocable exploitation right given
by an assignor to an assignee. The assignor refers to the
original patent holder, the assignee is one who receives
assignment of the patent.
Assignation is not like licensing:

• Assignation entails the sale or outright transfer of the
patent by the assignor to the assignee.
• Assignation is sought if an irrevocable exploitation right
is needed by the parties involved.
The disadvantage of patent assignment is that when

assignee failed to pay royalties this will not revoke the rights
that already assigned to the buyer.
Dept,FBM (2009)
Valuing a Patent
Determining the monetary value of a patent is very

important because it helps the patent holder to
determine:
• The right value to sell the patent to assignee
• The right amount of royalties to be charged to patent
licensee.
How much a patent is worth depends on the following

factors:
1. The size of the potential market.
2. The value of comparable patents.

Dept,FBM (2009)

Valuing a Patent….continue
3. Validity of the patent (the risk of the promoted

patent to be invalid if the inventor does not meet
the statutory requirement for obtaining the
patent).
Example:
• They were not the inventors
• Had published the information about the
invention
• Had offered the invention for sale before
the date of application

Dept,FBM (2009)
Valuing a Patent….continue
4. Determine if the patent overlaps with other

patents, the higher the probability that a patent
may overlap with another, the lower the value of
that particular patent.
5. Assess how much it costs for someone to use the

next best patent instead of buying or subscribing
license of your patent.
6. Determine the reasons for selling or licensing the

patent.

Dept,FBM (2009)

Spin-Off Into A New Venture
• Alternative to licensing and assignation, an innovator may
choose to commercialize his invention through the creation of
a new technology-based venture.
• In this context the innovator assumes the role of a

technopreneur by creating a new venture from within an
established organization like a university or a company
• In venturing into the spin-off company the technopreneur

himself “exploits” the patent rights he had secured.
• Prior to venturing into a new technology-based business a

technopreneur needs to develop a business plan, determines
financial requirements and seeks sources of financing.

Dept,FBM (2009)
Spin-out Into An Independent New Venture
• Besides venturing from within the established R&D institutions,
universities or established business organizations the innovators
may also have the option to leave the parent organization and
established an independent new venture to commercialized the
patent he owned. In this context the innovator assumes the role
of a technopreneur by creating a new venture independently
• Similar to a spin-off venture, in a spin-out venture the

technopreneur himself “exploits” the patent rights he had
secured and needs to develop a business plan prior to venturing
into the new venture.
• However, in the case of a spin-out venture the technopreneur

has to bear the risk of the new venture alone.

Dept,FBM (2009)

The Risk of A New Venture

• In spinning off or spinning out into a new venture,
the technopreneur faces the following risks:
1.Technological uncertainty
2.Strategic uncertainty
3.Uncertainty in first time buyers
1. Technological uncertainty is associated with:

– To determine order winning product configuration.
– To determine the most efficient production technology
– To determine the level of difficulty to develop this
technology.

Dept,FBM (2009)
The Risk of A New Venture (continue)
• 2. Strategic uncertainty
– New products are often characterized by the absence of
a proven marketing strategy. Hence firm needs to utilize
more resources in order to ensure success.
• 3. Uncertainty in first-time buyers

• Customers of a new venture normally are first time
buyers. The marketing task is to substitute what buyers
used to purchase and to encourage these buyers to
make initial purchase of the new products.

Dept,FBM (2009)

Barriers To Entry
• A new venture may face difficulty to establish entry into a
particular industry.
• Entry barriers refer to the accessibility of a new venture

into a particular industry. Factors that contribute to entry
barriers are:
– The cost of adopting technology in the industry
– Access to distribution channel
– Access to raw material
– Cost inefficiency due to lack of experience
– The cost of capital required to launch the new venture
• Some of these barriers disappear as the industry
develops.
Dept,FBM (2009)
Considering Business Incubators To Increase The

Chance For New Venture Survival
• Business Incubator means a facility with adaptable space

that a new venture can lease on flexible terms and at
reduced rents.
• The purpose of an incubator in the early stage of the new
venture is to increase the chance of survival for new start up
business.
• Business incubators offer financial, managerial, technical,
and administrative support services which are available on
sharing basis.
• Most incubators limit the time for new venture occupying
space in the facility ranging from two to five years

Dept,FBM (2009)

Technology Life Cycle

• The performance of technology and product has
a recognized pattern over time
• This pattern can be very helpful in the strategic

planning process of the technology-based
venture
• Thus, managing a technology venture requires

deep understanding of the life cycle of the
technology, product, process and system.
Dept,FBM (2009)
Technology Life Cycle (continue)
• A technological rate of performance

improvement is dependent on the effort such as
research and development devoted to the
technology improvement.
• A newer technology may have higher limit of

performance for the same parameter and may
replace the older technology at certain period of
time.

Dept,FBM (2009)

Technology Life Cycle (continue)
• Technology performance is expressed in term of

any attribute such as density in electronic
industry (for example number of transistor per
chip), speed in mile per hour, energy
consumption in K Watt per hour or fuel
consumption in mile per Km.
• The technology performance become vulnerable

to substitution or obsolete when a new or better
technology emerges.

Dept,FBM (2009)
Technology Life Cycle

Physical Limit
NEW
Technology INVENTION
Performance PERIOD Maturity
Parameters
Aging
Mature
Embryonic Technology
Growth
Period
Technology
Improvement
period
Time
The S-curve of technological progress
Source: Tarek Khalil (2000), “Management of Technology; the Key Competitiveness

And Wealth Creation”, McGraw-Hill International Ed., Singapore, (pg 81).

Dept,FBM (2009)

Stages in the TLC
Technology progresses through a three-stage

technological life cycle (TLC):
1. The new invention period known as the

embryonic stage.
2. The technology improvement period, also
known as the growth stage.
3. The mature technology period or maturity
stage.
Dept,FBM (2009)
TLC Stages:
New Invention Period or Embroynic Stage
• The new invention period is characterized

by a period of slow initial growth. This is
because experimentation and initial
problems are worked out of the system.

Dept,FBM (2009)

TLC Stages:
Technology Improvement Period
or Growth Stage
The technology improvement period is

characterized by rapid and sustained
growth.
Also known as the growth stage

Dept,FBM (2009)
TLC Stages:
Technology Mature Period
or Maturity Stage
• The mature technology period starts when

the upper limit of the technology is
approached and progress in performance
slows down. This occurs when the
technology reaches its natural limit.

Dept,FBM (2009)

TLC Stages:
Technology Mature Period or Maturity Stage (cont)
• The technology become vulnerable when

technological substitution takes place or when
the technology becomes obsolete. That is when
better new technology emerges.
• Investment in the on going technology at this

stage may be riskier even though some may
thrive in the declining technology.

Dept,FBM (2009)
TLC and the Market
• In commercializing new technology or product

one must identify the stage of the technology in
its life cycle.
• Technology under development stage has no real
income-producing value and the technology that
is not being marketed (technology on the shelf)
provides no return.
• When technology reaches the market it
generates income.

Dept,FBM (2009)

The Technology Market Life-cycle
• As technology develops along with the

recognized technology life-cycle, the
technology begins to penetrate its market
and subsequently experiences market
growth.
• The corresponding market growth phases
of the technology is called the Technology
Market Life-cycle and is expressed as
market volume
Dept,FBM (2009)
The Technology Market Life-cycle Phases
• Over time the technology will experience

six phases of market life-cycle:
A. Technology development phase
B. Application launch phase
C. Application growth phase
D. Technology mature phase
E. Technology substitution phase
F. Technology obsolescence phase

Technology Market Life-cycle

Technology Development Phase
• At the Technology Development Phase the market
does not recognize the technology at all.
• During this time the researchers are putting in much

effort and utilizing significant amounts of resources to
create the technology, develop proto type and testing
the new technology.
• During this period revenue is not generated and

where ever possible, time spent in this phase has to be
reduced.

Application Launch Phase
• This is the phase where the technology is
launched on the market as a new application
(e.g. a new product or process)
• Once the new technology application is

launched the market volume will pickup with
the path of the technological progress.
• It is characterized by slow beginning and

followed by rapid growth.
Entrepreneurship Dept,,FBM (2009) ENT 600/UNIT 8: COMMERCIALIZATION 34


Application Growth Phase
• In the Application Growth Phase the

technology application will begin to penetrate
or go deep into the market
• Extend of penetration of the technology into

the market will depend on the rate of
innovation and the market needs of the new
technology.

Dept,FBM (2009)

Technology Mature Phase
• In the Technology Mature Phase, the market

growth rate slows down as the technology
approaches its maturity. The market volume
may reach a peak and then start to decline.

Dept,FBM (2009)


Technology Substitution Phase
• The Technology Substitution phase is
characterized by declining market volume as
the technology is faced with being substituted
by new technologies
• Companies that continue to utilize the old

technology will begin to experience decline in
market share and revenue.

Dept,FBM (2009)

Technology Obsolescence Phase
• In the Technology Obsolescence Phase the

technology application has become obsolete
and has little or no value at all.
• Investment in the technology during this phase

is not attractive

Dept,FBM (2009)

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UNIT 8 COMMERCIALIZATION OF NEW TECHNOLOGY

Entrepreneurship Dept,FBM (2009) ENT 600/UNIT 8: COMMERCIALIZATION 1

• New technology-based product is the output

• Research and development activities may take place

Entrepreneurship Dept,FBM (2009) ENT 600/UNIT 8: COMMERCIALIZATION 2

PREPARED BY ASSOC. PROF. DR HJ. NAWAWI MOHD. JAN 1

Technology-based Industry In Malaysia

• The future of Malaysian technology-based

• The success of home-grown technology-

Commercialization of Research &

• Commercialization of Research and Development

• The commercial value of a research is measured by

PREPARED BY ASSOC. PROF. DR HJ. NAWAWI MOHD. JAN 2

Taking R & D Output To The Market

2. Allowing the researcher (innovator) to monopolize

Entrepreneurship ENT 600/UNIT 8: COMMERCIALIZATION 5

Options To Commercialize Research &

2. Get into licensing agreement with established private organization

3. Get into Assignation agreement with buyer

4. Spin-off by starting a new venture from within the established

5. Spin-out by starting a new venture independent of the research

Entrepreneurship ENT 600/UNIT 8: COMMERCIALIZATION 6

PREPARED BY ASSOC. PROF. DR HJ. NAWAWI MOHD. JAN 3

Commercialization Pattern of R&D

Assignation Agreement Licensing Agreement Spin-off Spin-out

Entrepreneurship ENT 600/UNIT 8: COMMERCIALIZATION 7

• Cost to secure a patent right is higher than the product

• The new technology-based product is competing with a

• High market development cost required because market is

• To avoid the hassles associated with patent application

PREPARED BY ASSOC. PROF. DR HJ. NAWAWI MOHD. JAN 4

•A patent holder who licenses his patent is known as the

•When a patent is licensed to a licensee, the licensee is given

•“Exploitation right “ means the right to create, market and sell

Entrepreneurship ENT 600/UNIT 8: COMMERCIALIZATION 9

•A patent license basically is a legal contract that spells out

In this context a license is revocable or cancellable if certain

Entrepreneurship ENT 600/UNIT 8: COMMERCIALIZATION 10

PREPARED BY ASSOC. PROF. DR HJ. NAWAWI MOHD. JAN 5

Assignation is not like licensing:

The disadvantage of patent assignment is that when

Determining the monetary value of a patent is very

How much a patent is worth depends on the following

2. The value of comparable patents.

Entrepreneurship ENT 600/UNIT 8: COMMERCIALIZATION 12

PREPARED BY ASSOC. PROF. DR HJ. NAWAWI MOHD. JAN 6

3. Validity of the patent (the risk of the promoted

Entrepreneurship ENT 600/UNIT 8: COMMERCIALIZATION 13

4. Determine if the patent overlaps with other

5. Assess how much it costs for someone to use the

6. Determine the reasons for selling or licensing the

Entrepreneurship ENT 600/UNIT 8: COMMERCIALIZATION 14

PREPARED BY ASSOC. PROF. DR HJ. NAWAWI MOHD. JAN 7

• In this context the innovator assumes the role of a

• In venturing into the spin-off company the technopreneur

• Prior to venturing into a new technology-based business a

Entrepreneurship ENT 600/UNIT 8: COMMERCIALIZATION 15

• Similar to a spin-off venture, in a spin-out venture the

• However, in the case of a spin-out venture the technopreneur

Entrepreneurship ENT 600/UNIT 8: COMMERCIALIZATION 16

PREPARED BY ASSOC. PROF. DR HJ. NAWAWI MOHD. JAN 8

The Risk of A New Venture

1. Technological uncertainty is associated with: