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Tuesday, 6 August 2013 00:00 - - {{hitsCtrl.values.hits}}
The holy grail in business is innovation in today’s world. Innovation simply means that an organisation is in line with the changing needs of a consumer and hence, develops products and services to meet this requirement. A typical case in point is the innovation of the microwave, which made the preparation of a meal by a housewife more convenient. It was one of the strongest innovations that the world had seen and sure changed the life of Sri Lankan households.
In the global stage, a company that has understood the insight of consumers and developed cutting edge products accordingly is Apple Inc. Some of them include Mac computers, iPod music players, iPad tablets and iPhone smartphones. The spirit of innovation has made the company move from being worth $ 65 billion in 2010 to a business worth $ 156 billion today, which is almost a tripling of the business size – a lesson to the world on the power of innovation.
Sri Lanka
The implication of this insight of Apple Inc. to Sri Lanka is that the gross expenditure of research and development as a percentage of the GDP of the country was just 0.11% in 2008. Incidentally, this was from a high of 0.21% way back in 2004 which gives one an idea of the commitment by the country to drive innovation from a macro end.
Countries like India invest around 2% of GDP on R&D whilst South Korea has a value of almost 6% of GDP, which explains the commanding power that the country enjoys in the world of business and trade. What is more worrying is that the private sector contribution to the Sri Lankan R&D value is at a low ebb of 18% whilst in thrust countries like South Korea, this goes up to a high of 65%.
The outcome of this strategy for Sri Lanka is that our high tech exports out of the country was 2.2% in 2001 and this has now dropped to just 1% in 2010, whilst in Korea, 75% of exports are high tech products, Thailand 27% and countries like Malaysia and Singapore recording 50%. This is a consequence of Sri Lanka just focusing on infrastructure development without getting into the brass tacks of making Sri Lanka competitive.
In the recent World Economic Forum release, Sri Lanka’s competitiveness has dropped down from the 52nd position in 2010 to 62 in 2011 and today, it is at 68th position which does not augur well for a country that wants to be the wonder of Asia.
Apple saga
Apple Inc. is one of the most admired multinational companies for innovation that has been a game changer globally. Based in California, USA, the company has demonstrated to the world the importance of innovation in the areas of personal computers, computer software and consumer electronics. Its flagship products include Apple Mac computers, iPod music players, iPad tablets and iPhones, all of which have given a new dimension to convenience for the global consumer.
Today, the company is the world’s second largest information technology company in revenue and the third largest mobile phone manufacturer. From a financial point of view, it is the second largest publicly traded corporation in the world by market capitalisation with an estimated value of US$ 414 billion as of January 2013. The worldwide annual revenue of Apple Inc. for 2012 was $ 156 billion.
The imagery around the world for Apple Inc. portrays innovation and user-friendly consumer products which enrich the lifestyle of its customers.
In 2012, Apple was ranked as the number one brand in the world, topping Microsoft, proving their ability to make difference through innovation and quality. The company was founded in 1976 and today, it is the second largest information technology company in the world with 394 outlets in 14 countries which gives us an idea of the power of innovation for a country/company.
Apple: Revenue vs. advertising cost
Apple was worth US$ 65 billion in 2010, US$ 108 billion in 2011 and a staggering US$ 156 billion in 2012, an increase of 66% which is an outstanding performance by a company in the Fortune 500 league. The sales increases recorded were 46% from iPhones, 17% from iPads and 13% from portables, which shows us the power of innovation to a company.
Apple’s advertising expenditure has also been on the increase but the fact of the matter is that as a percentage of sales revenue, it is below 1%, whilst the normal average is between 5%-20% in a company. The ethos of founder Steve Jobs was if you launch a product that requires, one does not have to make a noise. This strategy has worked so far but we need to see the impact of such a decision post the death of its founder.
The company’s research and development (R&D) cost has maintained average of 2% of sales revenue and selling in general and administration costs have maintained an average of 7% of the sales revenue over the last two years which is not very high but in value, it is of significant value. The million dollar question is was the source of the ideas its founder or was it systemic? I guess time will reveal the reality.
Apple: Brand value
In 2012, the company’s brand value was US$ 70 billion and since 2010, it has increased by 256% from US$ 19.8 billion to US$ 70.6 billion. Since its incorporation in 1976 to 2010, it could develop only 28% of its brand value today and within two years, it has doubled.
Way forward
The Apple saga explains the importance of innovation to a country and a company. But what is more important is for Sri Lanka to keep in mind that our investment in R&D as nation is very low and more importantly, that the contribution from the private sector is only 18% of this value. SLINTEC is a strategy in the right direction but then again, only a handful of companies are engaged in this initiative.
One needs to understand the business ethos of top blue chips like John Keells, Hayleys, Aitken Spence, Carsons and the like and their commitment to R&D as against trading and brand building only within a country. Another point to note is that innovation must not be just ‘kaizens’, meaning small improvements, but innovations that can take a company to a global platform.
(The thoughts are strictly the author’s views and do not reflect the organisations he serves in Sri Lanka or internationally. He is the Head of National Portfolio Development for the United Nations Office For Project Services (UNOPS) for Sri Lanka and the Maldives.)
