Modern Examples of Five Types of Schumpeterian Innovation - Essay Example

The paper "Types of Schumpeterian Innovation" is an outstanding example of an essay on business.  Well-known in Europe, Japan, and in the United States (McCraw, 2007, p. 11), Joseph Schumpeter studied the impact of capitalism within the economic system during the modern twentieth century. For many years, he has spent his life observing how people became rich at the expense of the poor individuals who live their lives in poverty.  Upon continuously examining the modern economic system, he managed to develop Schumpeter’s five types of innovation used in defining the entrepreneurial act.

Based on the five types of innovation, modern examples will be provided in the study. Modern Examples of Five Types of Schumpeterian Innovation In general, the ability of a company to produce new and cheap product during the early stage in the business cycle enables the firm to earn more profit (Federal Reserve Bank of Dallas, 2001). Since the mid-1990s, a lot of multinational companies have been investing a large sum of money on R&D in order to develop new products that could capture the interest of the consumers.

A good modern example of the introduction of a new good wherein the target consumers are not yet familiar is the case of Perpetual Water which is based in Australia. The company spent millions of dollars on its R&D to develop a large-scale water purifier for residential and commercial use. Basically, the newly innovated product purifies the available greywater through a purification process which includes absorption, filtration, and multiple disinfection barriers (Sustained, 2009). The introduction of a new method of production that is not yet tested by experience in the branch of manufacturing companies can also significantly improve the company’s profitability and market share.

Aiming to solve the public concerns about the long-term availability of fossil fuel, James Liao together with Shota Atsumi and Taizo Hanai has recently introduced a new production process for biofuels (Food and Fuel America, 2008). As soon as the production procedure has been perfected, innovator of the new production process can easily apply for their intellectual property rights which could provide them with the opportunity to gain a large amount of profit out of developing the new technology.

Aside from innovating a new product and technology, the opening of a new market is another technique behind a company’s success. In general, improvement in technology is one of the main reasons for opening a new market. During the past decades, cell-phone technology has strongly made a strong impact on the market during modern days. During the first few years, cell-phone was introduced in the market, the market price for each unit was as high as US$3,000 on top of the monthly subscription (Rogers, 2003).

Back then, the first manufacturers of cell-phone products were able to easily earn a large amount of profit. Because of the significant increase in the supply of cell-phones, the low-end consumers can now easily purchase a cell-phone at a very low price. Considering the tight competition in the market today, it becomes one of the main challenges for the local and international manufacturers to be able to locate for a new source of supply of raw materials at a very affordable price. Basically, the ability of each company to search for new sources of raw materials enables their businesses to offer their products at a more attractive price.

By doing so, the company could effectively compete in the market. For instance: Malaysia is one of the world-class exporters of high quality rattan-made furniture including home décor items (One2furniure, 2008; Rinaat Cane, 2008) For this reason, IKEA which is one of the biggest international retailers of affordable furniture products such as economically designed bed, tables, chairs, vase, plates, and wall shelves among others (IKEA, 2009) import some of its items from Malaysia. Since IKEA orders rattan-made furniture from a few main sources in Malaysia, the company is capable of purchasing these products at a very low price.

That way, the company is able to enjoy the benefit of gaining more from each dollar the company is spending. In the past, a lot of large-scale companies were able to easily monopolize the U.S. market. Since Ronald Reagan became the president of the United States, the U.S. government has been strongly promoting the anti-monopoly laws and regulation in the country (Democrats, 2005). For instance: The U.S. government has been promoting a fair market competition by allowing the qualified construction companies to bid for public road construction (Semmens, 1987).

By doing so, the U.S. government was able to effectively break the U.S. road monopoly. Conclusion Modern capitalism as viewed by Schumpeter can be explained using his proposed five types of innovation. Basically, the modern examples presented in this paper proves that the five types of innovation as proposed by Schumpeter is present in today’s economic activity.