Reflection of Technological Changes on Market Performance - Case Study Example

The analysis of the growth related performance of any industry has many relations with innovation in terms of technology. It has direct linkage with the industrial structure and thus with the performance of the firms. The cope up with the ever rising competition in the modern corporate world, industrial entities will have to update its technology as per the latest industry standards. These processes can bring forth extensive diversity and changes in the industrial structure. The relation of this technological innovation with the conduct and performance of the firms is complex in nature. However the reflection of this relationship would be quite clearly evident in relation with the entity’s market performance. In a larger macroeconomic context, such technological changes are in a broader sense expected to make impacts in the economy my as well. The level to which technology would affect the performance of an industry is however heterogeneous. This would mean that the micro level response of various firms to technological innovations and policy changes would vary to a larger extent (Smith K ,1999). However while analysing the macro level relationship, an evident sign of linkage can be found between the industry’s performance in the global scenario and the technology. This linkage has been found in the history of any industry. To understand the relevance of this statement the replacement of many traditional hand driven industries with automated technologies would be an ideal example. Ranging from agriculture to oil mining, technology always has changed the face and structure of the specific industry as per the standards of the age. However it is true that there are many other factors which drive the technological innovations specific to each industry. From the experiences in the history, it is quite evident that technology would bring massive change in the industrial structure both generic and specific to individual firms. Along with the relation of the structural changes with the performance of individual firms, it also important to understand the integration of these individual changes into complex social and economic relationships with their environments (Smith K ,1999). There are number of theories explaining the macro effect of the structural changes in the industry in relation with technology. The Schumpeterian growth concept This theory is based on the disequlibrium growth model based on creative destruction. It clearly proves the relationship of performance and growth of the industry with the introduction of substantial changes in technology into the industrial environment (Smith K ,1999). The newer technologies would create new industries which would to a substantial count replace the existing activities in the industry. Moreover the technological innovations would open up opportunities for new investments. All of these events in totality would promote massive structural changes in the industry. Thus it is proved that technical change and growth are proportional and part of the same process. In this context growth refers to the conduct and performance of individual industrial firms and in the industry in totality. This view has been further supported by the works by Kondratiev as it has been cited that growth tends to be cyclical and epochal. The performance and conduct of the industries accelerates as new technologies make possible newer investment opportunities (Smith K ,1999). It has also been stated that growth declines as the innovation process declines. The following table gives a clear indication on the different eras in the radical technological breakthroughs along with the structural implication they had on the industry. Period: 1750-1820 1800-1870 1850-1940 1920-2000 1980- Dominant technology system Water power, sail shipping, turnpikes, textiles Coal, sail shipping, canals, iron, steam power, mechanical equipment Railways, steam ships, heavy industry, steel, chemicals, telegraph Electric power, oil, nuclear, cars, radio and TV, consumer durables, petrochemicals Gas, aircraft, spacebased telecommunications, information, optoelectronics Emerging system Mechanical techniques, coal, stationary steam, canals Steel, distributed energy supply, telegraph, railways Electricity, cars, trucks, radio, telephone, roads, chemicals Nuclear, computers and IT systems, telecommunications, air transport Biotechnology, AI, IT-telecom integration, Dominant methods and/or organization Manufacture, localised enterprise Centrally managed enterprises, joint stock companies Standardised parts, M-form corporation Fordism/ Taylorism, mass production, TNCs. Quality control, globalised enterprises, decentralised management Source: Nakicenovic M (2003) In addition to these eras of technological outbursts there are also possibilities of discontinuous technological changes. They are also expected to be associated with the structural change, organizational conduct and the performance. The relationship of industries with technology is made more complex as industries remain interdependent as a result of the inter-industry technology transfers and other general inter-relationship (Fagerberg, J B, 1997, p.38-55). Analysis by Patrik Gustavsson has dealt with the patterns of technology specialization by different industries and their relation with endowments, technology, and increasing returns to scale (IRS) (Gustavsson P, 2002). A model has been developed by this analysis so as to relate factor prices, goods prices and technology. This model becomes of direct relevance as factor prices and goods prices directly relate with the performance of the business entity. Factor prices, goods prices and technology This model takes into consideration the variability of factors in between industries while formulating the relationship with technology. (Gustavsson P, 2002) As per the model, where A is an index of technology, v is a factor of productions is an intensity parameter and returns to scale are given by the equation v v=1Σ α vn ≡ μ n According to the model, if all firms in an industry within a nation are considered to be identical, then the firms unit cost is the same as the industrys unit cost. As per the model, the cost involved is decreasing with technological innovations, increasing with factor prices (Gustavsson P, 2002). The role of technology transfers The role of technology transfer among industries becomes of relevance as the final good of one industry can be the raw material for another one. In these terms the technological innovations in one industry increase the performance and productivity of the industries linked in its supply and sourcing chain. “It is possible that for an innovation to increase productivity more in other industries than in the innovating industry itself, a finding that applies to the empirical R&D productivity literature” (Griliches, Z., 1992, p.29-47). The rate of effectiveness of technology on productivity and other performance norms of an industry would thus not only depend on the Research and Development of its own operational methodology but also on the technological transfer (Gustavsson P, 2002). The process of technological transfer can be either direct, by borrowing technology from related industries or in an indirect fashion. The concept of indirect technology transfer would include the acceptance of newer technologies by adoption of improved raw materials produced through technological innovations. Technology and Conduct of firms Other than the conduct in terms of productivity and market performance, technology also affects the ethics and other corporate outlooks of the firms. These factors however hold vital importance in the market performance of the business firms. The corporate world is in the recent times are demanding on the relevance of a code of conduct specific for different industries. There are several national and international standards available on these ethics to be maintained by different industries. Technology aids to a major extent in helping firms to adhere with these code of conduct. This will relate to many factors like production standards, marketing strategies, environmental issues, national legalities, international stipulations and many others. Technical tools are available specially designed to deal with each of these factors. When industries adopt technical innovations, it automatically takes care of the requirements set forth by the standards and benchmarks in the industry. Thus when a firm takes care of customised technological advancements; it is also made sure that the conduct of the concerned organization also improvises helping it substantially to perform better. An ideal example for this is the automobile industry in which the adaptation of newer engine production technologies adhering with the environmental standards of different nations have helped them to persist in the international market. There are several cases in this context where companies had to take many vehicle models off the road which were not performing as per the stipulations of the concerned nation. Conclusion Numerous evidences are available which pertain to the relation of technology with the performance of a particular industrial entity. All through the history, innovations in technology has made massive changes in the industrial structure. This impact is evident in most of the industries. These changes have even led to the replacement and introduction of newer industries. However the structural changes are directly proportional to the performance of the business entity. Any scientifically made technological innovation would lead to structural changes which ultimately would result in the industry’s better performance. The conduct of the firm is also important as far as the market performance of its products and services are concerned. Technology would come handy to help the firms to abide by the code of conducts of the industry. In totality it can be concluded that technology has direct relationship industrial structure and thus with the conduct and performance of the firm. References Smith K ,1999, ‘Industrial structure, technology intensity and growth: issues for Policy, Paper to DRUID conference on National Innovation Systems’, Industrial Dynamics and Innovation Policy, Rebild, Denmark, 9-12 June. Nakicenovic M, 2003, ‘Diffusion of pervasive systems: a case of transport infrastructures’, in Nkicenovic and Grubler (eds) Diffusion of Technologies and Social Behaviour Fagerberg, ,J, B., 1997. Competitiveness, Scale and R&D. In: Fagerberg, J. et al (Eds.), Technology and International Trade. Edward Elgar, Cheltenham, 38-55. Griliches, Z., 1992. The Search for R&D Spillovers. Scandinavian Journal of Economics, 94, 29-47. Gustavsson P, 2002, ‘The Dynamics of European Industrial Structure’, Trade Union Institute for Economic Research, viewed 19 January 2009, http://swopec.hhs.se/fiefwp/papers/WP176.pdf Read More