The international diffusion of innovation

Most cross-border diffusion studies regard the lag as exogenous, depending on the market introduction. Another reason for the neglect is the lack of diffusion data on an international basis. 

See discussion in section 2.1 Hufbauer (1966, p. 39) already noted that the most widely used rubber today was invented in Germany in the 1940s to counteract the British blockade during the First World War. True synthetic rubber, a polymer of isoprene, was achieved almost simultaneously in 1955 by several major rubber manufacturers (internet information from J. Plambeck). This means that the international lead in the demand for synthetic rubber (in the US) cannot be explained by the origin of invention. 

The first semiconductor was developed by AT T as an alternative to tubes in switching equipment. Although the military is no (inventing) lead-user, it is a user that demands technical developments later adopted by civilian applications. 

In science-based industries technical progress is said to be stimulated intensively by scientific advance (Pavitt 1984), indicated by a high ratio of R D expenditure per sales that exceeds 8 % (Gehrke, Grupp 1994, pp. 39-40). Although technology does stimulate 

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The thesis follows the traditional structure of analysis analysis of existence of lead markets, analysis of contingency of lead markets and analysis of efficiency of lead markets. The hypothesis of existence is that there are lead markets for a broad range of innovations. The hypothesis of contingency is that several systematic nation-specific demand and market conditions can be identified that facilitate the international diffusion of innovation designs domestically preferred. These are combined in five lead market factors. The hypothesis of efficiency is that multinational firms can promote the global success of their innovations in concentrating the innovation development activities in the respective lead markets. 

This chapter assesses a broad range of literature for the theory of lead markets. Chapter 3 will build on the wealth to develop the lead market theory as a new approach to leads of countries in the international diffusion of innovations. 

The relationship between local induced innovation and the international competitiveness of nations has rarely been discussed as yet (Ruttan 1997). If relative factor prices vary internationally, trade would be low since each country employs a local specific technological design matching local factor price relationships. Yet, induced innovation theory offers a mechanism for the international diffusion of innovation designs. In section 3.1 it will be theoretically shown that a country can become a lead market that anticipates global factor price trends, i.e. experiences factor price changes earlier than other countries. ... 

The strength of the US firms in the postwar era has been explained predominantly by the home market advantage of large market size. The largeness of US market justifies the immense investments for high-tech innovations that were not profitable for European markets. In addition, the large US market enabled economies-of-scale that made US innovations more price competitive compared to innovations adopted in European countries. Another theory that comprises both the local innovation adoption and the international diffusion of innovations is the intema-tional-life-cycle theory. This theory will be reviewed briefly. 

Different price increases of the two goods can occur as well and result in the same mechanism but this case should be an exception as a mechanism of the international diffusion of innovations. 

First, I consider the different time periods of the international diffusion of innovation designs (Figure 5-3). In the international diffusion of an innovation three periods can be differentiated. The invention is assumed to occur in t=0. In t], the adoption of a specific innovation-design takes off in the lead market. In t2, the... 

This thesis presents a theory of the lead market. It is suggested as a theory of the international diffusion of innovations that brings all three subjects together by showing how a firm can leverage national markets to create innovations that can be commercialised worldwide through local R D activities. The rather new concept of lead markets is theoretically founded and structured to be applicable in multinational companies. Yet, this study does not provide all the empirical validation and proofs that are necessary. I hope, this task will be completed in future. 

Beise, M. and Rennings, K. (2005). Lead markets and regulation a framework for analyzing the international diffusion of environmental innovations. Ecological Economics, 52 (1), 5-17. 

The diffusion of an innovation is a process of adoption of an innovation by the potential users. Since an innovation is not adopted immediately by all users who can benefit from the innovation, there is a time period of diffusion, starting with the market introduction and ending with all potential users having adopted the innovation. In order to understand the international diffusion of an innovation, the adoption process has to differentiate between the diffusion within a country and the diffusion across countries. Dekinq>e et al. (1998b) label these two processes the depth and breadth of adoption, respectively. As I will show in Chapter 3, these two adoption processes are fundamentally different, evoked by different questions and require different models of diffusion. 

The other three factors take account of the imperfect information about the benefit of an innovation. Because the adoption of an innovation is associated with risk of failure, Rogers (1995) calls the diffusion an uncertainty-reduction process. Alternative innovations are not only valued by potential adopters by the promised benefit but also by the risk of failure to deliver the promised benefit. Conqjlexity of an innovation increases uncertainty, whereas observeability, the degree to which the result of an innovation is visible to others, and friability, the degree to which an innovation can be experimented with, reduce uncertainty for potential adopters. Uncertainty is able to disparage the expected value of benefit, whereas relative certainty can compensate a lower utility of a variant. It can be expected that these attributes support the international diffusion of an innovation as well. A country has therefore an international advantage if other coimfries have better access to information on innovations adopted there. 

The review of literature on the international diffusion reveals that although some factors have been identified determining the adoption lag between countries, there is no theoretical concept of the mechanisms of the international diffusion of nationally induced innovations. International adoption models have rarely been combined with models of local or global externalities described in section 2.3. Furthermore, in these studies the link between early adoption and the competitive advantage of companies is only stressed by Tilton (1971). This link is especially the main contribution of the international product life cycle proposed by Vernon (1966). To conclude this review, I now turn to the historical assessment of the home market advantage of multinational firms. 

This, too, is the conclusion of Thirtle and Ruttan after reviewing historical evidence, that in the context of international diffusion of innovations aspects of technical change such as induced innovation, the effect of market structure, appropriate technology, diffusion, and technology transfer interact in a complex manner (Thirtle, Ruttan, 1987,... 

The endogenous side of the model is the lead market potential. The lead market potential is the ability of a county to shape the global dominant design by its domestic preferences and market conditions. The country with the largest lead market potential is expected to become the lead market. The lead market potential is a true latent variable because the lead market potential of countries that finally follow the country that has the largest lead market potential is not observable. The empirical model of the international diffusion of an innovation is that one market leads and all others follow suit. In the lead market theory there is no further distinction within countries that follow, whether they follow earlier or later. There are probably determinants for fast and slow followers but these are not investigated in this thesis. Therefore observation of the exogenous variable would be 1 for the lead market and 0 for all countries that follow. This observation pattern makes it impossible to estimate the influence of the lead market factors on the lead market role of countries unless a sufficient number of ex post lead market cases have been... 

One last argument questioning the value of the lead market theory is that chance plays a major role in the international success of innovation designs. Even if internationalisation mechanisms are behind the observed pattern of international innovation diffusion, chance could have so large an impact on the selection of a lead market that predictions about lead markets have little predicting power. Since there are so many possible mechanisms, one can not know ex ante what mecha-... 

Swan, Philip L., 1973, The International Diffusion of an Innovation, Journal of Industrial Economics 23 (1), 61-69. 

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