Does competition help innovation?

competition-cooperationThe question of what drives or motivates us to innovate is one that hasn’t really ever received a satisfactory answer, although having an enemy or rival is one that crops up quite frequently.

A recent paper suggests that when it comes to innovation, not all competition is created equally.  The research examined the relationship between the level of import competition a company faced and the investment in R&D that company made.

Spurred to innovate

The analysis found that where a high level of competition existed, especially from countries that pay high wages, there was a big increase in R&D spending, with a corresponding increase in the number of patents registered.

What’s more, it wasn’t just innovation for the sake of innovation, with those patents found to be more valuable than normal, and they typically represented breakthrough innovations.

Interestingly, when the competition was from lower wage countries, rather than spurring the company to greater innovation spending, it actually provoked a reduction, with a corresponding hit on output.

“While trading with low-wage countries has brought tremendous benefits to American consumers, it places significant downward pressure on U.S. firms’ profitability,” the authors say. “Policymakers should be mindful that the openness of trade with different countries will have different impacts on the long-term performance of domestic firms and on the economy, due to their different impacts on innovation.”

A 10% increase in competition from importers corresponded with a 7% hike in R&D spending, which resulted in a 5% increase in the number of patents registered.

Different kind of rivals

The authors believe, therefore, that competition can be crucial to spurring us to innovate, but only if it’s the right kind of competition, which in this case was from rich country rivals.

This was because rivalry from rich countries was often more based on technology, whereas rivalry from poorer countries was often more based on the abundance of natural resources or cheap labor, which is less of a spur to innovate.

Of course, competition isn’t just a factor in a macro sense, but also has an impact on how employees behave internally.  Indeed, many a manager has purposefully created a sense of rivalry in order to spur their charges on.

Be wary of declaring war

A study published in 2014 by researchers at Brigham Young University found that managers can often slip into war-like rhetoric when talking about their rivals to their teams.

Alas, when employees were prodded into that kind of mindset, it resulted in a worrying rise in unethical behavior, with employees happily bending rules in order to triumph in the fight or flight environment their boss had created.

Another study found this kind of rhetoric was especially damaging to female employees.  It found that women were much more creative in collaborative rather than competitive environments, with their input declining more and more as the environment became more cut-throat.

So, whilst creating or fostering a sense of competition with a rival can help to unite your workforce, it is not without risk.  It’s something very much to handle with care.



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