iafor
The IAFOR Journal of Business and Management
Volume I – Issue I – Summer 2014

IAFOR Publications
Executive Editor:
Joseph Haldane
The International Academic ForumThe IAFOR Journal of Business and Management
Editor:Merlin Levirs, Ritsumeikan University-Biwako Kusatsu Campus, Japan
Associate Editors:
Catalino Mendoza, University of Batangas, Hilltop Campus, Philippines
Takeshi Kamijo, Ritsumeikan University, Biwako-Kusatsu Campus, Japan
Robert Compton, State University of New York, College at Oneonta, USA
Published by The International Academic Forum (IAFOR), Japan
IAFOR Publications. Sakae 1-16-26-201, Naka-ward, Aichi, Japan 460-0008
Journal of Business and Management
Volume I – Issue I – Summer 2014
IAFOR Publications © Copyright 2014
ISSN: 2187-0659
Online: iafor.org/iafor/publications/iafor-journals/iafor-journal-of-business-andmanagement
Cover image by Carl Parkes/Flickr
https://www.flickr.com/photos/friskodude/1188078

The IAFOR Journal of Business and Management
Volume I – Issue I – Summer 2014
Edited by Merlin Levirs	  The IAFOR Journal of Business and Management

Volume I - Issue I - Summer 2014

Table of Contents
Introduction
Merlin Levirs

1

Understanding the Psychological Traits Affecting Functioningin Foreign Cultures and Performance in Foreign Languages:
Application of the Kozai Group's Global Competencies Index
Timothy Dean Keeley

3

The Impact of Underwriter Reputation and Risk Factors on
the Degree of Initial Public Offering Underpricing:
Evidence from Shariah-Compliant Companies
Nashirah Binti Abu Bakar and Kiyotaka Uzaki

15

Innovations Creator Networks:
Blind, Quantitative, Longitudinal Databases for
Comparison of Pharmaceuticals and Film
Merlin Levirs

31David versus Goliath: Harnessing the Power ofSMEs in the Fight for Sustainability
Dana Coble and Anshuman Khare

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The IAFOR Journal of Business and Management

Volume I - Issue I - Summer 2014

Introduction
Merlin Levirs, Editor-in-Chief
Welcome to the inaugural issue of the International Academic Forum’s Journal ofBusiness and Management. Salutations, too, from its governors, editors, andcontributors as we submit the earliest stage in the evolution of scholarly discourse on
business and management topics expressed through the varied diaspora of Asia’s
peoples for a global audience. While precision of communication for readers who
are unlikely to be native English speakers and of academically rigorous research are
non-negotiable requirements for publication, IAFOR-JBM editorship shuns
constraining analytical conceptions that organically arise from Asians’ distinctive
cognitions so as to invoke Asia’s voices and perspectives on business andmanagement without obstruction or revision.
Articles contained in this issue were sourced from the Asian Conference on Businessand Management 2012. This event attracted 80 delegates, included 70 researchpresentations, and had 33 proceedings papers submitted. From these, a fraction of
top research papers on a range of high-relief topics were chosen for inclusion herein.
Said articles were further enhanced for descriptiveness and precision in thecommunication of the research, and the depth, breadth, and importance of theirresearch and topics. The resulting articles offer an initial taste of the range of topics,
height of scholarship, Asia-ready character of linguistic expression, and knowledge of
those interested in the future of business and management perspectives arising fromthe Asian milieu.
The first article, by Timothy Dean Keeley, applies the Global Competency Index(GCI) of Kozai Group to ascertain which personality traits predictively correlate
persons’ success in undertaking business and management activities in foreigncultures with successful language acquisition characteristics. Proven successful indetermining individuals’ capability to function as expatriate businesspeople, Keeley
determines that capability to perform in foreign languages is likewise shown. His
research indicates that the psychological traits for cultural adaptability also operate forlinguistic adaptability. He argues for altering self-perception and training regimens
to align cross-cultural competencies and cross-cultural communication forovercoming self-constraining sentiments.
In the second article, co-authored by Nashirah Binti Abu Bakar and Kiyoshi Uzaki,
Shariah-compliance’s underpricing of initial public offerings of Shariah-compliant
versus non-Sharia compliant firms is vetted using updated analytical techniques.
This begets results that significantly and interestingly diverge from those of others’
earlier research on the issue of the impact of Shariah-compliance. The variation inmethod of reporting between those timeframes accounts for only some of thatdifference. Looking for the source of the remaining difference, the authors refocus
on the role of underwriter reputation for its effect on the evaluation of risk and, so,underpricing in the context of the aforementioned compliance versus non-compliancedistinction.
They find that risk is the most informative component in
Shariah-compliant firms’ underpricing at IPO.
The third article presents Merlin Levirs’ review of sources of data capable ofaddressing how constitution of social networks of innovators indicates the effects of1

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policy change on national innovative capacity. Fitness, methodology, and lack ofdata sources are identified as constraints to making network research actionable, sobuilds a case for two sources generating workable and comparable databases.
Specific parallels across the highly discrete contexts of these two databases’ sources
are explored in order to facilitate research between them and to outline the standards
by which other potential databases could also fit into a comparative analyticalframework.
In the fourth article, Dana Coble and Anshuman Khare co-author a study identifying
how small and medium enterprises’ (SMEs) capabilities potentially and actuallycontribute to actions taken against some of the world’s most pressing, current threats
to sustainability. They stipulate unique characteristics that are typical among SMEs
and equip them well for addressing major long-term environmental andsocio-economic shortcomings. Embeddedness, integration, and flexibility are chief
among SMEs pertinent characteristics. The authors also note how big government’s
administrative and legal mechanisms fit poorly with various characteristics common
among SMEs and they also determine that engagement generally, and in the goal of
attaining sustainability, suffers because ill-fitting policy design fails to give themadequate consideration and opportunity to aid in the fight against such threats.
Please note that the IAFOR Journal of Business and Management welcomes thesubmission of original research papers related to the spectrum of business andmanagement topics from practitioners and academics alike. Manuscripts may besent even though the authors did not participate in a relevant conference held by
IAFOR. Also welcome are book reviews, reviews of literature in the field, andcontributions introducing prominent business, management, and applied economics
scholars, leaders, and experts. The next issue of the IAFOR Journal of Business andmanagement will also primarily select from papers submitted during the 2013 Asian
Conference on Business and Management for its core articles.
All IAFOR publications are available on the website without cost (Open Access).
Additionally, no publication fee is charged on authors. Upon acceptance, layout andlinguistic guidelines are conveyed to the authors for consideration, final editing, and,if necessary, revision. Again, we thank you for your time and interest in IAFOR’s
new Journal of Business and Management and invite your return and, if you areinterested, contribution to future scholarship published herein.

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Understanding the Psychological Traits Affecting Functioning in
Foreign Cultures and Performance in Foreign Languages:
Application of the Kozai Group's Global Competencies Index
Timothy Dean Keeley, Professor International Management,
Kyushu Sangyo University, Fukuoka, Japan
Abstract
This ground-breaking empirical study involving the application of Kozai Group's
Global Competency Index (GCI) with 86 Chinese Students in Japan elucidates theimportance of certain personality traits that modulate ability to succeed in businessand other goal-oriented activities in foreign cultures and success in performing in oral
performance in foreign languages. Fourteen of the 16 GCI dimensions were strong
predictors of oral/aural performance in Japanese among the 86 Chinese subjects.
The results indicate that the vast majority of the personality traits represented by the
GCI, which have been validated in terms of enabling successful cultural adaption for
optimal performance in global business, also facilitate oral/aural performance inforeign languages.
Adaptation to foreign cultures and acquisition of proficiency in foreign languages
often prove to be key factors in determining the degree of success in a foreign
assignment or long-term cross-cultural business relationship. Kozai Groups GCI has
been widely used as a predictor of ability to function in foreign cultures and is
especially applicable to screening candidates for long-term assignments abroad.
This empirical study demonstrates that the same psychological traits that facilitate
cultural adaptation also facilitate performance in foreign languages. This knowledge
can form the basis for introspection and training programs for improving
cross-cultural competences and cross-cultural communication.
The key tounderstanding the reasons behind the sentiment of the statement "I am just not good atspeaking foreign languages" and how to overcome this state of mind is provided.

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Introduction
For more than 36 years I have been travelling, study, working and living abroadacquiring new languages at increasingly higher speeds and efficiency to the point that
presently I learn a new language every 12 to 18 months on average. In the processof acquiring more than 20 languages for conversation and more than 30 for basic
comprehension, I have developed an understanding of the explicit and implicit factorsthat facilitate the acquisition of foreign languages by observing myself and others. I
have always noted that assimilation of a foreign culture in terms of acceptance (notfeeling awkward or estranged when functioning in a foreign culture) takes the studyof a foreign language beyond meta-linguistic knowledge (conceptual understanding of
semantics, grammatical rules, syntax, phonology, etc.) to the level of acquisition
enabling a native-like fluency in the target language. In other words, in such a state,
it does not feel unnatural to participate in the culture and speak the language. Thereis no feeling of being a traitor to one’s identity associated with one’s mother tongue
and the culture of one’s upbringing. Thus, I hypothesize that the psychological traits
that facilitate successful cultural adaptation while working or studying in a foreignculture also facilitate acquiring a foreign language in the terms of high level
performance, defined as approximating a native speaker in oral communication.
Previous research on cultural adaptation and foreign language acquisition
Social, psychological, and affective (SPA) factors are important determinants ofsuccess or failure in foreign language acquisition (Brown, 1980; Schumann, 1975;
Taylor, 1974). Since psychological and affective factors also play an important rolein determining success or failure in adapting to and functioning in a foreign culturalenvironment, many of the SPA factors related to SLA also explain individual
differences in cultural adaptation. Schumann’s (1986) acculturation model predicts
that learners will acquire a target language to the degree they acculturate to the target
language group. Schumann (1986: 379) stated: “I also propose that any learner can beplaced on a continuum that ranges from social and psychological distance to social
psychological proximity with speakers of the target language, and that the learner will
acquire the second language only to the degree that he acculturates.”
Larsen-Freeman & Long (1991) argue that Schumann did not specify the
combinations and levels of social and psychological factors that predict language
outcomes, nor did he explain how these factors affect the rate of attainment. This
remark shows the excessive demands of strict empiricism, expecting definitivenesswhere it may not be available. The experiment presented in this research serves topartially address this concern, however, it must be understood that there is no one
single recipe for successful foreign language acquisition. The experiment in thisresearch does not attempt to quantitatively verify Schumann’s Acculturation Model,
but the results do demonstrate that the spirit of the model is very insightful and thatany model attempting to explain individual differences will be made more robust byincorporating these culture-language related factors.
According to Dörnyei (2005), inconclusive results in the literature concerning therelationship between psychological traits (personality variables) or SPA and SLA
have been partly due to methodological limitations or inconsistencies. The main
issues concerning reliable and meaningful results are that: (1) the dependent variable

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– measures of individual differences in FLA, and (2) the independent variable(s) –measures of psychological traits (such as personality, attitudes, motivation, etc.) – and(3) the theoretical constructs tying together the measured independent variables.
The dependent variable SLA or foreign language acquisition (FLA) has often been
language achievement in terms of academic success in foreign language study
measured by such criteria as test scores, grade point average, final degree results, andcourse-specific evaluations.
All these are very indirect measurements ofperformance in the target language and would not capture the finer points ofindividual difference in oral/aural performance compared to native speakers of thetarget language, such as communication competence, accent, pronunciation,
naturalness of speech, etcetera. Some studies (e.g. Naiman et al., 1978) that only
examined criterion measured from written language found no relationships between
these and extraversion-introversion.
There are also problems with consistency: akin to the proverbial comparison of apples
and oranges. The issue is this case is whether or not the foreign language learners
are sufficiently similar in terms of their relevant background factors (those that would
affect FLA performance but are not psychological traits or SPA). More reliable
results for the dependent variable under consideration may be obtained by using
subjects who have reached a predefined high-level threshold in FLA attainment, suchas becoming a student at a university where the target language (TL) is the languageof instruction for non-language-related courses, share the same mother tongue, andare controlled for other potentially significant demographic variables.
Asdemonstrated in the analysis of the subjects’ demographics in this paper, these factors
have been sufficiently considered and accounted for.
As for the independent variables, the approach of this study is to examine factors thathave been proven to account for individual differences in successfully cultural
adaptation. This approach addresses the need for more complex theoreticalconstructs. MacIntyre, Clément, Dörnyei, and Noels (1998) offer the Willingness to
Communicate (WTC) model in which personality comprises an important part of theconstruct, with four further layers of variables conceptualized between personality
traits and communicative behaviour (Dörnyei, 2005:23). However, there is still aneed to follow a theoretical construct that takes into to consideration that activelyfunctioning in a foreign language usually takes place in a foreign cultural environment.
Thus, we must explore which psychological factors facilitate both cultural adaptationand foreign language acquisition.
Measuring psychological traits facilitating cultural adaptation
After reviewing most of the questionnaires that are used to predict people’s ability tofunction effectively in cross-cultural environments, Kozai Group’s Global
Competencies Index (GCI) was chosen as the most appropriate instrument based on
my expertise and experience in the field of cross-cultural management. The Kozai
Group kindly agreed to cooperate by offering the free use and analysis of the GCI in
the experiment. Thus, the Kozai Group’s GCI was employed as a validated
instrument for measuring psychological traits affecting cultural adaptation (associatedwith effective behavior in a cross-cultural environment) to obtain rankings for theexperimental subjects in 16 competencies to explore if relatively higher scores

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correspond with higher oral/aural performance in a foreign language. The 16
competencies of the GCI are associated with effective intercultural behavior anddynamic global managerial skill acquisition and are grouped under three factors:
Perception Management, which deals with learning effectively and includes: (1)Nonjudgmentalness, (2) Inquisitiveness, (3) Tolerance for Ambiguity, (4)Cosmopolitanism, and (5) Interest Flexibility; Relationship Management, which
focuses on managing relationships effectively and is comprised of (6) Relationship
Interest, (7) Interpersonal Engagement, (8) Emotional Sensitivity, (9) Self Awareness,and (10) Social Flexibility; and Self Management, which explores managing the selfin challenging situations and is composed of (11) Optimism, (12) Self Confidence,(13) Self-Identity, (14) Emotional Resilience, (15) Non-Stress Tendency, and (16)Stress Management.
Experimental methods
The GCI was administered to 86 Chinese students studying at Kyushu Sangyo
University, where Japanese is the main medium of instruction. These scoresfunctioned as the independent variables. In order to measure the dependent variable,
foreign language ability, the 86 subjects participated in videotaped seven-minutesemi-structured interviews with a Japanese native speaker who interviewed each of
the 86 subjects. Six native speakers of Japanese, with graduate degrees in various
fields and ranging in age for 24 to 62, ranked the subjects independently (noconsultation with one another) over a period of one month. The evaluation criterion
was “how closely the Chinese students sounded like a Japanese native speaker.” Thejudges were instructed to force-rank the participants’ performance on a 1 (the lowest)
to 5 (the highest) Likert scale assigning 18 participants with the score of 5, and theremaining four groups of participants (17 in each group) with rankings of 4, 3, 2, or 1
(18+17+17+17+17=86).
To reduce inter-rater variation the highest value and lowest value were discarded
leaving 4 scores. The reliability of the measurement for “Japanese Ability” whenusing all 86 subjects was 0.594 in terms of average standard deviation as an indicationof inter-rate variability, indicating high relatively inter-rater agreement. The
reliability of the measurement for “Japanese Ability” when using sub-groups Top 17
and Bottom 17 was 0.315. The average rating of the Top 17 is 4.705 while that of the
Bottom 17 was 1.617, yielding an average difference between the two groups of 3.08
in terms of their “Japanese Ability” ratings.
Demographics of subjects
Detailed demographic information about the subjects that might potentially accountfor differences among the subjects in oral/aural performance (factors other than thosemeasured by the GCI) was gathered and analyzed. The analysis revealed that among
all the demographic-related questions, there were only two questions demonstrated apositive significant association with foreign language ability outcomes. Both thesequestions were related to motivation for learning Japanese.
The mean age of all 86 subjects was 24.31 with a range of 19 to 32 years of age.
There was no significant correlation between age and “Japanese Ability” as measured
in the experiment (N = 34/86 Pearson Correlation: 0.116/0.089, Sig. 2-tailed:

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0.512/0.415).
In light of the so-called “Critical or Sensitive Period” hypothesis, “Age Started toStudy a Foreign Language” (ASSFL) was investigated. The variable ASSFL wascreated by re-coding the ages: age 9 and below = 4, age 10 ~13 = 3, age 14~17 = 2,
and age 19 and above = 1. There is no correlation between the recoded variable and“Japanese Ability” (N = 34/86 Pearson Correlation: -0.018/-0.100, Sig. 2-tailed:
0.919/0.359).
As for gender, there were 30 male subjects (34.9%) and 56 female subjects (65.1%).
There was no significant relationship between gender and “Japanese Ability” (N =34/86 Pearson Correlation: -0.124/-0.045, Sig. 2-tailed: 0.484/0.678). If there were acorrelation then a negative number would mean that being male may be an advantage,
since Male = 1 and Female = 2.
The relationship between “age came to Japan” and “Japanese Ability” was also
explored. There was no significant relationship between “age when came to Japan”
and “Japanese Ability” (N = 34/86 Pearson Correlation: 0.089/0.116, Sig. 2-tailed:
0.415/0.512). However, on average the Top 17 came to Japan at a later age than the
Bottom 17.
“Months residing in Japan” at the time of the experiment was also recorded andanalyzed. There was no significant correlation between “Months residing in Japan”
with “Japanese Ability” (N = 34/86 Pearson Correlation: 0.076/0.111, Sig. 2-tailed:
0.668/0.308). The lack of a significant correlation between “Months residing in Japan”
and “Japanese Ability” coincides with my expectations. Almost all the subjects havebeen in Japan for at least 2 years. This is sufficient time for adept language learners
to acquire a high level of Japanese, given sufficient motivation. Length of residence
tends to decrease in importance as time passes and 2 out of the 7 longest residents (allsubjects included) are in the Bottom 17.
The “number of countries visited for at least one week besides Japan” was also noted.
The overall majority of the subjects (88.4%) have not been to a foreign country otherthan Japan. Three of the 10 people who have visited a foreign country besides Japan
are in the Top 17 and one is in the Bottom 17 in terms of “Japanese Ability.”
Furthermore, only one subject had lived in another foreign country besides Japan(Russia) and that subject lived there for six months. This subject is not in the Top 17
in terms of Japanese Ability.”
The number of languages spoken by the subjects was also analyzed. Though thecorrelations between “Japanese Ability” and “Numbers of Languages Spoken” areonly significant at 0.112 (88%) for the Top/Bottom 17 and 0.074 (92%) for all
subjects, in general, the author has experienced that learning languages gets easier as
the number of languages spoken increases. One reason for the lack of a significant
correlation may be the fact that all the subjects obviously spoke at least 2 languages(Chinese and Japanese) and the number of subjects who spoke 3 languages was only
about 25% of the total number of subjects. Note that 35.3% of the Top 17 spoke 3
languages compared to only 1.2% of the total 86 subjects.

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The “number of months spent studying in a Japanese language school in Japan” wasalso investigated. There is not significant correlation among all subjects between
months spent studying at a Japanese Language School in Japan with “Japanese Ability”(Pearson Correlations: -0.172, Sig. 2-tailed: 0.112); note that though it is notstatistically significant, it is slightly negative. Ironically, overall the subjects in the
Top 17 have spent less time in a Japanese Language School in Japan that the subjects
in the Bottom 17. This observation suggests autonomous and self-directed language
learning may be a factor in determining the degree of success.
A number of questions concerning the students’ motivation were included in thequestionnaire. Among these questions, two demonstrated a significant relationship:“I wanted to learn Japanese in order to study at a Japanese University” (N = 34/86
Pearson Correlation: 0.407/0.220, Sig. 2-tailed: 0.017/0.042) and “I wanted to learn
Japanese because I like to learn foreign languages” (N = 34/86 Pearson Correlation:
0.444/0.291, Sig. 2-tailed: 0.009/0.007). In addition, ANOVA analysis for the
Top/Bottom 17 yielded an F of 10.419 and an F of 2.992 for all 86 subjects. It isinteresting to note that enjoying learning foreign languages had the highest
significance among all the motivational factors investigated.
The number of hours the subjects watched TV programs in Japanese during their firstyear in Japan was also noted and analyzed in relation to differences in measured
oral/aural Japanese performance. The main difference between the Top 17
compared to the Bottom 17 and all 86 subjects is that the percentage for zero hours
and one hour is about half of the other two groups while the percentage for two hours
is about double. In considering these results, keep in mind that watching TV in aforeign language, the target language, is challenging and requires persistence andstrong motivation to learn. However, this factor was not significantly correlatedwith “Japanese Ability” (N = 34/86 Pearson Correlation: 0.202/0.174, Sig. 2-tailed:
0.253/0.110).
The self-reported ability in Japanese of the subjects was also analyzed. There is no
significant correlation between the subjects’ self-reported “Japanese Ability” when
they first came to Japan and their present measured “Japanese Ability” (N = 34/86
Pearson Correlation: - 0.010/0.0.051, Sig. 2-tailed: 0.956/0.664).
Results of the experiment and model
The results clearly indicate that the GCI as a whole is a very powerful predictor of
oral/aural performance in foreign languages. First, the analysis of variance of the
GCI scores yielded an F Value of 51.648 (Sig.: = 0.000) for the Top 17 versus the
Bottom 17 and an F Value of 16.967 (Sig.: = 0.000) for all five groups. There is ahighly significant positive correlation between Overall Global Competency scores and“Japanese Ability” in the case of the Top 17 versus the Bottom 17 (0.779, sig.: 0.000)
as well as for all 86 subjects (0.624, sig.: 0.000). Furthermore, the Top 17 subgroupmean score for the Overall Global Competency (3.4687, std. dev.: 02812) issignificantly greater (0.6412 std. error: 0.0892) than that of the Bottom 17 (2.8275, std.
dev.: 0.2248).
Thus, it is clear that the GCI provides an excellent basis for a model for factors
facilitating both cultural adaptation and foreign language acquisition in terms of

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oral/aural performance. After examining the results of ANOVA, correlations, anddifferences in the means between the Top 17 and the Bottom 17 for all of the 16
individual competencies that comprise the GCI, two competencies belonging to thePerception Management factor, Nonjudgmentalness and Inquisitiveness, were
excluded from the model due to a lack of significant results. The resulting modelwith the ANOVA, correlations, mean differences are given in Figure 1. The resultsof the regression analysis for each of the three factors (Perception Management,
Relationship Management, and Self Management) are also provided.
Figure 1: Model for Factors Facilitating both Cultural Adaptation and
Oral/Aural Performance in Foreign Languages

Self-Management factor
Among the three GCI factors, the Self Management dimension had the strongest
association with foreign language ability. Mendenhall & Oddou (1985) concluded thata domain of variables existed in the cross-cultural adjustment literature that could be
categorized as including “activities and attributes that serve to strengthen theexpatriate’s self-esteem, self-confidence, and mental hygiene (p. 40).” They labeledthis domain, the Self-Oriented dimension of intercultural effectiveness. Subsequent
reviews of both the global leadership and the expatriate literature support the validityof this dimension as an important contributor to intercultural effectiveness. The Self
Management dimension takes into account people’s strength of identity and theirability to effectively manage their emotions and stress. To be successful inintercultural situations, it is critical that people have a clear sense of themselves and a

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clear understanding of their fundamental values. To be effective in a global context,
people must be able to understand, change and adapt appropriately to the foreign work
and intercultural environment, yet at the same time, they must also have a stable senseof self in order to remain mentally and emotionally healthy (cited from Kozai Group
document).
The competencies that comprise the Self Management factor are also important
attributes in foreign language acquisition, in particular Self-Identity, which plays andimportant role in the development of the ability and willingness to mimic native
speaker speak patterns, accents, and rhythm. In fact, Self-Identity was the strongest
predictor of foreign language ability among all competencies. Language acquisitionis also a process of identity construction and how a person sees himself/herself in
relation to the language being acquired and to the speakers of that language alongwith their culture. Wegner (2000: 239) stated, “As identity is not an abstract idea orlabel, such as a title, and ethnic category, or a personality trait. It is a lived
experience of belonging (or not belonging). A strong identity involves deep
connections with others through shared histories and experiences, reciprocity,
affection, and mutual commitments.”
The development of a strong core identity is a critical factor in gaining from thetransformative process of acquiring a foreign language and relating to the culture inwhich it is embedded. My own personal journey in learning languages as well as
discussion with others has made me aware of the importance of the transformational
experience brought on by the process of acquiring a new language. Thistransformational experience has been described in various ways in the SLA literature
as well.
In “Never Quite a Native Speaker: Accent and Identity in L2 and L1”, Nicole Marx
(2002) states:
The desire to learn a new language can sometimes be an overwhelming
influence on an individual's life. Even where the 'ultimate' acquisition of a foreign
language is not essential for survival in a new cultural milieu, participation of any
form in the culture and the intentional acquisition of a new linguistic identity can
result in a 'seismic mental shift' (Hoffman, 1989:105) in a language learner's
understanding and interpretation of the world around him. This is especiallypertinent in the case of immigrants and other language learners who are immersed in
the new language and culture and who intend to remain in that culture, at least for asignificant amount of time.”
Relationship Management factor
The Relationship Management dimension had the second strongest association withforeign language ability. In their review of the research, Mendenhall & Oddou(1985: 41) concluded that a dimension was warranted that encompassed “the ability todevelop long-lasting friendships with host-nationals,” due to the fact that this ability“emerged as an important factor in successful overseas adjustment (Abe & Wiseman,
1983; Brein & David, 1971, 1973; Hammer, et. al., 1978; Harris, 1973; Hawes &Kealey, 1981; Ratiu, 1983), accounting for large portions of the variance in the factor
analytic studies studying adjustment (Hammer, et. al., 1978; Harris, 1973).” The

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ability to create and maintain relationships with individuals in cross-cultural/global
settings was found to be a key competency domain. The GCI dimension ofRelationship Management assesses people’s orientation toward the importance ofrelationships in general; how aware they are of others and their interaction styles,
values, etc., and the level of awareness they have of themselves and their impact onothers. Relationships also become a source of information to help people understandother cultures and may also be a source of social support. The development of
positive relationships is a critical aspect of effective intercultural job performance(Harrison & Shaffer, 2005; Mol et. al., 2005). (Cited from Kozai Group Document)
In language acquisition no man is an island and thus the factors comprising the GCI
Relationship Management domain can play an important role in the foreign language
process. Though it is true that language does function as a system of cognitive
representation and manipulation within the human mind, most would argue that anequally important role is the social function as a means for communication. In thecase of FLA the social aspect is almost always the central goal (rather than the desire
to think in a foreign language). The desire to communicate and establish
relationships with native speakers of the target language may serve as motivation forlearning and facilitate conditions for acquisition.
Perception Management factor
The GCI dimension of Perception Management examines how people cognitively
approach cultural differences.
It assesses people’s mental flexibility whenconfronted with cultural differences, their tendency to make rapid judgments about
those differences, their ability to manage their perceptions when confronted withsituations that differ from what they expect and, finally, it also assesses people’s
innate interest in, and curiosity about, other cultures. In sum, our perceptions ofpeople who are different from us will ultimately affect what and how we think about
them, and very importantly, our behavior toward them (cited from Kozai Group
document).
The GCI dimension of Perception Management also appears to be related to how
people cognitively approach a foreign language. People’s mental flexibility whenconfronted with cultural differences also has parallels in their mental flexibility whenconfronted with different language constructs in relation to syntax, morphology,
phonology, etc. Learners’ ability to manage their perceptions when confronted withsituations that differ from what they expect may be related to how they react whenconfronting differences between their mother tongue and the language they are
seeking to acquire. Interest in, and curiosity about, other cultures is often a trait ofpeople who are enthusiastic about acquiring foreign languages. Actually, such acuriosity is often one of the main motivations for acquiring the foreign language. Insum, our perceptions of people, their language and culture will ultimately affect thedegree of motivation we have to acquire the language and interact with them.
Conclusion
The hypothesis that the psychological traits that facilitate cultural adaption and theability to function in foreign cultures also facilitate foreign language acquisition,
particularly in terms of oral/aural performance, has been supported by the results of11

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this study. This experiment has overcome weaknesses of past studies in terms of
having a more accurate measurement of language acquisition by focusing on
oral/aural performance of subjects who have all attained a level high enough to allow
them to study in the target language. Additionally, multiple demographic and related
factors, other than those in the GCI that might account for differences in oral/aural
performance were also analyzed and shown not to be significant in the case of thisgroup of subjects. Thus, it is not only possible to use Kozai Group’s GCI to screen
candidates for cross-cultural assignments in terms of predicting the probability of
being able to function well in a cross-cultural environment, but also to predict theirsuccess in oral/aural performance in foreign languages if they seek to learn thelanguage in question. This makes the GCI an important tool in the selection andtraining process when ability in the language of the host county is required.

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References
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Amati-Mehler, J., S. & J. Canestri (1993). The Babel of the unconscious: Mothertongue and foreign languages in the psychoanalytic dimension. Translated from
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Harris, J.G. (1973). A science of the South Pacific: Analysis of the character
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Markus, H., & Kitayama, S. (1991). Culture and the self: Implications forcognition, emotion, and motivation. Psychological Review, 98: 224-253.
Marx, N. (2002). “Never quite a native speaker: Accent and identity in the L2 and theL1.” The Canadian Modern Language Review, 59 (2): 264-281.
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Journal of Cross-Cultural Psychology, 36(5): 590-620.
Naiman, N., M. Frohlich, D. Stern & A. Todesco. (1978). The good language learner.
Canada: Ontario Institute for Studies in Education.
Norton, B. (2000). Identity and Language Learning. Harlow: Pearson Education
Limited.
Oguri, M., & Gudykunst, W.B. (2002). The influence of self construals andcommunication styles on sojourners’ psychological and sociocultural adjustment.
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adaptation for international students: Mapping the paths between self-construals,
English language confidence, and adjustment. International Journal ofIntercultural Relations, 30(4): 487-506.
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Schumann, J. H. (1975). “Affective factors and the problem of age in second language
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Schumann, J.H. (1978). “The acculturation model for second-language acquisition.”
In R.C. Gingras, (ed.), Second Language Acquisition and Foreign Language
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Schumann J.H. (1986). “Research on the acculturation model for second language
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intercultural effectiveness, and cross-cultural adjustment. Paper presented at theannual meeting of the International Communication Association, Washington,
D.C.

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The Impact of Underwriter Reputation and Risk Factors on the
Degree of Initial Public Offering Underpricing:
Evidence from Shariah-Compliant Companies
Nashirah Binti Abu Bakar
Graduate School of Economics, Faculty of Economics, Oita University, Japan.
Kiyotaka Uzaki
Faculty of Economics, Oita University, Japan.
Abstract
IPO underpricing is an important factor used by investors to predict the profit frominvestment activities. Numerous empirical researches report the existence of IPO
underpricing in various investment environments around the world. However, what
the factors that result in such underpricing vary by country and those factors are stilllargely unexplored. This underpricing phenomenon is difficult to understand because
various issues are related such as companies’ performance, government policy andeconomic condition. Thus this paper investigates the average degree of IPO
underpricing listed on the Malaysian Stock Exchange (MSE) using data from 476
IPOs that occurred from 2000 to 2011. MSE is a unique stock exchange because it has
two types of boards which are the shariah-compliant board and the nonshariah-compliant board. 89 percent of the IPO companies are listed on the
shariah-compliant board. This paper has two objectives. Firstly, this paper
investigates the average degree of IPO underpricing for shariah-compliant companies
and non shariah-compliant companies. Secondly, this paper investigates the impact ofunderwriter reputation and risk factors on the average degree of IPO underpricing.
The results show that the average degree of IPO underpricing for shariah-compliant
companies is 28.82 percent which is quite similar to that of non shariah-compliant
companies which is 26.63 percent. Using multiple linear regression analysis this study
finds that the IPO underpricing for shariah-compliant companies is driven by risk
factors.
Keywords: Initial Public Offering (IPO), Underpricing, Shariah-compliant
companies, Non shariah-compliant companies and Malaysian Stock Exchange(MSE).

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Introduction
1.1 Background
Selling shares to the general public is an important process for companies to raise
capital for the expansion of business. The first instance for a company to sell its
shares to the general public on a stock exchange is known as an Initial Public Offering(IPO). According to Taufil Mohd (2004), underpricing refers to the initial return thatan investor earns if he buys shares of the IPO at the offer price and sells it at the endof the listing day at the market price. Hutagaol (2005) underpricing refers to thesignificance increase of the IPO market price over the first few days after the initiallisting. Murugesu and Santhapparaj (2009) underpricing refers to the situation where aprivate company seeking to list its shares on stock exchange at a discount pricerelative to its true value. This situation makes investors earn a negative return if they
were to immediately sell their shares once trading commences.
IPO underpricing is a common phenomenon for stock markets around the world.
Studies from Boulton, et al., (2012); Banerjee, et al., (2010); Nguema and Sentis(2006); Agathee, et al., (2012); Darmadi and Gunawan, (2012); Islam, et al, (2010);
Samarakoon, (2010); Borges, (2007); Pande and Vaidyanathan, (2007); Chi andPadgett, (2005); Ekkayokkaya and Pengniti, (2012); Yamamoto, (2009)) confirmed
the existing of underpricing during initial stock exchange trading. However, the factor
that influences IPO underpricing varies across countries and that variation still
remains largely unexplored.
The MSE is a unique stock exchange in that it has two types of boards which areshariah-compliant board and non shariah-compliant board that operate concurrently.
At the end of 2011, 89 percent of IPO companies were listed on the
shariah-compliant board (List of Shariah-Compliant Securities, 25 November 2011).
Shariah-compliant companies have become important participant in the global capital
market. This phenomenon was due to the awareness and demand from Muslim people
in Malaysia and around the world to participate in the capital market. IPOs forshariah-compliant companies have also gathered significant attention in attracting
non-Muslim companies and investors to participate. Thus, this paper provides
preliminary research on IPO underpricing for shariah-compliant companies and non
shariah-compliant companies listed on the MSE to address two issues. The first issue
is whether the average degree of IPO underpricing for shariah-compliant companies
is higher than non shariah-compliant companies. The second issue is associated withthe growth of shariah-compliant companies in Malaysia. Specifically, this study isdifferent from previous studies regarding IPO underpricing in the Malaysian market.
This study investigates the shariah-compliant companies with specific emphasis on
the impact of underwriter reputation and risk factors on the average degree of IPO
underpricing for shariah-compliant companies. Underwriters are important in themarketing of IPO shares. When companies seek to make IPOs on the stock exchange,
they will choose underwriters who can give good services for marketing IPO shares.
An underwriter also plays an important role in determining the offer price and createsa good relationship between issuers and prospective investors during the IPO process.
This relationship can attract the investors to buy IPO shares. A study from Carter et al.
(2010) finds that IPOs marketed by more reputable underwriters are better than thosemarketed by less reputable ones. A study from Paudyal et al. (1998) regarding

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underwriter reputation in the Malaysian market found that IPOs underwritten by
reputable underwriters are better long term investments as compared to the IPOs
underwritten by less reputable ones.
1.2 Fundamental Prohibited Elements in Islamic Finance
Shariah-compliant companies are different from non shariah-compliant companies.
The main features of shariah-compliant companies are that their activities are guided
by shariah injunctions. IPOs for shariah-compliant companies must represent anassertion of religious law where the market should be prohibited from elements suchas riba, gharar and maysir.
Prohibition of Riba
Riba literally means excess and increase. Technically, riba is defines as an increase inany exchange or sale of product or by virtue of loan without providing equivalentvalue to another party.
Prohibition of Gharar
Gharar literally implies risk, uncertainty and hazard. Technically, gharar is sales inwhich the vendor is not in a position to hand over the subject matter to the buyer,whether the subject matter is in existence or not. A contemporary scholar, Sheikh
Wahbah Al-Zahaily defined gharar in the following term: “A contract which contains
a risk to any one of the parties which could lead to his loss of properties.” (Islamic
Financial System: Principles & Operations, pp.181)
Prohibition of Maysir
Gambling (maysir) is defined as any activity which involves betting. The winner willtake the entire bet and the loser will lose his bet. It means games of pure chance where
any party might gain at the expense of the loss of the other party.
1.3 Overview of the IPO Process in Malaysia
The Malaysian Stock Exchange (MSE) was incorporated on 14 December 1976. It has
two types of markets which are the main market and the ACE market. The mainmarket was established for companies with a profitable track record for three to five
full financial years. ACE was established for high growth and technology companies
in order to raise capital. The MSE was provided with two types of boards known as
the shariah-compliant board and the non shariah-compliant board.
The Securities Commission (SC) of Malaysia was established on March 1, 1993. The
SC is a self-funding statutory body with focus on capital market regulation in
Malaysia. The roles of the SC are to regulate, supervise and systematically develop
Malaysia’s capital market. In January 1996, the SC liberalized a new method of IPO
shares issue on the Malaysian market that is based on a market-based pricing
mechanism. The market-based pricing mechanism gave responsibilities to issuers andadvisers for setting or making decisions regarding IPO price. Final approval from theSC is still required to ensure appropriateness (How et al., 2007; Abdul Rahim andYong, 2010). The SC of Malaysia is also leading the development of the Malaysian
Islamic capital market established by the Shariah Advisory Council (SAC). The rolesof the SAC are to screen or review the companies or stocks in order to ensure
fulfillment of the shariah requirements for listing shares on the shariah-compliant
board. Table 1 below explains the IPO listing process on the MSE. These processes

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are applied to both boards: shariah-compliant and non shariah-compliant.
Table 1: IPO Listing Process
No.
Steps
1 Appointment ofan underwriter
2 Implementing
organizationalchanges
3

4

5
6

7
8
9

10
11

Explanation
The underwriters are responsible for making submissions ofcorporate prospectus to SC of Malaysia and MSE.
The underwriters will assess IPO companies’ positions inview of listing exercises, such as corporate structure,composition of boards of directors, corporate governance,
and internal controls frameworks.
Appointing
All IPO companies are mandated to appoint independent
independent
directors so that at least two independent directors ordirectors
one-third of the members of the board are independent,
whichever is higher. An independent director is one who is
independent of management and free from any business orother relationship, which could interfere with the exercise of
independent judgment or the ability to act in the best interestof a listed company. (Good Governance Guide, No. 5.1)
Methodof IPO companies and underwriters need to decide on thelisting
and method for offering their IPO shares and make valuation ofvaluation
IPO companies based on past earnings in order to forecast the
future earnings.
Preparing
IPO companies and underwriter must prepare a prospectus for
documents for submission to the MSE and SC of Malaysia.
submission
Submission and The review of the application for listing begins after
review
submission of the application document. The prospectus willgo through a public exposure period on the SC of Malaysia
website for a period 15 market days for public feedback.
Approval
After MSE and SC approve the application for listing, they
will issue a letter of approval for IPO shares and a letter ofapproval-in-principle for the prospectus registration.
Registration of After receiving on approval letter, IPO companies mustthe prospectus
register on the MSE.
Investor
The offer period begins when the prospectus is issued to thebriefings
public. During this time, IPO companies need to start abriefing campaign to investors. Briefing campaign activities
can include road shows and presentations to investors by thecompany’s directors and promoters.
BallotingAfter investor briefings, the balloting of the applications willprocesscommence.
Listing
The IPO listing process ends by a listing ceremony on the
MSE and the trading of IPO shares will commerce on thisday.

1.4 IPO Shares Issues
Graph 1 shows the IPO shares issued worldwide. The graph indicates an increase of
IPO shares issued from 2009 (577 IPOs) to 2010 (1393 IPOs). The Central and SouthAmerica area’s countries have the lowest issue of IPO shares.

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Graph 1: IPO Shares Issues around the World

No. of IPO Shares

1000

879

800
600

407
292

400
200

2009
2010

192

83

76

11

30

0
Asian Pacific

Europe, Middle
East and Africa

North America Central and SouthAmerica

Regions

Source: Global IPOs Trend 2011 Report
1.5 IPO Shares Issues in Malaysia
Graph 2 shows the number of IPO share issues in Malaysia from 2000 to 2011. The
highest number of IPO share issues occurred in 2005 (79 IPOs) and the lowest
number of IPO shares issues occurred in 2009 (14 IPOs). A possible explanation of
the low number of IPO issues in 2009 is the sub-prime crisis that happened from 2007
to 2009. This crisis had a negative impact on the issuance of IPO shares in the MSE.
Graph 2: IPO Issues in Malaysia from 2000-2011

No. of IPO Issues

Number of IPO Shares Listed on the
79
72MSE
100
50

51

38

58

38

20

26

23

14

29

28

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Year

Source: Malaysia Stock Exchange
Table 2 shows the shariah-compliant companies and non shariah-compliant
companies listed on the MSE. 420 IPO shares are from shariah-compliant companies
while 56 are from non shariah-compliant companies. It is essential to differentiate
shariah-compliant companies from non shariah-compliant companies because of theirdifferent regulatory guidelines. This also helps Muslim investors to differentiate
shariah-compliant companies from non shariah-compliant companies.

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Table 2: Number of IPO Shares Issues for Shariah-compliant and Non
Shariah-compliant Companies
Year
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Total

Shariah-compliant
Non shariah-sompliant
36
2
20
0
48
3
48
10
60
12
70
9
35
3
22
4
22
1
13
1
23
6
23
5
420
56
Source: Malaysian Stock Exchange (MSE)

1.6 IPO Shares Issues by Types of Industry Listed on the MSE
Table 3 shows IPO share issues by type of industry listed on the MSE from 2000 to
2011. The highest number of IPO shares issues are from companies engaged inindustrial production (134 IPOs) followed by the trading and service industry (105IPOs). The technology industry (99 IPOs) has the third highest number of industry
IPO share issues. The lowest numbers of IPO share issues are the Closed and Fundindustry (1 IPO) and Special-Purpose Allocation Company industry (1 IPO).
Table 3: Number of IPO Shares Issue in Malaysia from 2000 to 2011 by Type ofIndustries
Industries
Industrial Products
Trading/Services
Technology
Consumer Product
Property
Real Estate Investment
Trusts (REITs)
Construction
Plantation
Finance
Infrastructure Project Cos.
Close/FundSpecialPurpose
Allocation Company
TOTAL

Total (Year 2000-2011)
134
105
99
73
19
13

Percentage (%)
28.15%
22.06%
20.80%
15.34%
3.99%
2.73%

11
9
7
4
1
1

2.31%
1.89%
1.47%
0.84%
0.21%
0.21%

476

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Literature review
2.1 IPO Underpricing
In almost every country, IPOs are underpriced. A study by Islam, Ali, and Ahmad(2010) reports a very high average degree of IPO underpricing in Bangladesh (480.72
percent) for the period 1995 to 2005. In the People’s Republic of China, IPO
underpricing of 129.16 percent, for the period 1996 to 2000, was reported by Chi andPadgett (2005).
Malaysia has also reported a high average degree of IPO underpricing. The mostsignificant study that measures IPO underpricing in Malaysia is Dowson (1987). IPO
data collected from 1978 to 1984 show that IPOs in Malaysia are underpriced at 166.7
percent, compared with Hong Kong’s 13.8 percent and Singapore’s 39.4 percent. Jelicet al. (2001) found that the average presence of IPO underpricing is 99 percent during
the period 1980 to 1995. The study from Yong and Isa (2003) found that the averageoccurrence of IPO underpricing is 94.91 percent over the entire January 1990 to
December 1998 period. Murugesu and Santhapparaj (2009) found that IPOs areunderpriced at 81 percent from 1999 to 2004. The previous studies regarding IPO
underpricing in the Malaysian market reported that the average degree of IPO
underpricing is high if compared with the other mature stock markets around theworld. This underpricing phenomenon happened in most stock exchanges around theworld. Table 4 shows the average degree of IPO underpricing around the world. The
highest IPO underpricing is reported in Bangladesh and the lowest in Portugal.
Table 4: Summarizing of IPO Underpricing Around the WorldCountries/Region

Period of Study

Bangladesh
Middle East andNorth Africa
P.R. of ChinaJapan
Sri Lanka
Thailand

1995-2005
January
2000-July 2007
1996-2000
2001-2006
1987-2008
1990-2007

Average degree of
IPO underpricing
480.72%
184.1%
129.16%60.21%
34%
22.99%

India
Indonesia
Singapore

2004-2006
2003-20111993-2005

22.62%
22.2%
16.5%

Mauritius

1989-201013.14%

Portugal

1988-2004

11.1%

Authors
Islam, Ali and Ahmad (2010)
Chahine and Tohme (2009)
Chi and Padgett (2005)
Uzaki (2009)Samarakoon (2010)
Ekkayokkaya
andPengniti(2011)
Pande and Vaidyanathan (2007)
Darmadi and Gunawan (2012)
Zhang, C. and King, T.H.D.
(2008)
Agathee, Sannasse and Brooks(2012)
Borges (2007)

2.2 Underwriter Reputation
Premarket activities undertaken by the underwriter can signal to the public thesignificant demand for the IPO shares. Most empirical studies find a significant
relationship between underwriter reputation and the average degree of IPO
underpricing. It shows that an underwriter plays a significant role in determining IPO
underpricing performance.

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An empirical study conducted by Carter et al. (1998) suggested that theunderperformance of IPO stocks relative to the market over a three-year holding
period is less severe for IPOs handled by more reputable underwriters. Yip et al.
(2009) found that investors can earn above-market returns by investing in IPOs thatare underwritten by leading investment banks and backed by venture capitalists anddivest before the expiration of the lockup period. Kirkulak and Davis (2005)
investigate underwriter reputation and IPO underpricing for the Japanese IPO market.
They find that the relationship between underwriter reputation and IPO underpricing
depends on when the IPO is priced, reflecting the level of demand for the issue.
A study from Jones and Swaleheen (2010) show that the underwriter reputation is
statistically negatively related to initial return from 1980 to 1991 and statistically
positively related to initial returns from 1992 to 2003 in the USA, when underwriter
reputation is taken as an exogenous variable. An empirical study from Kenourgios etal. (2007) show that underwriter reputation and times of oversubscription
significantly affect the average degree of IPO underpricing in Greece.
A study from Neupane and Thapa (2013) regarding underwriter reputation and theunderwriter-investor relationship in IPO markets in India found that high reputationand low reputation underwriters have strong relationships with different sets ofinvestors. While large institutional investors participate early in IPOs managed byhigh reputation underwriters, high net worth investors appear to do the same in IPOs
managed by low reputation underwriters. The varying nature of relationships withinvestors also has important consequences for IPO pricing. The analysis of setting theoffer price shows that reputation matters greatly for high reputation underwriters. Low
reputation underwriters, on the other hand, appear to price aggressively and set highoffer prices even when institutional participation is negligible.
Results from a study by Jelic et al. (2001) do not provide evidence that offers
underwritten by more prestigious underwriters are better long-term investments ascompared to those underwritten by less prestigious underwriters in the Malaysianmarket.
2.3 Risk Factors
Risk factors involved in evaluating the average degree of IPO underpricing isimportant in estimating the return to investors. A study by Nguema and Sentis (2006)
on 33 countries around the world found that country risk is one of the determining
factors of IPO underpricing. Sahoo and Rajib (2011) found that risk and uncertainty
have a significant impact on the average degree of IPO underpricing. This study useda sample of 171 IPOs issued in India during the period 2002 to 2007. Agathee et al.
(2012) examined evidence on the short-term underpricing of IPO shares listed on the
Stock Exchange of Mauritius from 1989 to 2010. The average initial return is 13.14%.
Using regression analysis, they found that aftermarket risk level and auditor’s
reputation has a significant positive impact on the average degree of IPO
underpricing.
Research methodology
3.1 Sample
The data used in this study is comprised of 420 IPOs for shariah-compliant

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companies and 56 IPOs for non shariah-compliant companies from 2000 to 2011. The
data from this study are compiled from the Malaysian Stock Exchange, Prospectuses,
the ISI Emerging Market website and listed company websites.
3.2 Data Analysis
To calculate the average degree of IPO underpricing for shariah-compliant companies
and non shariah-compliant companies on the first day trading on the MSE, this study
calculated underpricing using the following formula:𝑪𝑷𝒊 − 𝑶𝑭𝒊
𝑼𝑷𝒊 =𝑶𝑭𝒊
Where,
UPᵢ: underpricing in firm iCPᵢ: closing price in firm i
OFᵢ: offering price in firm i
To quantify the impact of the two explanatory variables on the average rate of IPO
underpricing for shariah-compliant companies, this study performs a multiple linear
regression using the following equation:
𝑼𝑷𝒊    =   𝜶𝒊 + 𝜷𝟏   (𝑼𝑹𝒊 ) + 𝜷𝟐   (𝑹𝒊 ) + 𝜺𝒊
Where,
UP: underpricing
UR: underwriter reputation
R: risk factors
ε: other factors
Table 5 explains the predictor variables used in this study. The main hypotheses thatare tested in this study are underwriter reputation and risk factors. Investors can get
good information regarding IPO companies from underwriters during the briefing
process. Underwriters play an important role in attracting potential investors. The
important factors in investment are risk and return. Risk can be defined as uncertainty
of returns that investors earn during the investment process. If the offer price is below
the market price, it generated negative return to investors. The main objective ofinvestment is to maximize return and minimize a risk.
Table 5: Explanation of Determinants
Shariah-Compliant Companies
Explanatory Variable
UR= Underwriter reputation (dummy
variable)
R= Risks factor

of

IPO

Underpricingfor

Description
High underwriter reputation: The first and second
highest number of IPOs managed by an underwriterduring a period of study.
Using a method from Abdul Rahim and Yong(2010) this study calculated risk as the reciprocal of
the IPO offer price, that is:!
𝑟𝑖𝑠𝑘 =!"!

Where,
OF= offering price

The following hypotheses are proposed:
𝐻! = Underwriter reputation and risk factors individually have no significant effect on
the average degree of IPO underpricing for shariah-compliant companies.

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𝐻! = Underwriter reputation has a significant effect on the average degree of IPO
underpricing for shariah-compliant companies.
𝐻! = Risk factors have a significant effect on the average degree of IPO underpricing
for shariah-compliant companies.
Results
4.1 Average Degree of IPO Underpricing
In this section, the results are presented in two stages. The first stage is descriptive
statistics of the average degree of IPO underpricing for shariah-compliant companies
and non shariah-compliant companies. The results also report the average degree of
IPO underpricing for types of industry, for high and low underwriter reputation, andfor shariah-compliant and non shariah-compliant companies. The second stage
presents the results of the multiple linear regression analysis on the effect of bothunderwriter reputation and risk factors on the average degree of IPO underpricing forshariah-compliant companies listed on the MSE.
Table 6 shows the descriptive statistics results on the average degree of IPO
underpricing for shariah-compliant companies and non shariah-compliant companies.
The average degree of IPO underpricing for shariah-compliant companies is 28.82
percent and 26.63 percent for non shariah-compliant companies. Therefore, theaverage degree of IPO underpricing in Malaysia is lower than reported by previous
studies. For example, Dawson (1987) report average degree of IPO underpricing at
166.7 percent; Jelic et al. (2001), 99 percent; Yong and Isa (2003), 94.91 percent; andMurugesu and Santhanpparaj (2009), 81 percent. This result also suggests that the
average degree of IPO underpricing for shariah-compliant companies is quite similar
with that of non shariah-compliant companies. A possible explanation of the decreasein the average degree of IPO underpricing reported in this study is related to themarket-based pricing mechanism introduced by the Securities Commission (SC) in
1996. This method is applied for shariah-compliant companies and non
shariah-compliant companies.
Table 6: Average Degree of IPO Underpricing
Company
Shariah-co
mpliant
companies
Non
Shariah-co
mpliant
companies

No. ofCompanies
420

Underpricing

Minimum

Maximum

28.82%

-0.45

2.64

Standard
Deviation
0.455156

26.63%

-0.25

2.62

0.5546

Table 7 shows the average degree of IPO underpricing by types of industry. The
results from shariah-compliant companies show that IPOs are overpriced forinfrastructure(-4.12 percent) and finance (-9.60 percent). In contrast, construction(12 percent) and Special Purpose Allocation Company (15 percent) industries are
overpriced for non shariah-compliant companies. Technology industries (-51.78
percent) tend to have a higher average degree of IPO underpricing for non

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shariah-compliant companies compared with shariah-compliant companies (-37.71
percent). These results show that technology is a more risky industry for investment
due to its high average degree of IPO underpricing.
Table 7: Comparison of Average Degree of IPO Underpricing for
Shariah-compliant Companies and Non Shariah-compliant Companies by Typesof Industry
Types of Industry

Industry productTrading/service
Technology
Consumer product
Property
Construction
Plantation
Infrastructure
Real estate investment
trust (REITs)
FinanceSpecialPurpose
Allocation Company(SPAC)
Close/Fund

Shariah-compliant
Companies
No. ofAverage
Companies
Degree of
IPO
Underpricing
127
27.26%
90
30.87%
90
37.71%
70
26.16%
17
12.11%
10
28.63%
8
15.08%
4-4.12%
3
17.07%

Non shariah-compliant
Companies
No. ofAverage
Companies
Degree of
IPO
Underpricing
734.43%
15
44.53%
951.78%
3
4.33%
2
-7%
1
-12%
1
27%
10
3.6%

1
-

-9.60%-

61

13.33%
-15%

-

-

1

1%

Table 8 shows the average degree of IPO underpricing for shariah-complaint
companies for high and low underwriter reputations. The results show that theshariah-compliant companies led by high-reputation underwriters tend to beunderpriced lower (-25.04 percent) compared with shariah-compliant companies leadby low-reputation underwriter (-31.68 percent). This finding suggests that IPO forshariah-compliant companies managed by high underwriter reputations can decrease
the average degree of IPO underpricing. It also suggests that the pre-market service
provided by high underwriter reputation, such as road show activities and offer priceadjustment, can affect the average degree of IPO underpricing. The results from non
shariah-compliant companies are different from shariah-compliant companies. The
average degree of IPO underpricing for high underwriter reputation is 36.08 percent,and that for low underwriter reputation is 17.83 percent. This result shows that IPO
for non shariah-compliant companies managed by high or low underwriter reputation
does not have any impact on the average degree of IPO underpricing.

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Table 8: Average Degree of IPO Underpricing for Shariah-compliant Companies
for High and Low Underwriter Reputation
Underwriter
reputation
Shariah-compliant
Companies:
1. Highunderwriter
reputation
2. Lowunderwriter
reputation
Non
Shariah-compliant
Companies:
1. Highunderwriter
reputation
2. Lowunderwriter
reputation

No ofCompanies

Underpricing

Minimum

MaximumStandard
Deviation

181

25.04%

-0.39

1.80

0.36927239

31.68%

-0.45

2.64

0.5094227

36.08%

-0.25

2.62

0.6403429

17.83%

-0.20

1.84

0.45466

Table 9 presents the results of the multiple linear regression estimation. While therisks variable is statistically significant at 0.01 level of significance, underwriter
reputation is found to be insignificant. This finding contrasts with several studies onunderwriter reputation. The study from Kirkulak and Davis (2005) regarding
underwriter reputation in the Japanese IPO market found a significant relationshipbetween underwriter reputation and average degree of IPO underpricing. Jones andSwaleheen (2010) examine the underwriter reputation in the USA from 1980 to 2003.
They found that underwriter reputation has a statistically positive significant impact
on the average degree of IPO underpricing during the period 1992 to 2003 when
underwriter reputation is taken as an exogenous variable. When considering the
choice of the high or low reputation underwriter as endogenous to characteristics ofthe firm, underwriter reputation has a significant positive impact on the average
degree of IPO underpricing (for the period 1980 to 2003 and 1992 to 2003) and it has
an insignificant impact for the period 1980 to 1991.
Table 9: Results of Multiple Linear Regression Analysis
VariableIntercept
Underwriter reputation
Risk

Coefficient
0.198-0.0290.066
R square = 3.4%
F value = 7.302
Durbin Watson = 1.664* Indicates statistical significance at the 1% level26

t-statistics(4.430)(-0.638)(3.513)*

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Conclusion
This paper examines the profiles of IPO underpricing for shariah-compliant
companies listed on the MSE. This is done by investigating the average degree of IPO
underpricing for shariah-compliant companies from 2000 to 2011. Overall, this study
uses 420 IPOs for shariah-compliant companies and 56 IPOs for non
shariah-compliant companies issued during the period of study. Even though there aremany empirical studies regarding IPO underpricing in Malaysia, there are no previous
studies that look at the effects of underwriter reputation and risk factors on the
average degree of IPO underpricing for shariah-compliant companies. This study
endeavors to fill this gap.
The preliminary results show that the average degree of IPO underpricing forshariah-complaint companies is 28.82 percent and 26.63 percent for non
shariah-complaint companies. Compared to the average degree of IPO underpricingof 166.7 percent (Dowson, 1987), 99 percent (Jelic et al., 2001), 94.91 percent (Yongand Isa, 2003) and 81 percent (Murugesu and Santhanpparaj, 2009), the average
degree of IPO underpricing reported in this study is more similar to those in mature
markets. One possible reason that explains the lower percentage of IPO underpricing
is revisions of the IPO pricing mechanism by the Securities Commission of Malaysia.
This finding is similar to the findings reported in Japan. Pettway and Kaneko (1996)
found that removed price limits and introduced public auctions reduced the average
degree of IPO underpricing significantly.
Secondly, the results from shariah-compliant companies show that IPOs are
overpriced for the infrastructure industry (4.12 percent) and the finance industry (9.60
percent). In contrast, construction (12 percent) and Special Purpose Allocation
Company (SPAC) (15 percent) industries are overpriced for non shariah-compliant
companies. Technology industry companies (-51.78 percent) tend to have the highest
average degree of IPO underpricing for non shariah-compliant companies comparedwith shariah-compliant companies (-37.71 percent). This result suggests that thetechnology industry is risky industry for investment due to the high average degree of
IPO underpricing. The average degree of IPO underpricing for shariah-compliant
companies led by high underwriter reputation tends to be less underpriced (-25.04
percent) compared with shariah-compliant companies led by low underwriter
reputation (-31.68 percent). This result suggests that underwriter reputation plays animportant role in determining the average degree of IPO underpricing forshariah-compliant companies in Malaysia. However, the results from non
shariah-compliant companies contrast with those from shariah-compliant companies.
The average degree of IPO underpricing for high underwriter reputation is 36.08
percent, and that for low underwriter reputation is 17.83 percent. This result showsthat IPO for non shariah-compliant managed by high or low underwriter reputation
does not give any impact on the average degree of IPO underpricing.
Finally, the results of the multiple linear regression estimation indicate that IPO
underpricing issues by shariah-compliant companies are driven by the risk factors.
This result is similar to the finding from Sahoo and Rajib (2011) regarding the impactof risk proxies on the average degree of IPO underpricing in India. They found thatrisk and uncertainty surrounding IPOs have a significant impact on the average degreeof IPO underpricing. A possible explanation is the implementation of the new pricing

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methods in the Malaysian market. When the IPO companies and underwriters have
responsibility in setting offer prices, they try to set suitable offer prices for presumed
market prices. This reduces the risk for loss during the initial trading on the stock
exchange.
Further research could seek to enlarge the potential determining factors that could be
influencing the average degree of IPO underpricing. In addition, the role of regulatory
agencies in the Malaysian capital market could be more closely examined, especiallyin relation to short-term and long-term price performance.

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Innovations Creator Networks:
Blind, Quantitative, Longitudinal Databases for Comparison of
Pharmaceuticals and Film
Merlin Levirs, PhD, MBA, BEd
Center for Language Acquisition (Business Administration), Ritsumeikan
University—Biwako Kusatsu Campus, Kusatsu-city, Shiga, Japan
Abstract
Analysis of social networks has added a new useful dimension to developing
actionable understanding of innovation processes, particularly for creating policy that
effectively supports innovativeness. However, progress is constrained. For instance,
reliance on data from sources that reflect properties other than innovation, such as
invention, knowledge dissemination, or geographic clustering is faulty. Also,
methodologically, reliance on questionnaires, interviews, or case-study observations
lack authenticity, comprehensive applicability, or both. Finally, it is constrained bylack of data sources that are authentic to innovation processes, comprehensive industry
overviews, sufficiently longitudinal to bridge policy- and economic-impact events, andblind to researcher-subject bias. This report suggests two industries’ databases that
overcome the aforementioned constraints and are, therefore, offered as subjects for thefounding of future blind, comprehensive databases for quantitative social network
analysis of innovation processes. It includes how the two databases would best be
constructed and suggests several methodological considerations for future researchusing them, particularly for comparative analysis. Doing so would harden the soft
science characteristics and misappraisals presently commonplace in this area ofscholarly research. Subsequent research utilizing this approach and material would
enable policy metrics that would enhance policies aiming to build better overallnational innovation systems.

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Introduction
When policy is changed to improve innovation, the metrics make the conclusions, so
maximally blind, quantitative, and longitudinal data that tracks the impact of policychange is optimal. Further, the novelties founding innovative products often arise
within an interpersonal collective—a social network—that can show policy changes’
impacts on potential inventors’ interest in inventive networking.
Dr. Bart
Nooteboom’s research mates network analysis to cognitive distance initiated thisresearch area through deduction of firms’ managers’ perceptions of inter-firmlinkages (Nooteboom, 1998) (Nooteboom, 2006), so greater reliance on massive
amounts of blind, quantitative, and longitudinal data to develop conclusions without
reliance on managers’ perceptions would advance this study to nearer optimal. This
study introduces the contents of two sets of data that may be amassed for the purposesof blind, quantitative, and longitudinal social network analysis of innovations’creators and discusses what those contents may effectively assess.
Constraints on data availability
2.1 Introduction to Data Availability Constraints
Securing valid and valuable data-sources to assess creative individuals’ patterns in
networking is constrained by factors limiting the depth and breadth of generalizability.
Research into the social networking nodalities of the people who create innovations(inventors, artists) suffers under the twin tyrannies of the questionnaire and invention.
Survey respondents represent themselves differently due to interpretation of questions.
Invention, lacking corollary of market entry, ignores policy’s purpose. Also, firms’
innovation management values secrecy, so intellectual property ascribed to products
is hidden, inaccessible to researchers, or lacking, and respondents’ self-reporting
threatens authenticity of ascriptions reported. Thus, to those data that can becompiled into databases that are useful for social network analysis on innovation’s
inventors and artists are limited to a very few by the above-mentioned tyrannies andvarying veracity of subjects’ reporting constraining appropriatability of findings.
Therefore, the comprehensiveness and authenticity of databases of creative persons’characteristics compiled from marketed novel pharmaceutical and film products
contents is discussed.
2.2 Depth Constraints from Validity and Value
Generating responses, versus retrieving them, and defining usefulness limit
availability of acceptable options for network analysis on innovators.
Questionnaires, which, in interrogators’ quest for testable proofs, ascribe quantitative
allusions to data that is actually qualitative, influence responses. Respondents
intuitively construe questions’ interests and modify responses accordingly (Murray,1999)(Oppenheim, 2000), so allusions in questions beget illusions of independence.
To overcome this deficiency, limiting source data to those where the authors’self-characterizations bear as little value to interested parties as is possible and thatare made with complete ignorance of researchers’ interest is the optimal research
instrument.
Invention asks no proof-by-market while a narrow definition of innovation, which is
not synonymous with invention, does. Invention that does not go anywhere is not

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innovation. Dissemination defines innovation. By innovation’s narrow definition,
it implies ad sparsis (at dissemination) viability, not empty creativity, so recognizably
being of social benefit and, consequently, worthy for providing valuable newknowledge for aiding policy management. Notwithstanding valuable case-based
tests, which also ask for sources without the capriciousness of subjective
underpinnings for source data and without content that is short of to-market validation,
the grailacious search for quantitatively derived understanding of creator networking
with real-world value adds to that understanding the need be applicable acrosscontrasting industries’ creator-networks. The issue here is that research on
innovation almost universally counts patents or research and development budgets
and expenditures and, so, is focused away from real-world application and the validitythat it implies. Measuring marketed innovation, rather than invention, validates
research conclusions maximally.
In conclusion to the issue of depth of research as shown by value and validity,
overcoming constraints against using social network analysis to penetrate into thesocial nature of the innovation process extends from two foundations. First, retrievalof uncompromised content, whereby research questions are blind to reported
information, assures authenticity of the reported source data. Second, creations are
independently proven to be meaningful, wherefore products’ entrance into the market
after an industry-appropriate measure of attribution has occurred, validates the
exclusive technological inventions on which they are founded. Thus, invention- andquestionnaire-derived results’ limitations are mitigated for social networking analysis
with subjects’ reportage occurring without their knowledge of research interest and by
selecting only those subjects whose knowledge creation has been market-validated.
Essentially, to progress, social network analysis needs absolutely quantitative datawith the right content target.
2.3 Breadth Constraints against Emergence of Data
Invention and questionnaires limit potential sources by hurting analysis, but two otherconstraints reduce the availability of useful innovation source material to the public
and researchers in the first place. Secrecy and organizational culture discontinuities
are one. Another is that people responsible for inventions typically go unnamed.
The qualitative failings of reliance on patents (inventions) and questionnaires asks for
new sources, while both innovation management’s either hiding or not volunteering
information curtails opportunities to find useable quantitative data sources for
effective statistical analysis.
Publicly available source data is exceptionally rare in the business of innovation.
Secrecy, or, at least, opacity, makes possible monopoly rent, the most efficient variety
of profit-taking in markets. However, more typical than outright secrecy is whereconnections between inventions and the resulting products are not labeled, either
intentionally, as is concretely demonstrated when “patent pending” is entered on
products without identifying the patents’ themselves, or through neglect, as when no
market value is generated by adding the information, so no notice of specifics ofnovelty’s capital is applied. To demonstrate this aspect of business culture, consider
that, for instance, computer hardware designers typically do not offer any list of thepatents that exist on the multitude of parts that constitute their finished products.
“Intel Inside”, the trademarked logo of Intel Corporation, does not explicitly indicate
anything about patents from which research can then generate the names of patentees

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Volume I - Issue I - Summer 2014or assignees, or application and granting dates, priority intellectual property, andgeography. Viewing patents from the firm rather than from the product, a search ofpatents’ assignees does not assert that each patent actually found its way into amarketed product. A gap exists that confounds the availability of source data.
Given this, the only way to access a firm’s innovation history data would be to contact
it directly and be provided access to its internal information that chronicles whichpatents were utilized in marketed products—effectively, a firm-level case study
approach. With patents identified, their content data would be assimilated tocomplete the innovation information package. This means tracking marketed patents
through the United States Patent and Trademark Office (USPTO) database.
However, examining different firms’ cases of invention and innovation augers acompounding, confounding issue: discontinuities between corporate cultures related
to innovation management must result in faulty comparability.
This is afundamental drawback of case studies. They provide exacting accuracy of resultsthat cannot be extrapolated to other organizations. The lessons of Silicon Valley’s
and Route 128’s successes have not proven easily transportable despite intense efforts
to borrow from them and despite their networks being far more visible than the innerworkings of individual firms’ secrecy-shrouded innovation management operations.
Whatever meaningful results may be gained by researchers accessing firms’ otherwise
private contents is lost by the very privacy and resulting uniqueness of individual
firms’ conditions undermining comparability. Firms effectively compartmentalize
based on tacit knowledge informed by business culture and history. Barriers against
corporate espionage and those that arise from firms’ desire to flex competitive andcomparative advantage are intentionally instituted barriers against generalization,
standardization, and the comparability that allows judgment of best practices. Just as
the reason that “best practices” transport poorly between organizations is that thosepractices tend to be embedded in an organizational culture that is not present in thefirm receiving the transplant, innovation management’s firm-specific peculiarities
engender a case-by-case expression of research and development results. Forced
standardization is the only way around this compartmentalization of results.
Thus, business practices inhibit social network data availability in the two ways
outlined above. For one, protecting information asymmetries that arise from theirresearch and development activities adds value by causing and maintaining monopoly
positions. Secrecy aids revenue generation. However, even where inventions areintentionally or unintentionally made anonymous, inter-firm comparisons arejeopardized by contrasting corporate operational norms and cultures. For another,innovators are often anonymous, because firms guard their identity and often fail toeven identify which patents among their portfolios’ accrue in a given product.
Consequently, failure of emergence of information on innovations’ foundations
results from firms’ secrecy and peculiarities and their not publicly specifying theirmarketed products’ creative inputs.
2.4 Conclusion to Data Availability Constraints
To conclude this report’s examination of data availability for social network analysis
of innovation processes for the purpose of aiding assessment of policies’ impacts,
constraints limit opportunities to find useful information sources upon which social
network analysis data can be built. For research to progress in understanding
innovators’ networking in their creative processes, comparability among the34

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remaining narrow band of available data is necessary. The purpose of thisexamination is to expose comparability factors between two examples of innovationthat breach the above-mentioned constraints and achieve a level of comparability byforce of law and force of market. Those examples are, broadly, drug therapies andfilm and television productions.
Two applicable and available data sources
3.1 Introduction to Applicable, Available Data Sources
Given the constraints outlined above, the optimal location for sourcing meaningful
data on innovators’ creators’ networks is limited to those that are forced, as by being
demanded by law, or custom, as by being demanded by market participants. This
paper compares the characteristics of one largely legally enforced source with anotherthat is principally market-driven for disclosure of participants (creative and other).
In the United States of America (US), as in other developed economies, bureaucratictransparency in the relatively highly regulated and government subsidized healthcare
industry ensures both corruption-inhibiting accountability and a measure of informed
consent for full disclosure. This is partially legislated, partly a disclaimer against
civil lawsuits, and part corporate constraint against inflated pricing for outsourced,
sponsored, or collaborative research through the increasing of fear of litigation, which
has been shown to reduce pricing disproportionately heavily among smaller andacademic drug researchers (Azoulay, Michigan, and Sampat, 2007)(National Institutefor Health Care Management Research and Educational Foundation, 2002). All
have legal underpinnings, even if the last mentioned aspect is fundamentally
economic in nature. In the entertainment industry, recognition of contributors iscustomary, but a custom built on commercial considerations. Fame is a marketing
tool, so gives studios and distributors a reason to advertise some contributors to theirprojects, but fame does not explain the extensive lists that follow movies andtelevision programs, though the latter typically offers lists more curtailed than theformer. Copyright protections require that copyright holders identify themselves,
but copyright law does not ask for the extensive lists either. What does explain theextensiveness of the lists is the nature of employment marketing within theentertainment industry as people and organizations demand to have their names
attached to projects for public disclosure. Thus, everyone from stars, directors, andexecutive-level production staff to walk-on actors, gophers, and caterers demand
identification. Furthermore, naming names acts as a payment-in-kind, in lieu of cash,that reduces labor costs. Therefore, law and market provide incentives for
identification of contributors to the innovative products of each of thepharmaceuticals and the movie and television entertainment industries.
Force of law and incentives of and for marketing generate exposure of creative
individuals in the pharmaceutical and film industries respectively, but other areas
deserve discussion of the consideration for entry into this research. In the case of
law’s sanction, transparency and diffusion of novel content tend to be the determining
factors for ensuring public disclosure. In that of visual media, there is a branding
effect that augments legal considerations. In effect, the latter is about star-power inthe making, where the attachment of famous names to projects generates income.
However, legal and contractual considerations provide a foundation of legitimacy fordisclosure. Substantially, since both have legal underpinnings, it is noteworthy thatthe force of law is represented in intellectual property law and the force of custom is

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represented in intellectual property’s less legally constituted (but generally more
important and better reflecting of the reality of the social environment of innovation
generation) concept—intellectual capital. Within that context, pharmaceuticaltherapies offer one legally induced data source and, broadly, copyrighted publications,which includes a variety of entertainment, educational, and even functional (as with
software and printed circuit topographies) authorship. Though a level of legal
responsibility exists, not all such sources are made accessible to the public and not allmeet a complementary level of diligence and inclusiveness of participants in thecreative process, particularly since some clearly name more names than can result
from legal demands for transparency or tendering of rights. Wholly beyond therealm of legal constraints are a few industries where naming of the people whose
creativity is on display is nonetheless publicized. For them, publicity of identifying
innovations’ creators appears market-induced for purposes of branding,quality-control by assumption of responsibility, and as an instrument for making
contact with potential patrons. This group includes, among others, the fashionindustry (branding by star-making), entrepreneurship and SME (Small and Medium
Enterprise) and, particularly, non-growth professional businesses (mom-and-pop
shops, professional service providers, and skilled workers). Thus, other industries
are appropriate considerations for inclusion into future social network analysis,though this paper selected only relatively robust sources of data.
3.2 Constructing a Pharmaceutical Innovations’ Inventors’ Social Networking
Database
Table 1:

Stepped Construction of the Drugs Database

3.3 Introduction to Pharma Innovations’ Creator Database Construction
To complete the innovations’ inventors’ network database introduced here, it isconstructed using two source databases and one broad realm of source information tocomplete innovators database’s contents.
The first data source identifies
pharmaceutical innovations and their inventions. Those inventions bridge to thesecond source, which identifies inventors, locations, and timelines. Background on
inventors, sourced through academic and professional publications, characterizes
inventors’ employment. Thus, after constituting the applicable list of inventions
from those used in drugs that have been approved for sale in the American market, thelocation and affiliation of each of the industry’s creative personnel forms this full
database.
By way of introducing this database compilation for social network analysis of an
innovation process, this paper determines that US data on drug development sets thehighest standard for comprehensiveness and authenticity. Due diligence suggests

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that any effort to develop conclusions using social network analysis of innovators will
be aided by accounting for the pharmaceutical industry, owing to its diversity andblind, quantitative, and longitudinal character of its data. Consequently, combining
US drug innovations’ constituents and timeframe with intellectual property
disclosures pertinent to the patenting process, and identification of the inventors’ andassignees’ geography and population, and determining how prolific and how they are
employed builds a real and full database. The following subsections explore
expression of those steps toward building a useful database on the innovation process
related to drug development.
3.3.1 Approved Drugs
3.3.1.1 Introduction to Approved Drugs Approximating Innovations
Optimally, it is innovations that originate the database. Several considerations
connected with authenticity and comprehensiveness of data contents rationalize theuse of American listed drugs. The United States Food and Drug Administration’s
division, the Center for Drug Evaluation and Research, publishes its Orange Book:
Approved Drug Products with Therapeutic Equivalence Evaluations: Patent andExclusivity Information Addendum—Patent and Exclusivity Lists, which catalogues
all approved drugs, and the patents upon which each is built, back through those from1984. Since patents span of enforceability extends over 17 years, this databaseindicates patents fully from 1984 to present and in numbers that diminish from then to
extinction in 1967. Comprehensiveness and authenticity make it optimal.
3.3.1.2 Orange BookThe Orange Book offers comprehensiveness and authenticity. Every drug approvedfor public consumption is listed, so it offers an opportunity for study of a full
population, not just a sample. Its contents truly represent (a) American law, which
compels transparency, (b) in excess of 60 percent of university technology transfer
office revenues (Cockburn, 2009), and (c) the American drug market, being thelargest in the world, attracting all drugs created abroad that pass the US health code.
It is the optimal source for comparison of innovation.
3.3.1.3 Alternative Drug Innovation Data Sources
Drug approval sources that are comparably comprehensive and authentic to the
USFDA-CDER Orange Book include the European Union’s (EU) European
Medicines Agency’s Committee for Medicinal Products for Human Use/Committee
for Medicinal Products for Veterinary Use (EMEA-CHMP/CHVP) database andJapan’s Ministry of Health, Labor, and Welfare’s (MHLW) Pharmaceutical andMedical Devices Agency (PMDA) database.
Nevertheless, for reasons ofcomprehensive scope and several levels of authenticity, given the analytical benefit ofcontiguity within each national innovation system, though the drug approval formarketing process in each of the three markets is highly similar, the underlying legal
frameworks identifying patentees deprives Japan and the EU equal authenticity with
American data. Also, since their markets are smaller and, in the case of the EU,
more fragmented, any deficiencies of tripartite patent families that exist in the UnitedStates of America will only be greater elsewhere. For purposes of comparison
between the systems, however, any corner within that triad would be good, given that,collectively, they represent the overwhelming majority of pharmaceutical researchand revenues and, when adding in the partners within each of the three domains’
trade-group relationships, the North American Free Trade Agreement’s zone and the37

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EU’s European Economic Area (EEA) and European Free Trade Association (EFTA)
states, the remainder of the worldwide market becomes increasingly discountable.
With the rise of economic power in BRIICS countries, the Asian Tiger economies
within and without ASEAN, and Mercosur, that discount is declining, but, for the
medium-term future, three is most reasonable for purposes of direct comparison of themost important markets that focus on market as opposed to developing markets.
Moreover, sampling of triadic patent families in pharmaceuticals by descriptive
statistics has shown that practically all pharmaceutical patents are found in at least
two of the three patenting indexes and the vast majority are found in all three (Levirs,2013). For an internally coherent comparison, the USFDA-CDER Orange Book’s
approvals are optimal for naming innovating inventions.
3.3.1.4 Conclusion to Approved Drugs Approximating Innovations
The Orange Book, then, names each drug by its trade name, designates its active
ingredient, indicates dates of application and approval, and lists applicable patents (by
USPTO number) and the exclusivity date (which, in the case of drugs affected byadditional regulations, such as drugs for pediatric use or other specific medical
conditions for which special extensions are provided, the exclusivity deadline islengthened—6 months in the case of pediatric drugs). Thus, except for comparisons
between the three drug approval systems, use of the USFDA-CDER’s Orange Book
of Approved Drug Products with Therapeutic Equivalence Evaluations offers the mostauthentic and comprehensive source linking drug innovations with patents for whichinventors and assignees may be determined.
3.3.2 Patents
3.3.2.1 Introduction to Patents Approximating Creation
Patents’ inventors originate innovations inventions. To formulate a fulsome network
analysis of the people whose intellectual capital invents the foundations for thepreviously outlined innovations requires augmentation of innovations’ patent data todiscern those inventors’ backgrounds.
US patents most authentically andcomprehensively divulge US-market pharmaceutical innovations’ invention and theirinventors.
3.3.2.2 Pharmaceutical Patents as Drug Inventions
Within the pharmaceutical industry, patents are effective proxies for inventive activity
for several reasons. At the investment end, the costs and risks in research and theapproval process are high, while reverse-engineering of new molecular entities(NME) is relatively easier and less serendipitous than is the initial research anddevelopment both for scientifically and for the investors, since the initial market
entrant develops a new market that the reverse-engineered product can usurp.
Regarding markets, that for generic drugs (as of approved drugs lacking exclusivity
protections) both conveys a significant erosion of pricing and is often supported bygovernment regulatory authorities and government-affiliated insurance providers inthis restrictively regulated industry. Patents provide limited-time protections against
erosion of returns on investment. Patenting is critically important to recouping costs
and earning returns under the conditions of risk that drug developers face and iseffectively universally undertaken in order to safeguard monopoly rents.

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3.3.2.3 USPTO Primacy
While the USFDA’s being the optimal source for networking data relative to its EU
and Japanese counterparts is a nigglingly small advantage, since the three are highly
comparable and represent invention within their innovations almost perfectly alike,the underlying patent systems make using US data qualitatively superior. While EU
and Japanese patents identify patentees based on the applicants’ introduction of thenovel idea to each of their jurisdiction, the US Patent and Trademark Office’s legal
framework demands that all the inventors be included and that their rights over theintellectual property are joint, so an inventor who is not named on a patent, but who
can prove his or her inventive involvement, has equal right to market the intellectual
property without remittance to the other participants or assignee. Thus, the strengthof the US data is that it has legal sanction (and a resultant costly market risk) for the
inclusion of all actual inventors. In reality, this would result in an insignificant
change in the constitution of patents’ inventors, given that drugs typically result fromadvanced medical research that occurs within a corporate, university, or
government-sponsored research organization that has extensive and redundant
protocols for documenting the inventive processes in their laboratories, but theactuality does not deny that the underlying legal structure validates American
reporting more definitively.
3.3.2.4 Conclusion to Patents Approximating Creation
Patenting, then, is a high value undertaking in the drug development industry and US
patents embody specific legal accountability that ensures all inventors are named.
Information on creative activity included in the US Patent and Trademark Office’s
patents specifies inventors, assignees, and dates. These allow the comparison of
entries in the various ways mentioned above and in the discussion below. USPTO
patent data, then, names drugs’ inventor(s) and assignee(s) and locates them by cityand state within the United States of America or by city and region for some
European countries, and by city and country for the remainder of the world’s people.
Additionally, dates are provided for filing and grant of patents. From USPTO
database information, geographic distributions, longitudinal or cross-sectional
analysis, patentee group size, patentee group composition (as of sex or
locality/nationality), and assignee group size, and assignee group composition (asacademic or corporate) are available for analysis. Nevertheless, though patentee
names are available for assessment, their usefulness requires additional investigation
described below.
3.3.3 Affiliations
3.3.3.1 Introduction to Creators’ Professional Character
Inventors’ natures (type of academic, and academic versus non-academic) andinventive prolificity are available for examination each through a subsequent further
step from original research. In this case, given the stipulations of American patent
law, designating people as patentees defines them synonymously as inventors.
Cross-referencing of inventors names among patents, scholarly articles, and otherforms of publication and publicity provide insights that can result in meaningfulconclusions on the relationships between those activities and the author(s)’ inventing
for innovations. While the results would not ascribe statistical causality, they would
provide strong indications by correlation.

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Regarding how prolific is the inventor and how great is that person’s economic
impact, much current and legacy scholarly research utilizing patents has developed
conclusions based on these features. To a greater or lesser extent, depending on thenature of the research question being asked, the inventors’ natures can be discerned
from other source material, such as professional networking sites, like LinkedIn andFacebook, or, more confidently, through academic and professional journal and bookpublications, scholarly and professional presentations, and employment histories.
Depending on the research question and the source material, confidence in theaccuracy of the representational value of the data will vary, but that confidence can be
accounted, statistically, to ensure robust results. Tracking patents’ inventors’
published histories adds two potentially meaningful layers to the analysis, that of thepatentees’ characters and that of how prolific they are in inventing and in publishingand practicing their research.
3.3.3.2 Journals, Academic and Professional
Whether published by professional associations or academia, journals and trademagazines offer the most trustworthy statements of contributors’ employment
affiliations. These include the date of publication, the authors’ names and, usually,
workplace, and articles’ topics and categories. Such scholarly and professional
literature corroborates authors’ affiliation with confidence. Through specialized
search engines Google Scholar Advanced™ and Microsoft Academic Search™,
patentees’ names are tracked to articles whose authors’ names match. Commonplace
names risk false-positive misidentifications, so search parameters utilize helpful cues
for verification. Firstly, searches are restricted to only medical, chemical, andbiological articles.
Second, matching USPTO-provided dates, locations,co-patentees, and assignees with comparable assignments in articles’ (co-patentees =co-authors, assignees = employer). Where conflicts occur, that with the maximum
number and proximity of identifiers shared by the patentees and articles’ authors
designates the highest parallel and, so, acceptance as the same individual.
How prolific are inventors is also possible to identify by surveying literature. Thisapproach has been well-utilized in testing how inventing correlates with publishing inacademic journals and with regional or national economic development. Numerous
authors, assessing the impact of the commercialization of academia, show how the
new culture of academic entrepreneurship, which includes any potentially commercial
activity by academics, including mere patenting, focus on correlations between
journal publishing and patenting. Some have focused on academia’s impacts(Abrams, Leung, and Stevens. 2009)(Sampat, 2006)(Mowery, Nelson, Sampat, andZiedonis, 2004)(Mowery, 2005 and 2001)(Owen-Smith, and Powell, 2003)(Pechter,
and Kakinuma, 1999) and others on how academia has been affected (Azoulay, Graf
Zivin, and Manso, 2011)(Colyvas and Powell, 2007)(Azoulay, Ding, and Stuart,2006)(Leaf, 2005)(Owen-Smith and Powell, 2001)(Thursby, J, and Thursby M,
2000)(Cockburn, Henderson, and Stern, 1999). Thus, by starting with only patents
that led to innovations, rather than all patents, the focused nature of the resulting
database that assesses inventor-scholars’ academic publishing would be more relevant
to real-world applications and impacts than broader studies that do not apply lex
parsimoniae (Ockham’s razor) to innovation.

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3.3.3.3 Professional Linking Networks and News Articles
In order to confirm employment-affiliation where no journal article is ascribed to apatentee, professional linking forums and news stories fill the gaps. News reports
lack the verifying certitude of journals, but supersede ascribing affiliation-type basedon non-publication. News sources include everything from print and digital versionsof newspapers and magazines, news releases and disclosures, legal or other, to firms
and government agencies, and even to obituaries. Self-reported information sources,
like professional networking sites and resumes or curricula vitae, also help makeidentifications. For example, Linked-In™ provides professional detail and history.
Misrepresentation is unlikely to affect content from these sources, since only basic
elements, like name and residency are drawn. However, the potential for
false-positives, as with like names causing misattribution, asks for secondary
corroboration by date, place, and assignee-employer alignment. When academic andprofessional journals are lacking, then networking and news offer an acceptable fallback source to help identify affiliations.
3.3.3.4 Inventive and Authoring Prolificity
Similar to professional networks and news articles in that the added content comesfrom outside the core innovations, the USPTO patent database also offers network
information. Specifically, though the present research focuses on inventions thatinduce innovations, many other patents never ultimately contribute to a marketed
product. They do not fit the definition of innovation applied herein, but they dooffer indications about another facet of the inventors’ activities that are at least on parwith the importance of the inventors’ professional and scholarly research andauthorship. This approach has been well-utilized in testing how inventing correlateswith publishing in academic journals and with regional or national economic
development. The eminent researcher-writer in this research area is Bronwyn Hallin her reporting and calculation of patenting prolificity (Hall, 2013). Certainly, though
the present research article has condemned reliance on patents over innovations, toidentify relevant creativity, looking across the spectrum of patenting and publishingproclivities does indicate much about the overall innovative environment as it aligns
with other trends and considerations that are important to inventors.
3.3.3.5 Absence from Published Literature
Relevant only in attributing inventors to non-academic employment is the lack of any
publications. Of course, particularly regarding older or foreign data and, to a lesser
extent, people very new to the research field, publications of scholarly researchers
employed at government-funded research institutes, universities, or polytechnics or
institutes of science and technology, may be unavailable, so extra diligence is neededin tracking such individuals. However, as a rule, publication of scholarly research isthe currency of academia. Consequently, no publishing by a given inventor indicatesthat the person is not an academic, so is near definitively employed for a commercial
firm’s research and product development. Notwithstanding false positives of (a) age,(b) newness, and (c) non-English decent deserve note.
3.3.3.6 Conclusion to Creators’ Professional Character
Thus, the nature of inventors’ employment affiliation and how prolific is theirinventiveness is available through diligent fact-gathering.
A hierarchy oftrustworthiness and cross-referencing for information sources that elicit less

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confidence secure the most accurate results possible.
indications by correlation, not ascription of causality.

Analytical results posit

3.3.4 Conclusion to Pharma Innovations’ Creator Database Construction
In summary, by amalgamating quantitative data from the USFDA, USPTO, andpublished narratives and articles, a wide range of network analysis on innovations’inventors can be garnered. In terms of generating conclusions on the workings ofinnovator networks, this amalgamated data-source defines one critically importantbusiness area, pharmaceuticals, with diverse, quantitative data for statistical analysis.
Thus, building this database for social network analysis of inventors that result ininnovations is analytically valuable and the more limited exposures of other potential
sources of product creator information is most likely to find comparability herein.
3.4 CONSTRUCTING THE MOVIE DATABASE
Table 2: Stepped Construction of the Movie Database

3.4.1 Introduction to Constructing a Movie Database
At the nexus of innovative creativity and well-documented social networks, theamount of work necessary to compile the above-defined drug innovation inventors’
database demonstrates how demanding is the process to formulate workable datasetsthat are capable of generating usefully meaningful conclusions, even when they areavailable. That few are available in the first place owes to the lack of motivation todisclose that information as when required by law or sought by the marketplace.
Publishing is an exception. Publications list authors, artists, and publishers for bothreasons, but within the recording subset of publishing, near full disclosure ofparticipants is descriptively detailed for the purpose of marketing. Publishing’s
subset of well-described innovations’ creative population is that of scripted
cinematography, scripted television, and lyricized music. An additional, comparable,
but unpublished, adherent to this subset’s model includes scripted professional
theatrical productions, as they tend to be well-documented. However, thoughdatabases of scripted entertainment abound and are readily and freely available or canbe accessed for relatively nominal fees, few are sufficiently comprehensive as tofunction effectively for social network analysis. The Internet Movie Database(IMDb), together with its for-pay service IMDbPro™, by contrast, is broadly, deeply,
and diversely informed. In some aspects, it is better informed than even the fullycompiled drug database chronicled previously. In it, creative individuals’ roles aredesignated and projects’ revenues are reported.
Drug inventors’ roles andcontributions are indistinguishable in its data sources and revenue generated byindividual drug products is not publicly disclosed. Further, any that could be statedwould not be comparable across firm boundaries due to inconsistencies in corporate
cultures and accounting. In other ways, IMDb is less fulfilling, like its lack ofgeographic location of the individuals and the distracting effect of talent agency

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locations. Further, the nature of creativity occurring in film, television, theatre, andmusic production makes illusive determining which tasks are definitively creative.
However, a massive amount of categorized and standardized background information
is aggregated, if not in a uniform structure. IMDb offers deep, broad, and robust
information on movie, television, and music innovations’ creators in ways that allow
for comparison with drug innovations’ creators.
The Internet Movie Database is a comprehensive listing of cinematographic andtelevision productions with sufficient designation and description of the creative
people involved in each that sophisticated quantitative social network analysis isfeasible, authentic, and valuable. While nominally a movie database, it also includes
a non-cinema entertainment format—television. Furthermore, almost all innovation
data is self-contained within IMDb, whereas USFDA-CDER and USPTO data sourceswere needed to furnish its preliminary contents, so little augmentation with additionalsources’ data is needed to bring the new database’s compiled content in line with thatprovided for drug innovations. Adding information about professional-geographicalbase, which, given film’s global production, is more important than people’s choice ofabode, is an example of an additional point that needs be sourced externally.
Identity and location of agents is a significant additional factor, too, which needs to besourced from other media. However, where academic research is relevant to drug
research and development, it is not for film. Also, IMDb provides some types of
information that are unavailable through pharmaceutical sources, such as revenue
generated in release and from ancillary sources. Unlike drugs, however, for film andtelevision, the type of intellectual property protection employed, which is
copyrighting, does not designate the intellectual property’s core inventive contributors.
Finally, both databases register products protected by intellectual property legislation:patents for drugs and copyright for film and television products. Consequently, by
sourcing the bulk of innovations’ social networking from the Internet Movie Databaseand augmenting it with publicly available components to add peripherals significant
to social network analysis (such as a proxy for the inventive phase, such as the start orend date of principal photography), creative artists and the producer-owners of theirprojects’ geography, population within projects, networking societies acrosssuccessive projects, prolificity, and professional capacity in which individuals are
employed are all present for independent assessment and comparison. The following
paragraphs itemize expression of those steps toward building a useful social
networking database to assess the innovation process associated with film andtelevision productions with a view toward discerning parallels with social network
analysis of databases on other industries, such as the pharmaceuticals one outlined
above.
3.4.2 Artists and Innovation Designated by IMDb
The content and format of the Internet Movie Database is a variety of professional
networking site, somewhat comparable to LinkedIn, but with a view to raising publicawareness in the film and television industries, which rely on publicity. Resulting
from this, in production and distribution, the inclusion of information as self-reportedby the personalities and professionals themselves, making IMDb akin to a résumé.
Indeed, the site was introduced as a subscription service for résumés (Wikipedia,
retrieved 2014).
As such, credibility and accuracy are implicitly questionable(more so than is the case for patent documents, wherein the individuals are equally
free to misrepresent themselves, though there may be less of an economic impetus

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driving misrepresentations). Misrepresentation is reduced for this research by its
sourcing from movies, which are self-reported by the movies’ production studios, notthe artists, so content portrays the firms’ interests, which are not advanced bymisrepresentation of artists. Structurally, the data is compartmentalized as a lattice
between the people and organizations/firms and films or television programs, but isprovided in linear fashion in each, so requires transcription, much as is needed with
USFDA and USPTO contents. It is incumbent upon the researcher to define
creativity such that the strongest statistical effect possible forms. Optimally, oncethe statistical test is determined, testing a variety of data inputs by the statisticalparameters of invention will indicate the strength of that relationship, thereby
enabling a quantitative determiner of novelty.
With patents, the novelty
determination is implicit in the review and granting process. This is because law
designates that an inventor had some role in the inventive process that lead to theinvention in question. With copyrights, no direct identification of all the criticalcreative individuals associated with the project is given, so the names provided in
IMDb mix explicitly and implicitly creative personalities with mere laboring
professionals and workers. No designation is provided to differentiate the two and,perhaps, none is possible.
3.4.2.1 Defining Creativity
In determining categories of creativity on order with patenting, consider a thought
experiment that stipulates to the difficulty in determining whether an individual iscreative or not. This question is jejune, since, arguably, most tasks involve somelevel of creativity, but few are germinal of innovations on order with intellectual
capital, let alone intellectual property.
3.4.2.2 Screenwriters
Writers are paid to create and are highly likely to be released from service and havetheir reputations besmirched if they fail to provide creative content to their projects,
regardless of whether their element of the writing is eventually edited out of the final
product. The writer writes and writing is definitively creative.
3.4.2.3 Actors and Actresses
Actors, in contrast to screenwriters, are less clearly artistic. Surely, actors bring theirown takes on a particular script, but that does not necessarily differentiate the actor
from a factory worker or farmer whose job is similarly defined and structured withtasks that effectively are scripted, but demand some creative problem-solving andnuance. Furthermore, different grades of actor occur in scripts whereby headliners’roles typically enjoy dynamic character arcs. At the opposite extreme, “extras” areprops. Broadly, supporting actors’ roles tend to be purposefully non-creative so thatthe main characters’ arcs display in vivid relief. Thus, actors’ creativity is defined
separately from the title of actor, yet the separation between main and supporting
actors is not consistently defined or recorded in IMDb.
Discerning a method to determine their separation is at researchers’ discretion, butthat choice inevitably impacts the results of statistical analysis considerably. Other
professional tasks also lay between the creativity of the writer and the least dynamicof actors, but simple placement within a creative continuum is problematic, sincequalitative dissimilarities and discontinuities are commonplace.

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3.4.2.4 Editors
Editing requires a keen and artistic vision (and one can draw parallels to a drug
researcher who adds to the realization of a new molecular entity by subtracting
problematic input rather than actually adding insights), but that role may only bedeemed creative by clarifying that subtracting and selecting from among content
provided is a creative act. By that definition, workers watching production lines toremove faulty product, like inspectors examining eggs to remove those that aredamaged, deformed, or otherwise unmarketable, would be creators. Certainly, film
editing and egg inspection have distinctly different creative input, but that differenceis quantitative, not qualitative, so researchers’ characterizations and specifications
become critical.
Optimally, again, researchers would be able to remove definitional determinationfrom subjectivity by utilizing statistical assessment of correlation to see which
professional definitions most significantly correlate with innovation. That effort
would be required to retain the objectivity of conclusions.
3.4.2.5 Professional Roles for Testing for InnovativenessThough the Internet Movie Database, and industry as a whole, lacks a standardized
format and definition of roles, professional differentiation makes for a fairly highorder of comparability across product entries. Furthermore, it is only at theextremities of film and television production that job characteristics grow diverse.
Directors are almost universally common throughout the medium. IMDb lists ofprofessions include, but are not exclusive to, the following nearly thirty categories:
Director(s), Writer(s), Cast (often subdivided into classes), Producer(s),Composer(s)/Music, Cinematographer(s), Film Editor(s), Casting, Production Design,
Art Direction, Set Decoration, Costume Design, Make-up, Production Management,
Second Unit Director or Assistant Director, Art Department, Sound Department,
Special Effects, Visual Effects, Stunts, Camera and Electrical Department, Animation
Department, Casting Department, Costume and Wardrobe Department, Editorial
Department, Music Department, and Other crew. Which of them are essential to thecreative content of the production is determined by researchers’ definitions—acircumstance that contradicts objective blindness. Clearly, parameters for defining
creativity require some rationalization. Notwithstanding what was previously
suggested as an objective way to determine that definition (using statistical tools),
another valid method is to extrapolate from other successful social network databases’
analyses. The danger in that approach is that it may result in one industry’s
characteristics imposing invalid constraints on another. The task of defining creativeroles is paramount, but fraught with challenges that largely result from blind
quantitative social networking analysis being new.
3.4.3 Globalization
International data on IMDb is incongruous with that in the drug database, because,
while the world’s pharmaceuticals are patented throughout the tripartite family ofintellectual property systems and has long accessed markets globally, films andtelevision programs are much less broadly applied. Films produced outside ofEnglish-speaking countries, owing to language constraints, tend to find market
acceptance beyond their language group problematic. Any drug that can enter theUnited States’ market will do so, due to the scale of the American market and because
human bodies’ are sufficiently common for pharmaceuticals to translate universally.

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Only safety concerns restrain some by their not being approved for sale in the US.
Foreign films have a different order of constraint to entering the American market andtheir budgets are more marginal and the entertainment market is much moreunpredictable than is the pharmaceutical market. Thus, drug innovation for the US
market is tantamount to the world market while, for film and television,
foreign-language, subtitled, and dubbed viewing is restrictive. This is partly because
the market for entertainment products produced and delivered within the particularcountry or countries within like-language groups are well-represented. The
English-language markets are highly saturated with English-language programming.
Meanwhile, due to the adaptability of Anglo-American film and television inparticular (an adaptability that is largely augered by their respective scales, scopes,
and quality), English-language sourced film and television is the world’s mostprofitably global. This incompatability of comparison between drugs and film
constrains comparative analysis between the two and suggests limiting comparison to
English-language countries’ source data.
3.4.4 Conclusion to Constructing a Movie Database
To conclude on the Internet Movie Database as a source for film and television
production innovations, it is well-positioned by its comprehensive and authentic
enumerations to provide inputs for network analysis of its creative personalities forcomparison with innovation processes in other industries. While its overall detail isan advantage over alternative industries as sources of data, one deficit is that creativeroles are not distinguished from non-creative ones. Doing one’s job does notnecessarily make a person creative, even when the industry’s aim is to repeatedly
create novel content. Thus, by one of arbitrary judgment, adapting the definitions ofanother creative industry to this one, or utilizing statistical tools to evaluate relative
capability to generate novelty, the researcher provides a definitive framework for
selecting those roles that are to be deemed creative must precede and informcomparison.
3.4.5 Artists’ Details from Other Sources
3.4.5.1 Introduction on Other Sources’ Details
While the details included in the Internet Movie Database are extensive and thosewithin IMBdPro are more so, two critical points of information that are found within
the tripartite drug innovation data and are important dimensions for understanding
innovations’ inventors’ social networking patterns are only possible to source outside
IMBd. These are the critical dates in films’ innovation process and the locations offilming and of the people and organizations involved in movie production.
3.4.5.2 Sources
Deriving dates and learning locations must be earned by diligence, since no single
source readily provides that data across the range of movies included for analysis.
Thus, due to their wide-ranging and efficient gleaning of content relevant to key-wordparameters, internet search engines function optimally for finding the desired
information. This is done by inserting films’ titles, institutions’ names, or creators’
professional names into online searches and augmenting those identities with key
indicator-words to indicate date or industry-specific terminology for the desired
time-reference, like “pre-production”, “principal photography”, “post-production”,“soundstage” or “on location”. Sleuthing across the resultant range of hits will
divulge locations and dates associated with the specific filmmaking processes.

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However, given the above-stated problems with location, particularly the potential forplurality, double-indemnification to verify accuracy ensures maximal validity of
results. Academic-quality research surely demands on a high order of verification.
Plurality of locations must be given appropriate attribution, also, as by economic logic
or standard accepted practice. Where drugs’ verifications offered a range oftrustworthiness from academic journals down to news stories, film’s verifications lackconsistency or pervasiveness in the top order of verifying media, so must rely on
professional, self-reporting options. The moral hazard inherent in this reliance on
lower-quality information sources must be endured and is a good reason for
demanding an increase in the quantity of data included in the research to ensure thataberrations are minimized by increased numbers. As for location, a hierarchy oftrustworthiness is absent. The only sources available are self-reporting and news
stories, which typically result from press releases, so are tantamount to self-reporting,too. Nevertheless, there is little to be gained from misrepresentation of date andlocation, so any problems tend to come from the differing interpretations the reporterhas of location and, particularly, timing. Looseness of definitions, and the lack ofcommonality in resulting responses, are addressed by increasing the sample size,
which is not a problem due to the enormous number of films available. Further,where multiple different responses may be available, it is incumbent on the researcher
to validate the location and dates across several reports. Therefore, the internet
provides the desired locational and temporal background information from a diverse
range of sources, but the vagaries of imprecise and contradicting reports is overcome
through expanding the scope (different types) and scale (number) of those sources.
3.4.5.3 Principal Photography
Just as with drug discovery, many alternatives present themselves as potential
representations of the innovation process’ beginning.
Consistency andrationalization to real-world decision-making by the creative protagonists ofinnovation are the two principal determiners of which start is the optimal proxy fordating that process.
To explain the analytical framework in relation to the industry against which tomeasure film, for drug innovation, patent application, patent granting, drug
application, drug approval, and approval’s publication date are all options. However,in consideration of the speed of the innovation process, the duration between patents’application and grant and between either of those patent events and a drug’s approval
are the optimal options for affixing dates and durations. Of patents’ application andgranting, the latter option is most consistent choice given that it is the definitive endof the inventive process, since, at that endpoint, all patents are equal. At theapplication point, all inventions are not necessarily at the same point and, indeed, areunlikely to be as comparable among the various creative ideas that enter the process.
However, the endpoint is one of legal acceptance of completeness. Any further
additions or revisions are attributed to subsequent patenting events for separate, newpatents. To compare benefits from this knowledge on how the comparable
industry’s contents are determined.
Film offers a similarly diverse range of start and end dates. Purchase of story rights,
pre-production, scriptwriting, principal photography, post-production, marketing, andrelease are all parts of the process of innovation that produces individual motion
picture products. Most of these also have start and end dates, though some of them,

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such as marketing and release, typically have staggered beginning and end dates toundertake worldwide rollouts in manageable stages. Among these, only release
dates are available through IMBd. Many of the remainder are plagued withinconsistency that arises from many forms of unpredictability. One example is thatmany projects do not rely on the purchase of story rights. Another inconsistency isthat marketing is highly diverse in scale, scope, and nature. A further juxtaposition
comes from reporting by standards and definitions that differ widely. Date ofpurchase of a story often goes unreported, for instance. Finally, the reality of someelements is that the onset and conclusion of a portion of the innovative process occurs
slowly and often overlap with previous and subsequent stages, which leads to erraticand subjective representations of when one stage begins and when it concludes.
Among these, then, owing to the precision of its definition and its widespread
disclosure, principal photography offers the most common measures, the initiationand completion of principal photography is most consistent and logical. It is thetime period when the core creative process is realized. Owing to costs, timeframes
exist under a common rationality (that time is money), which accommodates
comparison well. Owing to demands for marketing and for insurance andcapital-servicing reasons, the timing and duration of principal photography istypically publicized and its length minimized under budgetary constraints. Unlike
patents’ application dates’ inconsistency, principal photography’s start and finish areequally trustworthy and indicative of consistent time references. Thus, for its
availability, logical rationality, and consistency of and among reports, the time ofprincipal photography is the optimal selection among films’ innovation process
stages.
3.4.5.4 Location
As with dating, locating a production, institution, or person is a complex act and notoften divulged within the Internet Movie Database. Additionally, the placement of
any of those three appears to be rather irrelevant to the innovative process as thefollowing thought experiments indicate. Though Hollywood remains the iconic
center of English-language film production, placement there or elsewhere offers nocontest about the innovativeness of the film project, particularly when contrasted with“on location” shoots. Neither is expressly differently innovative than the other basedon its location. Similarly, where a creative individual comes from does not carrysignificance in an industry where relocation for work is as ordinary as following thefilms’ placement. Different, though, is the location of institutions, such as talentagencies, production and marketing firms, and professional organizations. These do
tend to cluster in film-making centers, but tend to cope with abbreviated scope by
expanding scale. Agencies will have offices in many cities with active film
production and send their representatives elsewhere expediently. However, in theinterest of discerning national innovation system policies’ impact and othergeographic effects and to discern what is not understood or misunderstood, location is
worthy of full consideration and examination.
3.4.5.5 Conclusion on Other Sources’ Details
Summarizing, then, accessing content that informs on the location and timeframe offilms, their firms and professions, and their creative personalities, requires casting awide net, diligently searching through the options, and verifying input throughmultiple and varied sources.

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3.4.6 Conclusion
Finally, the Internet Movie Database is a data source that, for the scripted visual
recordings industries of film and television, accepts blind, comprehensive, andlongitudinal analysis by including both innovative creativity and well-documentedsocial networks. Though a singular database, parsing relevant data from its
individual sources is time-consuming because of the compounding effects of the large
number of individual characteristics requiring inclusion and the number of people tobe characterized, which is, in total, 4.2 million professionals (IMDbPro, retrieved2014). By contrast, drug data allots only near 14,000 person-patents (Levirs, 2013).
That is to say that, even when people with multiple patents are represented multiple
times, the total number of discrete entries is less than twenty percent that of thenumber of individuals (not multiplied by multiple roles) in IMDb. Many multiplesof the effort needed to compile the drug database as a population is required for visualand performing artists in film and television. Certainly for explorative statisticalanalysis, such as determining which professions are inventive, statistical analysis bysampling is highly appropriate. Efforts to formulate a database of the whole
population would be cumbersome and unnecessary, given that the statisticallysignificant number of entries is easily accessible and conclusions from that analysis
hold a proven rate of confidence. To summarize and conclude, IMDb offers deep,
broad, and robust information on movie, television, and music innovations’ creators inways that allow for comparison with drug innovations’ creators.
3.5 COMPARISON OF DATABASES’ CONTENTS
3.5.1 Introduction on Comparing Data Content
While the two industries are resoundingly different in structure and product, both areinnovative and the reporting of their innovations offer many similarities from which
comparison gains its traction. The table below outlines points where comparability
can be deduced or induced for blind, quantitative data extrapolation. Induction isneeded where no direct reportage of the given content-point is directly provided by asingle source, so requires being developed across multiple sources. From theseparallel descriptions of available content, the reader is provided a list of possible
tractable points for comparison for future research, though any future research willneed to verify that comparable features and parameters suggested herein are verified,statistically or logically, to ensure that whatever comparisons follow represent realcommonalities. At its bottom, numerous features that are present and are sources ofblind, quantitative data within the IMDb data source, but which lack a parallel
disclosure in patent-related data, are offered Partly this is done to satisfy
comprehensive disclosure herein, but also to notify the reader of other potential pointsof contact for future research that either finds additional comparable data features inpharmaceutical innovation data or finds and develops a data source other thanpharmaceuticals. As such, the following is as comprehensive a list of blind,
quantitative innovation data for the two industries as was available at the time of thisreport’s writing.
3.5.2 Comparable Content
Table 1:

Identifiers and Quantifiable Data

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From 3 Sources on Drugs:
From IMDb on Film:
Drug’sCommercial
Name; Film/Program’s Name (by country or region)
Drug’s Active Ingredient’s Name
Patentee’s Name
Full Cast and Crew* (likely candidates: director(s),writer(s), cast, composer(s), cinematographer(s), film
editor(s), production design, art direction, costume design,
make-up, second unit director or assistant director, art
department, sound department, special effects, visual
effects, animation department, editorial department, andmusic department)
Assignee’s Name
Company Credits (production companies, distributors,
special effects subcontractors, other)Inventor’s Name as Found in Full Cast and Crew* (likely candidates: director(s),Verification Data
writer(s), cast, composer(s), cinematographer(s), film
editor(s), production design, art direction, costume design,
make-up, second unit director or assistant director, art
department, sound department, special effects, visual
effects, animation department, editorial department, andmusic department)
Assignee’s Name as Found in Copyright Holder*
Verification Data
Patentee’s Verification Source IMDb Self-reference
Reference
Assignee’s Verification Source IMDb Self-reference
Reference
Patent Number
Title, Working Title(s)Date: Patent Granting
Online Search (key words to determine end of principal
photography(between
pre-production
andpost-production)): film’s/program’s title + “principal
photography” or “filmography” or both
Date: Patent Application
Online Search (key words to find start of principal
photography(between
pre-production
andpost-production)): film’s/program’s title + “principal
photography” or “filmography” or both, or (key words tofind end of principal photography (between pre-production
and post-production)): film’s/program’s title + “principal
photography” or “filmography” or both
Date: Patent Expiration

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Date: Drug Approval
Patentee’s City and Residence
Assignee’s City and Residence
Patentee’s Sex (suggested byname,confirmed
bynon-USFDA/USPTO search)
Number of Patentees

Number of Academic Patentees
Number of Assignees
Number of Academic Assignees

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Festival*, Limited*, and/or General Release*
IMDb: Artist’s Page
Country, Copyright Holder*, Filming Locations
Artist’s Sex (suggested by name, confirmed by IMDb &other searches)
Number of Creative Cast & Crew* (likely
candidates/segmented by job title): director(s), writer(s),cast, composer(s), cinematographer(s), film editor(s),production design, art direction, costume design, make-up,
second unit director or assistant director, art department,sound department, special effects, visual effects, animation
department, editorial department, and music department
Copyright Holder*Festival Release
Limited Release (by country or region)
General Release (by country)
Technical Specifications (runtime, sound mix, color/bw,
aspect ratio, camera, laboratory, negative format,
cinematographic process, printed film format)
Full Cast and Crew (Director(s), Writer(s), Cast (often
subdivided into classes), Producer(s), Composer(s)/Music,
Cinematographer(s), Film Editor(s), Casting, Production
Design, Art Direction, Set Decoration, Costume Design,
Make-up, Production Management, Second Unit Director
or Assistant Director, Art Department, Sound Department,
Special Effects, Visual Effects, Stunts, Camera andElectrical Department, Animation Department, Casting
Department, Costume and Wardrobe Department, Editorial
Department, Music Department, and Other crew)
Box Office Receipts (budget, gross revenues, weekend
gross revenues, admissions, rentals, copyright holder)
Ratings (demographic, and age/sex/top/US-nonUS voters)
Awards
IMDb Charts
Soundtracks

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Genre
Motion Pictures Association Classification, Certification
Motion Pictures Association of America Number
RuntimeLanguage* Subset within larger category or combines several categories* Discard non-English source data (because non-English film is notcomparable—language constraint)* Discard television source data (because its creative process is notcomparable—ongoing and short)(Levirs, 2013)(IMDb, retrieved 2014)
3.5.3 Conclusion on Comparing Data Content
Thus, as the above table of comparable features between drug and film innovations’inventions’ creators, commonalities are numerous. In total, eighteen comparable
features that satisfy the demand for the data being blind and being quantitative arepresent. Film contents are more diverse when representing professions andspecializations among the members of potential groups, but these categorizations of
the people do not automatically disqualify any one group from contention as
representatives of creativity that results in innovative products and without which theinnovative product would not be possible. While the two industries are resoundingly
different in structure and product, both are innovative and the reporting of theirinnovations offer many similarities from which comparison gains its traction. The
table below outlines points where comparability can be deduced or induced for blind,
quantitative data extrapolation. Induction is needed where no direct reportage of thegiven content-point is directly provided by a single source, so requires being
developed across multiple sources. From these parallel descriptions of available
content, the reader is provided a list of possible tractable points for comparison usefulin future research into social networking’s role throughout the innovation process,though any future research will need to determine that comparability of features andparameters suggested herein are statistically or logically verified as innovation
processes and, subsequently, the strength of the commonalities. All elements
included in the table represent blind, quantitatively derived content, but, at points inthe table and especially at its end, categories are shown where no corollary appears
present between available data. IMBd provides most of these categories that lackany parallel in the USFDA-USPTO-affiliations dataset. Partly, these are included tosatisfy comprehensive disclosure, but they also to notify the reader of other potential
points of contact for future research that either finds additional comparable data

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features in pharmaceutical innovation data or finds and develops a data source otherthan pharmaceuticals. As such, the above table comprehensively lists for comparison
between the blind and quantitative social networking content of innovation processes
in drug development and film production.
3.6 Conclusion to Applicable, Available Data Sources
Building a useful database is benefitted by law or custom forcing full disclosure.
American drug development and English-language countries’ film offer data content
for those reasons. Nevertheless, the terms of the transparency fit their needs, so
require some interpretation and interpolation to ensure accuracy of results. Further,owing to the overwhelming mass of data available in the film industry by the large
volume of movies and the compounding divisions of labor and individuals withinthose divisions, the near prohibitive scale and scope of entries from that industry
legitimize both limiting the scope to only those few professions with the provenhighest connection to creativity and scale to approximately the number offered in thecompared database, in this case that of pharmaceuticals’ discovery and development.
Discussion
4.1 Introduction to Questions for Discussion
Substantially, comparative analysis of the patterns of social networks in drug
development’s and in scripted film and television production’s creative communities
tests their groups’ constitution to find correlations among variables. Since drugs andfilm and television can be assumed to be independent of each other, given that thenature of the professions, institutions, and markets are radically distinct, correlated
results suggest that external factors are impacting both.
Identifying theseexternalities is beyond the scope of this report, so would be the subject of the further
research for which this report is introducing these databases. Mainly, this is tested
longitudinally to determine patterns’ evolutionary trajectory. Synchronous change is
explored as shown in the following questions:a) Group Size Developments: has the number of members in creative groupschanged?
b) Group and Institution Diversity Developments: has the composition ofmembership by sex or geography changed?
c) New Diversity: has sources of geographic diversity changed for inventors andartists?
d) Duration of Innovation Process: has the length of production time changed?

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Volume I - Issue I - Summer 2014e) Pluralization of Institutions in the Innovation Process: has the number of
production companies or assignees changed?
f) Gross Innovations: has the number of drugs or films/television programs
changed?
Thus, patterns in the constitution of innovations’ social network among inventors areavailable for assessing correlations among reported characteristics in thepharmaceuticals and the film and television industries over time.
4.2 Group Size Developments
Positively or negatively correlated change in the quantity of people grouped forinventive or creative activities indicates presence of a common impacting factor.
Examples of possible causes include generalized temporal effects (time) and specificmacro-economic events (economic or financial crisis or exuberance, new technology,
altered law or policy). From the demand side, enlargement of creative groups
suggests that inventive work demands more varied intellectual capital inputs or occurs
under greater time pressure. From the supply side, efficiencies and scarcities scaleback group size, reduce time pressure, and encourage investment in research tools.
Given that some supply and demand features of creativity impact across creative
industries, positive correlations deserve investigation to determine whether theyaccrue from features of the novelty-generating environment, such as policy.
Internalities, like that the consumer-demand market for drugs tends to be lessdiscretionary than is that for new entertainment, produce so lack of correlation that ismost likely to express itself as vacillations between the markets. Negative
correlations arise from contrasting traction in sales, as can be expected to result fromfactors like the demography of aging and changes in the prevalence of
non-communicable diseases. Combining results of these three outcomes has thepotential to develop, by deductive statistical analysis, generalizable conclusions frominnovations’ creators’ social networking. Thus, the similarities of changes among
inventors and creators over time or across the line of specific events show that at least
one development parameter coincides with or causes the observed evolution.
4.3 Group and Institution Diversity Developments
This assessment encompasses several possible factors to be tested, like members’ sex
and location, possibly age, employment role (such as manager versus other, andacademic versus commercial creator, and entrepreneurial inventor versus funded
inventor), if employment can be derived. However, comparable changes in thecharacteristics of participants in innovations’ inventive social groups over time or in

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response to singular events demonstrate influence on social networks composition.
Note that the change may not have an effect on innovative or inventive products, but
may only reconstitute group structure. Whether more of one or other sex or if greater
dispersion of contributing researchers is beneficial is debatable, but certainly is notwithin the assessment parameters of this report. This report only outlines databasesthat are worthwhile to construct for purposes of comparing the results of social
network formation. Hypothesis testing would occur subsequently, using these
databases. Furthermore, preliminary research would simply aim to determine if there
is a common effect.
Detectable macro-developments include, but are not restricted to, time, events,
economics (such as improved communications and institutions), finances, or markets).
Time is a loose category encompassing a great variety of chaotic factors that may,
nonetheless, result in some overarching trend that may or may not be possible to parse
into its constituent elements. It may influence drug development and entertainment
together by the progressive development of tastes and fashionable interests, but may
also arise within the two industries simply as a product of their maturing, which is acontinuous macro-effect where tastes and interests may vacillate, cycle, or wander
aimlessly. Events, as with group size, have a peculiar role, owing to its one-time
impact, but comparing between drugs and entertainment may be more treacherous.
Given the large role that men are seen as playing in both industries, the rise of a highprofile woman may result in women entering the field. This could be tested bydifference of means before and after the profiled woman’s popularity augers somemargin of public attention plus some length of lag-time to account for the timerequired to educate the next generation of women. The same may be found for
geography. Other event changes may result from the institution of new laws orpolicies, even those not directly involved in either of the industries, as would policychanges that encouraged universities to train more female or foreign students.
Economic issues may appear to be temporal issues, but the true source lies in theeconomy, such as entrance of revolutionary technology, communications, education,
data management and computing, demographics, and fracturing or consolidation of
the institutional environment. For instance, as manufacturing moves to cheap-laborcountries, increased focus on services and on precision manufacturing may reduce
costs of the tools of both the drug research and the film and television production
trades in unison, thereby allowing increased involvement by relatively cash-poor,
non-traditional people.
Diversification would be the result of this wider
inclusiveness. Finances may appear micro-economic in nature, so should not be
uniform and distinguishable from economic impacts, but its effects can be separate.

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Change in the availability of investment capital for creative industries would have abroad and disproportional effect as reductions in funding would exponentiallyheighten risk such that only far safer projects from creative teams with the best trackrecord receiving the remaining funding. Entrance of new talent would decline and thestatus quo would uniformly curtail the changes in the social network that this facet
would test. Consumer markets also portend significant related impacts, such as in
the face of the demographic shift, increased wealth of non-traditional buyers, and rival
products siphoning away potential market scale. Thus, as these many examples
suggest, groups’ locational and male-versus-female composition alters under theeffects of time, events, or other longitudinal, but definable, factors’.
4.4 New Diversity
In addition to simple increases in the balance of proportions of men to women andpeople from varied localities rather than single clusters, there is matter of changes inpluralities prevalence and the complexities of those mixes, the relationship between
the location of projects and the proportion of mixed nationality and complex-mix
projects, and the rate of change in each location (national innovation system). Since
males and females are the only two established sexes, only the differing proportion ofeach sex and the proportion of projects including each or both sexes are relevant. To
more clearly understand the content of this point with relation to geography, it
addresses the following questions:(a) Has the ratio of the drug invention and film or television projects with people
from more than one nation changed?
(b) Has the number of nationalities represented in individual projects changed?
(c) What are different nations’ results on the previous two parameters?
Finally, (d) what are different nations’ trajectories in the rates of change?
These are related to change in composition, but of overall diversity’s change under
external effects, which, if contrastable between industries, suggests that thoseindustries are insular and, if comparable, suggests of general factors initiating
evolution across industrial sectors. Here, too, changes in diversity may have apositive, negative, or no effect on innovation, so supplementary research is needed toanswer that question. Similarly, sources of said factors may be any of many,
particularly by time, events, economic, financial, or market conditions, or by-productsof immigration. Such factors may be specific to each industry or may show common
or contrary impacts. Outcomes that are specific to each industry deny comparability,
so designate insularity with regard to the tested factor. Where difference of means
statistical analysis shows positive or negative correlations, the nature of each

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Volume I - Issue I - Summer 2014industry’s innovation process is either similarly or differentially affected by thefactor’s imposition, but a relationship is definitely asserted. Changes in diversity
among inventors and artists may occur in ways that are specific to each industry or
may be compare and, so, be generalizable.
4.5 Duration of Innovation Process
Innovation is a process both based on inspiration, as expressed by inventiveness, andon perspiration, as expressed by the number of people and time expended to achieve
the final product. Hence, speed of the creative process may indicate an impact ofother factors or that progress into new areas requires increasingly sophisticatedsolutions, whether those new areas are more complex molecules or a more demanding
viewership. Though audience and chemistry suggest that analytical similarities arederived from unrelated industry characteristics, that appraisal may be simplisticallygenerous. Shifts in pervasiveness of media and information technologies are likely
to have wide-ranging impacts on the nature of public perception and of research. For
drugs, the separation in time between patent-granting and drug approval is an effective
proxy for estimating the overall speed of the innovative process in that industry. For
films and television programs, the corollary would be the length of time between
principal photography and movie release. Unfortunately, no database specificallylists films’ dates of principal photography, so, as mentioned above, this point ofevidence requires supplementary research. While not universally available, diligence
allows a large contingent of major films’ dates of start and end of principal
photography to be found. However, establishing a workable corollary for television
is problematic, since the structure of television programs tends to involve ongoingcreativity rather than a fairly clear two-point ((a) invention date/(b) innovation date)process. It is further complicated by the lack of case-specific information on
television programs’ principal photography dates. For this reason, avoidance of
television source data for research that asks for comparison of the rate of innovation
processing is merited. Therefore, indications of duration of the innovation process
may accrue in consort with other factors or independently to show that underlying
features in the innovation environment are creating uniform change across the sphereof innovation in many industries.
4.6 Pluralization of Institutions in the Innovation Process
Part of the interrelationships among creative individuals is their relationship to theircommon institutional infrastructure. As a result, change in the number, location, andtype of institutions that constitute invention’s material and administrative environment
indicates possible evolution in the demands of innovation, invention, and external

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characteristics affecting the process. These externalities include such considerations
as the financial market’s appraisal of and appetite for risk and that different types of
institutions may seek different results from being named at the institutional level.
The increase or reduction in the number of institutions involved suggests that the
costly risk of research and development of drugs and production and marketing forfilms are being diffused across multiple firms. Of these, films’ marketing institutions
are excluded from this assessment, because any creativity that occurs there is notwithin the realm of intellectual property development and has no data-driven corollaryin the pharmaceuticals.
Drug marketing occurs absent public disclosure.
Institutions’ locational dispersion may occur for political, market, or practical reasons,such as financial supports from government provided to attract projects, diversity ofimagery or content whereby specific vicinities may offer access to attractive filming
locations or clusters of vanguard technologies and knowhow. As an example of this,
New Zealand’s disproportionate involvement in film development can be traced toPeter Jackson and Fran Walsh’s Weta Workshop. This is true of drug development,
too, where biotechnology clusters, particularly near leading universities, see thesharing of research results with little regard for location-based constraints to sharing,and the same is substantially true of the type of institution (public versus private), as
collaborative and sponsored research brings tertiary education institutions together
with corporations to usher potential products through various stages in future products’
development. For film, the collusion of different firms in the production process ismore typically seen where firms from one category of the industry spill over into
others, such as talent agencies, or actors themselves, entering into production tasks
and distributors becoming involved in production, too. Forward and backward
integration is an ongoing consideration in film and television. The past divide
between television and film production is an area of lateral spill over. Multiple
institutions becoming involved may also indicate the presence of multiple, exclusive
interests. This is apparent when universities ask that their names be included as
assignees, but claim no financial rights or risks for doing so. In such an instance, thecorporate partner is motivated by cash while the university seeks recognition. The
great variety of reasons for forward or backward integration and spill over in film is somultiplicitous as to be daunting to research, since it may be anything from part of thedeal to win a film’s casting contract for talent agents or it may be an effort for
distributors to control content in order to assure a profitable end-product. While theexpression of many of these factors may outwardly appear distinct between drugs’ andmotion pictures’ development processes, statistical assessment may illuminate
unexpected and even counter-intuitive correlations related to the innovation process’commonalities. To conclude, though the specific causes require subsequent study,

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first, finding similar evolution in these two industries suggests that some underlying
effect is impinging on their outcomes, so subsequent study is worthwhile in order todetermine what is causing those impingements.
4.6 Gross Innovations
The last parameter noted here is change in the total quantity of innovations: actual
movies being released and drugs being marketed. Change in the population of
innovations indicates altered trajectory of scale or scope. Scale (size) includes
growth or shrinkage in the market. Scope (density) includes the parsing or
consolidating of products as separate from scale. Increasing the number of products
in a given market tends to both grow that market and reduce profits throughcompetition. Decreases tend to have the opposite market impact. Relating changesof scale across both the film and the drug industries’ innovation processes seems
unlikely, but cannot be discounted without testing. Of scale and scope, backwards
anticipation of marketing capabilities or forward results from increased funding of
projects, as with governments’ competition to attract industry relocation, and changes
in productivity, as from introduction of new technologies, business practices, ormarkets, alters interest in and, so, amount of creative work dedicated to projects inboth industries. Likewise, budgetary constraints could diminish infrastructuraldevelopment and raise taxation and other near-tax expenditures as would raise costs
and, worse, increase unpredictability’s risk. Differentiation between scalar and scope
effects is critical to analysis, but somewhat problematic, given that environmental
changes have both effects simultaneously.
This differentiation problem
compromises the integrity of any resultant conclusions. Alterations in scale or scope
show themselves in the population of innovations and indicate underlying pressures,
particularly directly to investment in innovation and indirectly and backwards fromchanges in the profitability of consumer markets.
4.7 Conclusion to Points of Discussion
This discussion began with the idea that assessing commonalities in the patterns in theconstitution of creative people’s social networks while they undertake their innovative
processes would be helped by comparing drug inventors with film and television
creative personalities. Suggested axes of comparison included were: (a) group size
developments, (b) group and institution diversity developments, (c) new diversity, (d)duration of innovation process, (e) pluralization of institutions in the innovation
process, and (f) gross innovations. During this discussion, the rationales fordiscarding television production and non-English movies were entered. Owing to theongoing nature of its production rather than the distinct stepped approach of both film

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production and drug development, television production lacks the others: two-stepinvention-to-innovation process. Non-English film lacks global market penetrationthat is in balance with and fulfilling for comparison with pharmaceuticals. Thus,
details of the patterns in the constitution of innovations’ social networking among
inventors are discussed and considered as to their availability for testing in any
research that compares the social network structures among pharmaceutical industries’
innovations’ inventors and the film industry’s movie productions’ creative
personalities during the innovative process for the purpose of identifying correlations
among reported characteristics in the ultimate search for expressions of factors
affecting both industries in common.
Conclusions
Returning to this report’s greater theme as presented in its introduction, the search forpolicies that are effective in managing the innovative process in industries would
benefit from including assessment of maximally blind, quantitative, and longitudinal
data.
This report suggests how that could be done using a database ofpharmaceuticals’ innovations and another of films’.
First, derived from
Nooteboom’s composited analysis for determining speed of innovation from social
networking data and founding that analytical technique on the micro-economic logic
of cognitive distance within a Transaction-Cost framework, this report introduces acomposited pharmaceutical industry database and a nearly single-source database of
the film industry. Second, both databases count features that may or may not
ultimately prove to be innovative, but for which diligence demands statistical testingto verify whether or not they are, rather than summarily dismissing them. Since thepurpose of this report is to suggest and outline how innovation processes in these twoinnovative, but otherwise highly distinct, industries may be undertaken and offer new
perspectives and understanding of innovation processes generally by using a researchframework that compares their features in search of commonalities and correlations in
the face of similar developments in each one’s operating environment. Thus,
revising Nooteboom’s analytical approach to deductive testing is the first major step
toward formulating effective quantitative social network analysis and finding anddeveloping data-sources into comparable databases is the second. Securing valid andvaluable data-sources to assess creative individuals’ patterns in networking is shown
to be constrained by factors limiting the depth and breadth of generalizability.
Research into the social networking nodalities of the people who found innovations
suffers from use of questionnaires, which risk respondents articulating theirinterrogators, rather than their own, expectations and apprehensions, and invention,

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which is not validated for usefulness and relevance by market entry. Survey
respondents represent themselves differently due to interpretation of questions.
Invention, lacking corollary of market entry, ignores policy’s purpose, in addition to
the non-market expression of firms’ innovation management, which values secrecy
over disclosure and standardization. Thus, to those data that can be compiled into
databases that are comprehensive in their reporting, are authentic to the creative
efforts that lead to innovation, and useful for social network analysis on innovation’s
inventors and authors are herein limited to that of the pharmaceutical industry’s drug
development processes and the film industry’s writing and principal photography
elements that lead to distribution. The structure of comparative research of these two
industries’ innovation processes is vetted and discussed as to their effectiveness inproviding reliable research results into a generalizable understanding of innovation.

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References
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Elgar Publishing Inc.

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David versus Goliath:
Harnessing the Power of SMEs in the Fight for Sustainability
Dana Coble, Consultant, Business Optimization
Anshuman Khare, Professor, Athabasca University

Abstract
Climate change, resource depletion, environmental and economic disparity are thetwenty-first century Goliaths. Governments, NGOs and corporations when “fighting”
the Goliaths often overlook small and medium enterprises, the twenty-first century
Davids.
SMEs have a substantial aggregate impact and are frequently referred to as the“economic engine” of a country. In this conceptual paper, the authors demonstrate that,
due to SMEs’ aggregate impact and economic functions, their participation insustainable development is essential. Most SMEs are intimate with their customers,
rely heavily on their local economy, and their owner-managers have stronger
motivations than mere profit maximization. This provides the incentive for them toparticipate in the betterment of their communities. While governments, NGOs, andlarge corporations are increasingly recognizing SMEs’ importance, there is frequently
a gap between their rhetoric and actions in engaging them. SMEs themselves find theconcept of SD ambiguous and the terminology inappropriate to their operations. Thosethat strive to adopt sustainable practices and develop sustainable initiatives frequently
are unclear on the appropriate tools or lack the resources with which to do so. This
paper identifies key factors that will enable SMEs to not only become sustainable
enterprises, but also to champion SD.
Keywords: SMEs, climate change, resource depletion, environmental and economic
disparity, sustainable development.

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Introduction
Climate change, resource depletion, environmental and economic disparity – these are
the twenty-first century Goliaths. Governments have been discussing how to fightthese Goliaths for over twenty years with limited success, if any. In some cases,
policies have taken us back instead of moving us forward. Sustainable development(SD) is the most promising armament to slay the giants. Non-governmentalorganizations (NGOs) and the general public have directed their attention on large
corporations, due to their global impact and a perception that these organizations havebeen significant contributors to the problems while small and medium enterprises(SMEs) have been primarily overlooked. This is a disservice as SMEs are thetwenty-first century Davids. SMEs have a substantial aggregate impact and are
frequently referred to as the “economic engine” of a country.
Designed for a broad audience, this paper provides an overview of sustainable
development (SD) and its importance to the global community. A review of SMEs’
contributions, functions and roles will demonstrate that not only is their participation
essential in moving toward a sustainable economy, but also SD is essential to theirorganizations. The paper also delves into how sustainable development within SMEs
generally differs from that of large corporations. An examination of current
government, NGO and corporate practices will highlight successes and limitations inincluding SMEs in SD initiatives. The paper ends with an assessment of how SMEs
are currently engaged.
Based on this analysis, a roadmap to success is presented. It includes initiatives forgovernment, NGOs and large corporations to address the challenges SMEs experiencein their sustainability journeys and to create business environments to facilitate SME
participation towards achievement of sustainability. Recommendations follow for theowner-managers of SMEs to promote sustainable initiatives within and amongst
themselves.
Research design and data collection
This is a conceptual paper, drawing from qualitative case studies conductedinternationally of SMEs and their approaches to sustainability. Such an approach isappropriate when there are few metrics to quantitatively evaluate the subject matter orwhen the data cannot be assessed adequately using existing frameworks. Because
there are many definitions of SD and several approaches, how these concepts can be

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effectively implemented by SMEs is an interpretive process. Other scholars have used
this method to apply current theories to different business issues, or, as is the case inthis paper, to different business sectors.
A variety of supplementary sources have been reviewed to compare and contrast thecase study findings with current general practices and progress. It is worth noting thatthe majority of documents produced relate to corporate social responsibility (CSR)
specifically, followed by environmental considerations, rather than SD as a holistic
concept. As the concept of sustainable development is continually evolving, and its
application has only recently been applied to SMEs, the focus herein is on the mostcurrent literature available. Studies within the last five years and the most current
government and NGO reports have served as primary data for this analysis.
2.1 Scope, Limitations, and Assumptions
SMEs are heterogeneous and there is no “one size fits all” approach to facilitating
sustainable development within each organization. To add further complexity, SMEs
experience different sustainability challenges depending on their geographic location.
As this paper is designed for a broad audience, its intent is to examine how sustainable
development within SMEs generally differs from that of large corporations, with anemphasis on SMEs in developed countries.
Sustainability, CSR, and environmental management are terms frequently usedinterchangeably within the literature, although each has a distinct nuance, and, so,
could be considered independently. Due to limited data availability on sustainable
development and SMEs specifically, for the purposes of this paper case studies on all
three, as applied to SMEs, have been referenced. This presents a challenge incorrelating disparate literatures to holistic sustainable development principles.
The case studies reviewed have been conducted most frequently by interviewing
SMEs. Depending on the study, participants were either pre-selected or included basedon their willingness to cooperate. The author recognizes that this method of datacollection may have impacted the accuracy of the results and subsequent analyses ofthe studies’ authors. As supplementary sources reviewed support case study findings,
it is unlikely these possible inaccuracies materially affect the analysis presented
herein.

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Sustainability and sustainable development
3.1 Definitions and Concepts“[Sustainable development] is a delightfully diverse, safe, healthy and just world,with clean air, water, soil and power – economically, equitably, ecologically andelegantly enjoyed.” - William McDonough, co-author Cradle to Cradle
Let us start with some commonly available definitions and develop them further withother ideas and concepts.
Sustain: to keep, or keep going, as an action or process; to endure; to remain
viable (www.dictionary.com).
Sustainability: capable of being sustained (economics); capable of being
maintained at a steady level without exhausting natural resources or causing
severeecologicaldamage(environmental
science)(www.thefreedictionary.com).
Sustainable development: “development that meets the needs of the present
without compromising the ability of future generations to meet their own needs”(WCED, 1987).
The definition of sustainable development above was first introduced by theBrundtland Commission in its report “Our common future,” in response to global
concerns of economic stagnation and environmental degradation at the time (Holliday
et al., 2002). While it is the most commonly cited definition of sustainable
development, it has been criticized as being vague and lacking direction on how toachieve it (ibid.).
3.1.1 Complementary and Competing Concepts
In addition to the multitude of definitions proposed for sustainable development,
concepts such as corporate social responsibility (CSR), eco-efficiency, environmental
stewardship, and resiliency have been used interchangeably within both academic andbusiness literature. While it is beyond the scope of this paper to provide a review of
the nuances amongst and between these terms, it is worth noting that the definitional
fragmentation creates additional confusion for an already ambiguous concept. It also
contributes to businesses disassociating their operations from sustainable development,
as addressing the environment and CSR are frequently perceived as “add-ons” rather
than core business processes (Jamali et al., 2009; Jenkins, 2009). Sustainable
development requires a more holistic approach and as such, using these terminologies

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interchangeably may actually contribute to the slow adoption of sustainable principles
as opposed to being of benefit.
Furthermore, while it has been suggested that CSR is a mechanism with which toachieve sustainability (Bos-Brouwers, 2009; Jenkins, 2009), the “corporate” in CSR
naturally precludes SMEs (European Commission (EC), 2004; Fassin, 2008; Spence,2007).
3.1.2 The three Es
Irrespective of the confusion caused by the myriad of definitions, approaches,competing and complementary concepts, there is one commonly accepted objective ofsustainable development: achieving equitability and economic prosperity without
exceeding the environmental carrying capacity of planet Earth.
3.2 Why it is Important?
Climate change, resource depletion, environmental degradation and economic
disparity are issues that permeate the news on a daily basis, with many compellingarguments as to their importance. While it is beyond the scope of this paper todiscuss these arguments in depth, the following points highlight the interrelationshipbetween the three Es and the value in considering them holistically.
•

Environment
Non-renewable resources, by their very definition, will cease to exist at somepoint. As mankind’s survival depends on the natural environment, and natureprovides the “fundamental rules of the game”, it is essential to develop systems
where humans and nature can co-exist in productive harmony (EPA, n.d.;
Seale, as quoted by Even-Har, 2012).

•

EquityAlthough tremendous wealth has been amassed globally due to the carbon
economy, 1.3 billion people remain “trapped in dire poverty” (DARA, 2012).
Research suggests that unequal societies have “lower levels of trust, literacy
and social cohesion”, which makes it more difficult to make positive inroads
on economic and environmental issues, like overcoming the sustainability
deficit inherent in the carbon economy (Wilkinson & Pickett, 2009).

•

Economics
While profit may not be the reason for the existence of an enterprise, it is arequirement for sustainability, and responsibly designed economic growth has
been shown to contribute to improved quality of life and poverty elimination.

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Small and medium enterprises (smes)
4.1 Definition and Impact
While the definition of an SME varies globally, governments most often identify themby the number of full-time equivalent workers that they employ (ftes), a certain
amount of revenue generated annually, or a combination thereof. When considering
the impact of SMEs, the example of Canada shows that this sector accounts for 99.8
percent of enterprises, 60 percent of employment, and 57 percent of GDP (Industry
Canada, 2011). Similar statistics are present in the EU (EC, 2012b) and internationally.
Furthermore, the International Finance Corporation has identified a positive
relationship between a county’s overall level of income and the number of SMEs per
1,000 people (WBCSD, 2007).
Clearly, the aggregate influence of SMEs is substantial, which is why they are
frequently referred to as the “economic engine” of a country. While non-governmentalorganizations (NGOs) and the general public have directed their attention to large
corporations due to their global impact, high visibility and a perception that theseorganizations have been significant contributors to the Goliath problems, a UK survey
for the Environmental Agency noted that “SMEs are responsible for 80 percent ofpollution incidents and 60 percent of commercial waste” (ENDS, 2003) and it isreasonable to assume these statistics are comparable in other developed countries.
While these statistics alone could justify the importance of engaging SMEs insustainable development, additional reasons that are outlined in this section further
underscore the value of embracing their role.
4.2 Why SMEs are Important to Sustainable Development?
SMEs’ contributions to sustainable development can be separated into two categories:
those that are satisfied with their market niche, but are concerned (or need to beconcerned) with operating their businesses sustainably; and those that are seeking
market opportunities by introducing new and sustainable products and processes to themarketplace. To distinguish between the two, they are, herein, referred to as“Adopters” and “Innovators”, respectively. The majority of SMEs are Adopters.
Innovators are natural incubators for such disruptive technologies. While Innovators
represent a smaller percentage of the SME business bloc, they are the leadingorganizations for job growth and hold tremendous promise to radically shift businessapproaches.

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4.2 1 Structural alignment
While SMEs are officially characterized by their size, they also have uniqueorganizational characteristics compared to large corporations. A review of thesecharacteristics suggest that they are not only well structured to match larger
enterprises in their sustainability efforts (Fassin, 2008; Jenkins, 2009; Murillo &Lozano, 2006), but also have the opportunity to be SD leaders.
•

The most common form of SME is one managed by the owner. As owners,
they have autonomy to utilize firm’s resources as they see fit – that is, they are
not required to maximize profit for a large group of shareholders (Freisleben,
2011; Jenkins, 2009; Spence, 2007; Spence, Boubaker Gherib & Biwolé, 2011;
Stubblefield Loucks et al., 2010).

•

Organizations’ cultures are well-known and reflect the personal values andbeliefs of the owner. Their operations are less formalized and codified thanthey are for large firms and, with less hierarchy and bureaucracy, information
is easily and quickly disseminated throughout the organization (Jamali et al.,2009; Jenkins, 2009). This allows for alignment of action that is intimate withthe company’s objectives, which makes business practices a “way of life”
instead of “lifeless documents” (Bos-Brouwers, 2010; Fassin, 2008).

•

SMEs are more intimate with their customers and rely more heavily on thelocal economy than are and do large corporations; relationships are critical totheir success (Spence, 2007). This provides the knowledge and incentive forthem to participate in the betterment of their communities. It is commonly
accepted that sustainability is a global issue that needs local solutions.

•

They are flexible, organic, and can more quickly identify and respond tochanges in market demand than large firms (Jenkins, 2009; Lefebvre &Lefebvre, 2012; Stubblefield Loucks et al., 2010).

4.2.2 Job creation
In Canada, between 2001 and 2011, small firms accounted for 43 percent of all jobs
created (Industry Canada, 2012). Statistics in the United States (US) cite an evengreater impact. In researching the recovery periods of the recession’s
post-World-War-One, Henry Nothhaft discovered that “since 1977, all new job
creation in the US has been due to startups,” (Harvard Business Review, 2011). In
addition, startups provide more opportunities to women and minorities and thisnaturally fosters a more equitable distribution of wealth. “Unlike corporate
management, there is no glass ceiling in a company you start for yourself”(Chamorro-Premuzic, 2012). In the US, female-owned companies account for over $371

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trillion in GDP – equating to approximately 40 percent of China’s entire GDP (ibid).
While similar statistical data for Canada is unavailable, over one third ofself-employed persons are women (Industry Canada, 2012).
4.2.3 Integral value chain members
A 2010 internal assessment by Baxter (medical equipment - international) calculated
that its supply chain was responsible for almost 38 percent of its carbon footprint, withsimilar statistics (41 percent) being reported by GlaxoSmithKline (pharmaceuticals –international) (Schatsky, 2012). Puma (apparel – international) calculated their
supplier impact to be over 90 percent of total water use and greenhouse gas (GHG)
emissions (ibid.). As pressure is placed on large corporations to become moretransparent regarding their own sustainable business practices, they will be
increasingly focused on ensuring that the SMEs in their value chain adopt similar orcomplementary practices. As integral members of large corporations’ value chains, theadoption of sustainable practices provides SMEs a competitive advantage in working
with these organizations (Freisleben, 2011; Moore & Manring, 2009).
4.2.4 Innovation
While large corporations can provide scalability, historically the majority of disruptive
innovations have been introduced by SMEs. This is attributable in part to theirorganizational structures, but also because many large companies havedisproportionately excessive capital invested in current technologies. Such capital
investments can lead large corporations to believe they will remain profitable
operating in a “business as usual” manner and/or make it difficult to justify the cost ofmajor retooling.
4.3 Why Sustainable Development is Important to SMEs?
“People are looking for meaning, for companies that are doing something
positive. Sustainability differentiates us.” - Dominic Fielden, Co-founder, Rocky
Mountain Flatbread Company
While the argument for SD as a global initiative is substantive, these large-scale issues
often do not resonate with SMEs. One would be hard-pressed to find an individual orcompany who believes that equity or the environment is not important, but without aclear understanding of how it impacts their own organizations, SD will continue to beperceived as “someone else’s” problem.

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4.3.1 Competitive advantage
Competitive advantage is obtained by utilizing the resources and capabilities of theorganization to cater to market demand, and a higher rate of profit is realized either
through reduced costs or the ability to realize a price premium. While market position
is important to ensure long-term viability of any enterprise, SME owner-managers are
motivated by factors other than profit maximization (Jenkins, 2009; Lewis & Cassells,
2010; Spence, 2007; Weinzimmer & Manmadhan, 2009). Grant (2008) suggests that afirm may forego current profit achieved through securing competitive advantage infavour of other opportunities, such as customer loyalty, technology, or executive perks.
As a result, the concept of competitive advantage can resonate with SMEs on bothbusiness and personal levels.
Sustainable principles are based on doing more with less: improving the quality of lifeof all while simultaneously preserving the natural environment and adding to its
beauty. These principles enable Adopters to achieve competitive advantage throughimproved cost control, risk management, and stakeholder (employee and customer)
satisfaction. New approaches such as bio-mimicry, green chemistry, closed-loop
production, and service-based sales models, offer tremendous opportunities forInnovators to realize competitive advantage by satisfying under-served market
demand.
4.3.2 Resource scarcity
SMEs traditionally cater to niche markets and compete based on productdifferentiation; large corporations capitalize on economies of scale and commonlycompete on price. While their focus is different, SMEs still need to consider costs.
From a material cost perspective, SMEs are more susceptible to price fluctuations of
natural resources than are their larger counterparts. Resource scarcity creates volatility
in pricing and increases business risk. Evidence strongly suggests, with the growing
population and wealth creation in developing countries, these challenges will only
continue to increase (WWF, 2012).
When organizations minimize waste, improve efficiencies and streamline processes,
they realize lower transaction costs without sacrificing value to their customers. These
cost savings can benefit the organization by directly flowing to the bottom line,
freeing up resources to provide added value to the consumer, or to enable theorganization to become more cost competitive.

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From a human resource perspective, SMEs compete with large corporations for talentand frequently cannot provide comparable wages, employment security, or
opportunities for upward mobility. By cultivating an environment of caring,incorporating fair labour practices, ensuring safety and promoting personal
development, they are better positioned to attain and retain high quality talent (Fassin,
2008; Murillo & Lozano, 2006). In addition, individuals prefer to work inorganizations with purposes that align with their own values (Holliday et al., 2002).
SMEs that incorporate sustainable practices will attract like-minded individuals andsecure company members committed to their organizations’ vision.
4.3.3 Market demand
SMEs are heavily dependent on their external relationships with customers, suppliers
and other industry members (Jenkins, 2009; Stubblefield Loucks et al., 2010).
Looking at it from the other direction, consumers show increasing interest inpurchasing responsibly and members of the value chain look to partner withorganizations that treat them fairly. In a recent US survey by the League ofConservation Voters, “An overwhelming 93 percent say there is a moral obligation toleave an Earth not polluted or damaged to future generations, with 67 percent strongly
agreeing” (Johnson, 2013). By considering the needs, preferences, and objectives ofthese stakeholders, SMEs are better able to deliver customer satisfaction.
While large corporations are customers for many SMEs, they can also be competitors.
As consumer demand for sustainable business practices increases and large
corporations can demonstrate they are meeting those needs, that competitive
advantage among SMEs would be compromised.
4.3.4 Imminent regulation
While converting to renewable sources and minimizing waste can produce costsavings for SMEs, many environmental regulations have the potential to increase costs
to businesses. With increasing global pressure to transition to a greener economy,
regulation will only increase. SMEs proactive in adopting new technologies prior to
regulation have the time to experiment and find the most cost-effective approaches fortheir organizations.
4.3.5 New Opportunities
Sustainable development will require a new way of thinking, and new processes andbusiness models (Holliday et al., 2002). As one competency of SMEs is their ability to
improve existing products and services, and to create new ones, SD can be viewed as a

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tremendous opportunity for this sector (Jenkins, 2009; Lefebvre & Lefebvre, 2012;
Stubblefield Loucks et al., 2010). As important as innovation is to sustainable
development, it is the basis on which SMEs create value, niche markets and productdifferentiation.
4.3.6 Ethics“Indeed the modern organization was expressly created to have results on the outside,that is, to make a difference in its society or its economy.” - Peter Drucker,
Management guru
Businesses, both large and small, have an obligation to be good corporate citizens. It istheir “license to operate,” (Sexty, 2011). Most SMEs are rooted in their communities
and are greatly impacted by the local economy and environmental conditions(Medina-Munoz & Medina-Munoz, 2000; Moore & Manring, 2009). Healthy,
prosperous, and diverse communities ensure the long-term viability of any
organization. “Business cannot succeed in societies that fail,” (Holliday et al., 2002).
SMEs are motivated more by metrics such as quality, customer service, employee
satisfaction and ethics than by profit maximization. SMEs naturally embracesustainable principles as a result. Creativity and innovation are further nurtured when
SMEs view current business models, and products/services through the sustainability
lens (Lefebvre & Lefebvre, 2012; Stubblefield Loucks et al., 2010).
Relationship of SMEs with government, NGOs, and corporations
Recognizing that both the global sustainable development agenda and SMEs
themselves can benefit from SME involvement, it is worth examining the current stateof affairs. Several questions arise. Do government and NGO initiatives consider theunique needs of these organizations? How do large corporations promotesustainability practices within SMEs? What is the current degree of SME participationand the challenges they encounter introducing sustainable programs?
5.1 Government and NGO Initiatives
While it is impossible to review the efforts of all governmental bodies and NGO
initiatives, the following section provides a general picture of different degrees ofcommitment in Canadian and European governments, as well as the focus andinitiatives of some prominent international and Canadian NGOs.

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5.1.1 Canadian vs. European Efforts
Industry Canada has created a sustainability roadmap for SMEs that is available on its
website and which is little more than a document that describes responsible businesspractices and links to other governmental and non-governmental resources (Industry
Canada, 2011). Most programs are provincial, and while some target specificindustries with sizeable SME participation, (such as farming), the majority do nottarget SMEs. In reviewing all federal and provincial grants, contributions, andfinancial assistance, programs to promote “green” initiatives represent less than fifteen
percent.
In contrast, with a €3 million budget, the EC (2012a) co-financed fourteen projects
over a three year period (2006-8), partnering with multiple organizations and directly
organizing events, seminars, and training modules. Considering the EC’s commitment
to engaging SMEs and comprehensive reporting on their initiatives, what issurprisingly absent are metrics on the impact that their initiatives have had improving
SD adoption within SMEs.
5.1.2 NGOs
International NGOs with activist agendas have been instrumental in raising awarenessof sustainability issues, primarily on an international level (IISD, 2012). With thisfocus, NGOs’ engagement naturally is geared toward large corporations, but SMEs are
impacted indirectly. Understanding the influence large corporations can wield,
watchdog NGOs have drawn attention to the sustainability practices of thesecompanies’ value chains as well as their own operations. NGOs with a willingness towork with business enterprises are partnering with large corporations to create
programs that fund and cultivate sustainable development within the operations of
their supply chains.
There are varied levels of SME engagement with NGOs that focus on education,
information dissemination and the development of programs to support sustainable
development within businesses agendas. Two organizations spearheading internationalframeworks for sustainability – the Global Reporting Initiative (GRI) and theInternational Standards Organization (ISO) – have introduced programs specific to
SMEs.
The Canadian Business for Social Responsibility (CBSR) is a non-profit organizationreferenced by Industry Canada as a resource for SMEs, but calls itself “a vital aspect

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Volume I - Issue I - Summer 2014of the Canadian corporate persona” (www.cbsr.ca). Furthermore, although CBSR
introduced a reduced membership rate for SMEs in 2013 (50 percent less), its
message: “get visibility for your valuable CSR commitments” is unlikely to interest
the typical SME owner-manager. Case studies have indicated SMEs areuncomfortable in promoting their CSR commitments (Jamali et al., 2009; Jenkins,2009).
Alternatively, the Network for Business Sustainability (NBS), is a growinginternational network of academic and business leaders seeking to align“resource-based practice with practice-based research” (www.nbs.net). With thesponsorship of Industry Canada, it has not only realized the importance of SMEs, but
has restructured its organization to direct resources to SME sustainability development.
Their first SME conference was held in October of 2011, with a newly created council
dedicated to SME issues having its first meeting in March of 2012 (ibid.). Due to its
recent creation, it is premature to assess the effectiveness of the SME council or its
initiatives however its holistic approach is promising.
5.1.3 NGO Certifications and Eco-labels
Many NGOs also support SD by leveraging their credibility to influence consumers.
In creating independent certifications and eco-labels, their endorsements contribute toconsumer confidence. This allows consumers to make better-informed decisions andpurchase more responsibly, driving sustainable development from the demand-side.
Again, while these programs promote SD on a global scale, they have mixed results insupporting sustainability within SMEs. There are over 400 eco-labels in themarketplace, with almost half originating by NGOs (Corporate Sustainability
Initiative, 2010). This makes it difficult for SMEs to decide which certification(s) are
best suited to their organization. Also, there is little differentiation in the certification
process of large corporations and SMEs. As certifications can be time consuming andcostly, this puts SMEs at a disadvantage.
5.2 Corporate Initiatives
In a study of France’s 40 largest companies (by market capitalization), the authors
found all had adopted some form of GHG management strategy due to significant
media exposure and public pressure. The extent to which the companies embraced
sustainability, however, varied significantly. To identify these differences, the authors
categorized the companies as “Conformist”, “Engaged”, or “Visionary” (NBS, 2012b).
As there are varying levels of commitment to sustainable development within large
corporations, there are equally varying levels of commitment they make to the SMEs

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within their value chain with respect to the adoption of sustainable practices. As a rule,
the programs of companies who have embraced sustainable development as acorporate cultural value not only encourage SME participation, but also facilitate theirlearning, knowledge and implementation.
In 2001, Danone, one French “Visionary” company identified in the study, introduced“The Danone Way”. It is described as “a charter, code of conduct and self-assessment
tool that integrates CSR into every business unit” (ibid.).
“Our approach of being an open-minded company seeking to co-design new solutions
with our stakeholders is firmly rooted in Danone’s culture and model and contributes
to our overall long-term performance.” - Franck Riboud, CEO Danone
Interface is another multinational corporation hailed as a beacon for SD. As acommercial carpet manufacturer, Interface was heavily reliant on petroleum-based
products. Its strategy, “Mission Zero”, was formulated in 1994 – the objective: by2020 to have zero impact on the environment – taking nothing from the earth thatcannot be reproduced by the earth, generating no waste that cannot be used as “food”
for another process. Its philosophy in regard to its supply chain: a “green” company
cannot use “brown” suppliers (Anderson, 2009).
In 2005, Walmart unveiled a “sweeping business sustainability strategy” adapting its
business model from an internal focus to external – partnering with non-profits,
government agencies, consultancies and academic institutions for expertise (Plambek& Denend, 2008). It has collaborated with NGOs and government agencies to ensure
its suppliers meet stringent guidelines (certifications, processing standards) and looked
further down the supply chain to recognize opportunities to select better suppliers.
Walmart also changed its purchasing model to forge closer, longer-term relationships
with its suppliers and help support sustainable initiatives.
While there are many other similar examples of “Visionary” efforts to promote SD
within the value chain, industry benchmarking studies by Green Research suggest that
overall there remains substantial room for improvement. Although the supply chainaccounted for a significant portion of the top performers’ carbon footprints, (publicly
available) initiatives to address improvements throughout their supply chains averaged
less than 4 percent (Schatsky, 2012). Table 1 provides a breakdown of the data perindustry.

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Table 1 – Share of Sustainability Goals by Value Chain Location

Industry
Medical	
  Equipment
Non-­‐Alcoholic	
  Beverages
Pharmaceuticals
Telecommunications
Food	
  Processing

Operations	
  Goals	
  Share	  of	
  Total
87%
72%
90%
69%
87%

Supply	  Chain	
  Goals	
  Share	  of	
  Total
4%
0%
3%
7%
4%

Source:	  	  Green	
  Research	
  a nalysis	
  (2011-­‐2 012)

5.2.1 Social Initiatives
While an increasing number of large corporations are advancing environmental
initiatives through their supply chains, adoption of social initiatives have been slower.
Even within “Visionary” organizations, social initiatives (other than philanthropic)
have been introduced subsequent to environmental ones. This can be attributed to thefact that environmental improvements are easier to benchmark and cost savings
directly benefit the bottom line.
Many large corporations encouraging sustainable environmental practices within
SMEs –Walmart included – are also pressuring these same companies to cut costs andfix prices (Fassin, 2008; Mitchell, 2012). The trend to use manufacturing and support
services offshore forces local SMEs to compete with labour rates unsustainable intheir home countries and/or produce inferior quality (and subsequently moredisposable) products. This sends mixed messages to SMEs – should they invest in
sustainable practices for long term benefit or be the most cost-competitive?
5.3 SME Participation
Because of the heterogeneous nature of SMEs and their lack of formal reporting, it ismore challenging to assess their participation than it is within large corporations. A
report from the EC’s (2004) Roundtable concluded that relatively little is known about
CSR practices within SMEs and better baseline data is needed to more accurately
assess the scale and impact of their initiatives. They noted, however, that it is clear
many SMEs are committed to sustainable practices (ibid.). Although additional
research has been conducted subsequent to its report, conclusions regarding SME
participation have been mixed. CSR, as it applies to large corporations, is rarely foundin SMEs, but CSR principles – at varying degrees – are well entrenched in many SME
operations (Fassin, 2008; Jamali et al., 2009; Jenkins, 2009).

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Spence et al. (2011) conducted a study of 44 SMEs in three French-speaking countries
and labelled participants’ efforts similarly to the study of France’s large corporations:“Indifferent”, “Aware” and “Committed”. These labels underscore the personal natureof SME operations. An “Indifferent” organization reflected the owner-manager’s
opinion that they are “not guilty” of environmental degradation; that it is “someone
else’s” problem. Conversely, owner-managers of “Committed” organizations were“convinced that their actions will benefit the larger community [and]… provide themand their employees with a living and make them better persons, as well as give thema competitive edge” (ibid.).
The importance of personal values of the SME owner-manager cannot be stressedenough. In all case studies reviewed, the company’s commitment to sustainable
practices was a direct result of the owner-manager’s buy-in and, in most cases,
initiatives are personally implemented. As a rule, although their practices are notformalized, they are internalized – “the way we do business around here”(Bos-Brouwers, 2010; EC, 2004; Fassin, 2008). Formalization is more prevalent whenrequired by governance or international business relations (Spence et al., 2011).
Contrasting to large corporations, research suggests that SMEs place a greater
emphasis on the social aspects of SD over the environmental. This can be attributed to
the fact that such initiatives require less capital, utilize existing resources and arecongruent to their business objectives. Most SMEs have an ingrained sense of
responsibility to their employees, customers and community (Fassin, 2008; Jamali etal., 2009; Jenkins, 2009; Murillo & Lozano, 2006). Reliant on local economics andreputation, issues that concern them most are more personal – work-family issues;
employee retention; trust; altruism (Jamali et al., 2009).
5.3.1 Environmental Initiatives
The UK Environment Agency’s 2009 survey of 7,000 respondents identified a steadyincrease in the adoption of environmental measures since 2005. The most common
measures were incorporating cost reductions such as recycling and reducing businesswaste, improving energy efficiency and reducing water usage (Netregs, 2009). Whilelarger SMEs (50-249 ftes) were more aware of their environmental impacts, themajority of businesses still considered a formalized environmental management
system (EMS) to be of “little or no use” to their organizations (ibid.).
The results of Netregs’ survey are supported by case studies in both developed anddeveloping nations. Many academics and NGOs have concluded that while there is80

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increasing awareness, the majority of SMEs continue to view their environmental
impact as negligible or environmental initiatives as too complex and costly to
implement (Lewis & Cassells, 2010; NBS, 2012a; Revell, Stokes & Chen, 2010).
When resource efficiency or environmental conditions are perceived as crucial tocompetitiveness, SMEs are more likely to engage in learning and incorporate systemic
practices (Cassells & Lewis, 2011; Millard, 2011). For example, in the rubber andplastics industry, oil derivates have already become increasingly costly and scarce,
which has incited several SMEs within the industry to utilize renewable (andenvironmentally-friendly) alternates and re-design processes to incorporate recycledmaterials and reduce waste (Bos-Brouwers, 2010). Not only has this eco-efficiency
provided them with more consistent cost control, to several it has been a source ofvalue creation for their organizations. Similarly, recognizing environmental
preservation as a necessary element in securing their livelihoods, SMEs in the CanaryIslands have voluntarily implemented environmental system certification within theirfarming and tourism industries (Medina-Munoz & Medina-Munoz, 2000).
5.3.2 Leadership Examples
In addition to academic literature, current news increasingly features small companies
who have embraced sustainable principles. For example. Johan Reyneke Jr. converted
his family winery in South Africa (a multi-generation business) from conventional tobiodynamic, self-sustaining agriculture. His reason: “I wanted [my two girls] to beable to play in the fields. If I was spraying chemicals, they wouldn’t be able to do that”(Siddiqi, 2012).
Five “green” building companies were featured in the October 2012 edition of
Canadian Contractor. While each has a unique emphasis on their sustainable
principles, all had incorporated green products and methods over and above mereenergy efficiency, and agree that “the perception that green is prohibitively expensive
is outdated and misleading” (Laudrum, 2012).
Lehigh Technologies, backed by venture capital funding, converts used tires into
micronized rubber powders for re-use in other products such as new tires, pallets andwaterproofing. Green Roads Recycling partnered with two other paving contractors
and the British Columbia government to develop technology to recycle asphalt inplace. Both company managers echo the same sentiment: burning, burying or
down-cycling finite resources are not solutions… they are problems to be solved(Gunther, 2013; Thompson, 2012). Despite challenges faced in gaining widespread

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acceptance (Lehigh’s plant currently operates at only half-capacity), they areconvinced they are providing answers for the future.
Many SMEs are creating cooperatives on their own within their industries. CROPP,
the largest cooperative for organic farmers in the US, boasts over 1,700 members andis projecting growth over 25 percent this year (Guevarra, 2012). They provide
marketing expertise to their members that any one SME would be unable to maintain,
let alone afford, and pay higher rates to their farmers than any other organic co-op in
the country (ibid.). CROPP provides other membership support to advance sustainable
practices as well. Examples are process implementation assistance, administrative
guidance to obtain organic certification and animal care specialists.
Leadership in sustainable practices is not new for many SMEs. For example,
Ecological Fibers, Inc. has been committed to environmentally sound paper coatings
since the 1970s (CICA, AICPA & CIMA, 2011). The owner-manager “was moreinterested in protecting the environment and his employees than saving money” (ibid.).
When every other company in the industry was using solvents, Ecological Fibers
developed a water-based solution with no harmful components – protecting theenvironment, the health of its workforce and any potential risk to its end users (ibid.).
Over the years, other sustainable practices have been incorporated in both its
manufacturing processes and facilities – such as using only FSC certified products,
incorporating post-consumer recycled content, energy efficiencies, and converting tocleaner energy.
5.4 Challenges
While there are an increasing number of examples of SMEs implementing sustainable
practices, they remain a minority. This can be attributed to the challenges discussed inthis section.
5.4.1 Concerns about “Greenwashing”
Newsweek magazine study determining which US companies are the “greenest”
discovered that, not only do “the worst environmental performers communicate more
extensively on their environmental actions”, but also that “both reputation andmembership in the Dow Jones Sustainability Index (DJSI) appear to be related more towhat companies say through environmental disclosure than what they do” (Cho, 2012).
A cursory review of the sustainability commitments of Accor, a “Conformist”
according to the French study referenced earlier, would suggest to the reader that theorganization has a robust program (Accor, n.d.). The more comprehensive review

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conducted by that study’s authors, however, led them to conclude that the company
does nothing more than meet regulations (NBS, 2012b). This supports the concern thatis cited by many SMEs that environmental responsibility and CSR within large
corporations are merely communications and marketing strategies rather than culturalvalues (Fassin, 2008; Jenkins, 2009; Murillo & Lozano, 2006). As a result, it isunderstandable that SMEs are reticent to associate themselves with similar practices.
While the third-party certifications of products and services by NGOs may contributeto consumer confidence, there is little empirical evidence of a “causal link between
certification or eco-labeling efforts and real improvements in social and environmental
outcomes” (Corporate Sustainability Initiative, 2010) and fraud cases havedemonstrated that audits do not guarantee performance either (Fassin, 2008).
5.4.2 Terminology
There continues to be much confusion regarding what constitutes sustainable
development. Terminology and business practices not only need to be more clearly
defined and standardized, but also adapted in order to be applicable to the uniqueorganizational structure of SMEs. Case studies and government reports indicate thateven the language used to define sustainability does not resonate with SMEs. “Thevery phrase ‘Corporate Social Responsibility’ implies a certain size of enterprise” (EC,2004). One company presenting at the EC’s CSR forum stated, “we did not want to be
in CSR but now we are happy we did” (EC, 2004), underscoring the negative stigma
SMEs attach to it as a “big business” philosophy.
5.4.3 Tools“Overnight, our sector was inundated with initiatives and certifications aimed at
facilitating the adoption of sustainable practices. Making an informed choice about
the best solution for our company was a laborious process.” - Jean Barbeau, Artopex,
NBS SME Council member
While there is increasing exposure for and interest in SD, there is still much debate
regarding effective implementation and confusion about which tools are the mostappropriate to incorporate (Murillo & Lozano, 2006). For example, how does an SME
choose the eco-label(s) with which to incorporate? Support offered by formalorganizations is seen as “patchy, not coming from the right sources, is confusing,overlapping or is not the right kind of support” (Fassin, 2008; Jenkins, 2009).

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Information overload can cause paralysis, with SMEs choosing to continue “businessas usual” rather than trying to navigate the labyrinth of options.
There is also a tendency to “re-size” CSR for SMEs instead of re-examining principles
to address the unique characteristics of these organizations (Freisleben, 2011; Jenkins,2009). For example, although admirable in its effort to engage SMEs, few SMEs
implement GRI reporting, and the complexity of International Organization forStandards (ISO) certification led a Guardian reporter to suggest the acronym reallystands for “irritate small organizations” (Large, 2012).
5.4.4 Lack of Demand
Weak industry pressures and governmental policies have signaled to SMEs that
performance on issues of environmental protection and stability is not a priority andmany SMEs have that stated consumers are unwilling to pay a premium forenvironmentally responsible products or services (Revell et al., 2010; Spence et al.,2011). As research indicates this is a changing trend, and as more organizations
understand how to migrate to sustainable practices without the need to pass cost
increases to their customers, this is the least substantiated argument, but does attest toowner-manager attitudes.
5.4.5 Owner-manager Attitudes“Without a committed entrepreneur, nothing happens,” (Spence et al., 2011).
Owner-managers may incorporate some initiatives that are personally valuable tothem and forego others. Millard’s (2011) research suggests that more stablecompanies are less likely to be receptive to learning.
A lack of awareness also influences owner-manager attitudes. With 93 percent of UK
SMEs believing they do not engage in any harmful environmental activities (Netregs,2009), it is understandable that they perceive environmental management as
superfluous.
5.4.6 Resource Poverty
It has been argued that business needs to actively engage in the sustainability solution,
because they have not only contributed to the problem, but, also, have the resources
necessary to provide solutions, (Hart, 1997; Holliday et al., 2002; Wilson, 2003).
While the former may be applicable to SMEs, a common argument for why SMEs do
not engage in sustainable practices is their resource poverty (Bos-Brouwers, 2010;
Cassells & Lewis, 2011; Freisleben, 2011; Murillo & Lozano, 2006; Revell et al. ,2010).

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Even with the desire of the owner-manager, lack of manpower or capital required canprevent the introduction of new initiatives or the ability to obtain third-party
certifications (Lewis & Cassells, 2010; Murillo & Lozano, 2006). Although the longterm benefits of environmental initiatives frequently outweigh costs, many require
initial capital expenditures and expertise that may be difficult for SMEs to acquire.
Third-party certifications can be lengthy and costly to obtain and more difficult for
SMEs to absorb than for their larger counterparts. Formalized reporting procedures arelabour intensive and do not suit the organic structure of SMEs (Fassin, 2008). Even
the “SME friendly” ISO 14001 reporting standard remains costly and cumbersome;direct and indirect costs can exceed $35,000. Additionally, there are othermanagement and supporting costs associated with embracing sustainability. Thus,
some SMEs “simply pay the fines associated with environmental regulations rather
than initiate a costly and seemingly complex management standard” (NBS, 2012a).
5.4.7 Access to Capital
Access to capital through traditional investment mechanisms is difficult to obtain andusually incurs higher rates or for shorter terms. This has required Adopters to use their(already limited) working capital to fund improvements and restricts the opportunities
for Innovators to bring new products or services to market. According to the CEO of
one Canadian clean-tech company, the early part of development is the most difficult
to fund, but occurs when capital is, perhaps, the most critical (Marshall, 2012). The
complexity and administrative requirements for loans, as well as government andNGO-sponsored grants and programs, further exacerbate the inability, and discourage
the willingness, of all but the larger SMEs to utilize their programs (Fassin, 2008).
Roadmap for success“The stone age didn’t end because we ran out of stones.” - Shiekh Zaki Yamani,
Former OPEC Foreign Minister
Sustainable development “will require types of partnership never before witnessed inhuman history,” (Holliday et al., 2002). Until the tipping point is reached where
sustainable development is perceived as an opportunity instead of an obligation(commitment versus compliance), and is embraced by all stakeholders, government,
large corporations and consumers, SMEs will be slow to embrace its principles. SMEs
need to be engaged in the same manner in which they do business: locally;

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personally; and, within networks and associations with whom they trust and regularlyinteract. Based on the analysis above, governments, NGOs, large corporations, andSMEs themselves can implement several initiatives that will greatly contribute to
SME commitment.
6.1 Government and NGOs
6.1.1 Walk the Talk
“Without political leaders willing to push change via policy, citizens andcorporations are left to grapple with whether and when to change their own
behaviours and standards.”- The Regeneration Roadmap (2012).
Government, like big business, is frequently slow to adopt new protocols andprocesses. For example, although Leadership in Energy and Environmental Design(LEED) is being adopted by many governmental bodies, new building processes, suchas vegetated roofs and water catchment systems, have been disallowed by many; and,conventional paving remains a requirement for Albertan municipalities even though
recycled asphalt is a proven green technology. Incorporating sustainable technologies
in governmental procurement standards both encourages and supports environmental
innovation.
6.1.2 Minimize Bureaucracy and Scale Costs
Requiring SMEs to adopt rigorous reporting procedures or obtain complex
certifications may prove not only to be ineffective in achieving the desired goals, butalso counterproductive when progress is clawed back (EC, 2004; Large, 2012). It runs
the risk that SMEs will focus more on compliance than adopting valuable sustainable
practices or, worse, turn them off SD altogether. Widely accessible and easy tounderstand standards and guidelines, as well as simplified versions of reporting andlabeling programs, would be better embraced by the SME community (EC, 2004;
WBCSD, 2007).
SMEs already bear a disproportionate burden of regulatory costs (Deveau, 2013) andwill be reticent to introduce SD initiatives if compliance is forced via additional
regulatory and bureaucratic hurdles being required. By reducing the cost of regulationand streamlining approval processes for sustainable systems and products and theirdevelopment, SMEs will be encouraged to channel their capital towards initiatives thatprovide sustainability solutions for the future.

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6.1.3 Restructure Incentives and Facilitate Funding
Existing policies and market incentives have allowed businesses to externalize socialand environmental costs and have supported non-renewable technologies (UNEP,
2011). Subsidies that promote the depletion of natural capital and use of
non-renewable resources discourage investment in and development of sustainablebusiness methods, products, and services. For example, in 2008, global subsidies forfossil fuel consumption were estimated at US $557 billion (UNEP, 2011). While theCanadian oil and gas industry is controlled by large corporations, the majority of clean
tech companies are SMEs (de Sousa, 2013). Eliminating these subsidies andestablishing a strong clean energy plan would contribute to providing some of thecertainty needed by SMEs to attract capital investment and commitment to sustainable
technology development (de Sousa, 2013).
Many grants and programs that are specific to SMEs focus on growth, such a funds forequipment purchase, without consideration for the sustainable characteristics of theinitiative. Restructuring these incentives to specifically promote green technologies
can provide much-needed capital and mitigate SMEs’ risk in adopting or creating SD
initiatives. It should be noted that application requirements for such programs should
be structured as per the recommendations above: simplified and made easily
accessible by incorporating a fast-tracked approval process.
Governments can implement policies to facilitate and promote private investment in
SME businesses as well. Providing loan guarantees and tax incentives can mitigate therisk that venture capitalists and traditional lending institutions perceive in investing insmall and start-up organizations and new technologies. Crowdfund investment (a new
financing structure for raising small amounts of capital from a large number ofinvestors) is believed to become a significant source of financing for SMEs, but iscurrently not legal in many countries (Invest Crowdfund Canada, 2012). Legalizing
the structure, as well as promoting SD business models and practices within thisinvestment mechanism, would encourage SMEs to refocus towards theseopportunities.
6.1.4 Build Connectivity and Capacity
Because SMEs are rooted in their communities and greatly impacted by local
conditions, the greatest impact will be achieved by shaping sustainable initiatives atand for local or regional levels (EC, 2012a; WBCSD, 2007; WWF, 2005).
International agencies speak the same language as international businesses; SMEs
identify with smaller, regional entities. National and international governments and87

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NGOs can partner with local representation, such as municipalities and chambers ofcommerce, to translate broad initiatives to local scale. This provides the benefit ofworldwide expertise developing a web of local solutions to global issues.
Educational institutions, such as universities, business schools and entrepreneurshipdevelopment centres can be encouraged to add SD to their curriculums and support
services. Funds specifically flagged for sustainable entrepreneurship agendas, as
opposed to business survival/success education, would be most effective in building
those capabilities. Research on sustainable technologies can be supported within theacademic community and bridges be built to help SMEs to commercialize those same
technologies.
6.2 Large Corporations“We as global companies can provide the catalyst to partner with SMEs tomutual benefit. We can access their local expertise and markets; they can accessour technologies and business skills for local momentum.” - Michael Pragnell,
CEO, Sygenta
6.2.1 Maximize Influence
Rather than the typical scorecard used by large corporations, Schatsky (2012) ofGreen Research, a consultancy, suggests that these companies should “invest in
suppliers’ success”. Merely requesting information from suppliers is not sufficient toengage them. “Suppliers often don’t have a clear idea of what is expected of them andwhere to focus their own sustainability efforts” (ibid.). His company’s four stage
engagement process (see Figure 1) is one mechanism to improve two-way
communication. This provides vital information to each side for continual
improvements in the SD efforts of both. Corporations can reward committed
participants by creating a preferred vendor program, sharing cost savings and income
generation, and providing access to company resources for joint venture opportunities(EC, 2004).
Figure 1 – Stages of Supplier Sustainability Engagement

Source: Green Research, Schatsky (2012)88

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6.2.2 Share Resources and Expertise
The resource poverty of SMEs is likely the most common argument for why they havebeen slow or unable to transition to sustainable enterprises. In many industries,
technology is no longer a barrier to environmental sustainability efforts (Caulfield,2012), however this technology (or the expertise with which to incorporate it) may
still be unavailable to smaller enterprises. Companies that share their expertise with
their suppliers can accelerate suppliers’ performance gains and ultimately improvetheir own (Schatsky, 2012).
The Sustainability Consortium (www.sustainabilityconsortium.org) is an excellent
example of large corporations’ commitment to actively supporting sustainable
initiatives throughout their supply chains. Initially spearheaded and funded byWalmart in 2009, it was created to improve sustainable business practices acrossindustries and throughout multiple value chains. A primary objectives of theConsortium is to develop “a standardized framework for the communication ofsustainability-related information throughout the product value chain [to enable]...
rigorous product level Life Cycle Assessments (LCAs) to be done at a fraction of
today's time and cost, and provide a platform for sustainability-related data sharing
across the supply chain” (ibid.). By such standardization, clear, consistent, andcost-effective data has the potential to greatly benefit the SME community. One thingworth noting is the apparent lack of direct SME representation within the Consortium.
While the efforts of the group are brought into the members’ organizations to address
with their respective suppliers, direct SME participation may contribute to a deeper
understanding of universal issues facing their organizations.
6.2.3 Capitalize on the strengths of SMEs
“The more progressive multinationals understand that, to innovate, they often don’t doit very well internally” (Marshall, 2012). Many large corporations acquire SMEs thathave developed innovations valuable to their operations, however a large percentage
of mergers and acquisitions fail to deliver anticipated benefits (Moore & Manring,2009). Alternatively, providing SMEs with the much-needed capital to develop
sustainable products and processes produces win-win scenarios: innovation isexpedited through the SME without the pitfalls of assimilation and scalability isavailable through its larger partner.
A McKinsey & Company article on improving manufacturing operations suggests
turning supply chains into supply circles (Mohr et al., 2012). As closed loop systems
become prevalent, mechanisms to recover materials to reuse in the production process

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will be necessary. Such services are better suited to SME partners, allowing large
manufacturers to focus on their core operations. To develop these processes
successfully, corporations need to engage in conversation and develop relationships
with suppliers to strengthen capabilities (ibid.)
6.3 SMEs
6.3.1 Collaboration (Networks and Alliances)
The most “committed” SMEs freely share information and are active members of
networks and industry trade associations (Millard, 2011; Revell et al., 2010). Researchsuggests that SME owner-managers prefer to learn from their peers, frequently
viewing competitors (other industry members) more as colleagues than enemies(Revell et al., 2010; Spence, 2007). While Hart and Milstein (1999) caution that“collaboration among competitors can serve to perpetuate the current industry
structure”, Spence et al. (2011) suggest these interactions create normative pressure
for participating firms, increasing the commitment to sustainable practices of all.
Alliances within the SME business bloc, either within or across industries, can enable
participating companies to promote like-minded agendas, share risks, costs, andexpertise. This pooling of resources allows SMEs to become more competitive with
their larger counterparts. Moore and Manring (2009) compare the effectiveness of
networks of SMEs versus that of large corporations to networked versus mainframe
computers: the former can be much more efficient in the twenty-first century
marketplace of rapid change by capitalizing on the fluidity and nimbleness of its
individual members.
An alliance can also serve to promote relationships between SMEs and large
corporations. While SMEs are well-suited to developing sustainable innovations, theyneed to expertise to successfully deliver and market their creations. As an example,
Sustainable Development Technology Canada (SDTC), an alliance of clean-techcompanies, serves both purposes. While it supports small companies in attracting
capital and developing competencies, it also acts as a liaison between clean-tech
SMEs and the larger corporations whom they serve. “Conversations between an SME
and multinational [can be challenging]… SDTC operates as a very useful bridge
between the two” (Marshall, 2012).
6.3.2 Knowledge
Gaining a deeper understanding of environmental and social issues is important;understanding how to translate this understanding into viable business practices is

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critical. Ray Anderson began his company’s transformation after reading Paul
Hawken’s The Ecology of Commerce and acknowledging he was a “plunderer of theearth”. However, from there, he sought help to understand how sustainability could beincorporated into his business by creating an “Eco-Dream Team” (Anderson, 2009).
While SME owner-managers are not in a position to invite the great SD thinkers into
their companies’ boardrooms (if they even have a boardroom), they can amass
knowledge through books and online sources. Participating in the networks andalliances discussed above can reinforce and disseminate the sustainability andsustainable development concepts learned from those sources and help put them into
context for their respective businesses (Stubblefield Loucks et. al., 2010). SME
owner-managers who embrace sustainable principles may be reticent to boast about
their initiatives to their customers, but are very willing to share when it involves
promoting the wider acceptance of these ideals (Jenkins, 2009), as within a networked
community of their SME and business peers. Millard (2011) concluded that higher
level learning was facilitated within networks of broader groups, and enabledcompanies to see environmental issues in a broader perspective.
Regarding the owner-managers’ tacit knowledge and the explicit knowledge gleaned
from outside the organization, developing mechanisms to transfer that knowledge
throughout the organization is important for ensuring successful SD outcomes.
6.3.3 Leadership“If you think you're too small to have an impact, try going to bed with a mosquito.” Anita Roddick, Founder, Body Shop
The primary differentiator between a sustainability leader and laggard is personalcommitment. As repeatedly concluded in case studies and reinforced throughout bothbusiness and academic literature, it is leadership that determines results.
When answering the question “Why aren’t there more Ray Andersons [SD leaders]?”
the most frequent responses referred to traits rarely used to describe SME
owner-managers: greed; lack of ethics; fear of trying new things (Makower, 2012).
While a few individuals start businesses with “get rich” aspirations, they are theexception. The majority of small business owners have other motivations such as
disenchantment with “big business” philosophy; fulfilling an unmet market;
improving their quality of life; pursuing a passion; and making a difference. Many
wish to leave a legacy to their children: that is, passing a business down through the91The IAFOR Journal of Business and Management

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generations, partnered with passing down a healthy, vibrant, naturally beautiful worldin which the business can continue to prosper.
The structural advantages of their organizations (see section 5.2.1) make them ideal
candidates to affect change quickly and deeply. To begin this process, SME leaders
must critically examine the reason for their organization’s existence. Simon Sinek
calls this “starting with the ‘why’”, suggesting that businesses flourish not only
because they make great products and provide great services, but also because theirstaff and the market buys into their purpose (TED, 2009). The incorporation ofsustainable practices and pursuit of sustainable opportunities are natural complements
to SME owner-managers’ motivations.
The challenges that SMEs face should not be marginalized, but strong leadership witha clear vision can mitigate these issues. Leadership is about vision, buy-in,
empowerment, and, most of all, producing useful change. Leadership is not about
attributes, it's about behaviour. Leadership sees possibilities rather than limitations;and asks “How can we?” instead of explaining “Why we can’t”. This isentrepreneurship in its truest form.
1.1

Collectively“[I]t's less about trying to generate a whole new set of ideas and more about
bringing all the good ideas together… and giving them the impetus they need tohave an impact on a [larger] scale." - Sally Ride, Education Activist

While this roadmap has examined how different stakeholders, including SMEs
themselves, can contribute to sustainable development within SMEs, almost all
solutions involve some degree of collaboration. In a post-Rio+20 survey conducted by
GlobeScan/SustainAbility (GS/SA) (2012), sustainability experts overwhelmingly
viewed collaboration as “one of the few models that could catalyze solutions to thesustainable development challenges that we face at the speed and scale that we need”.
Collaboration spreads risk and allows access to expertise and diverse perspectives
unavailable within a single organization (GS/SA, 2012; Millard, 2011). Eachstakeholder group brings a different strength to the table; each organization withinthese groups a unique perspective:

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Governments – the ability to set policy; and, create regulation and market
instruments to support demand, and encourage innovation of and investment insustainable technologies•

NGOs – objectivity and credibility to develop and administer independent
assessments and to support consumer confidence; and, provide guidance for
implementing and maintaining best practices•

Large corporations – global reach; and, a wealth of resources to affectsignificant change through scalability•

SMEs – drivers of innovation; and, a strong moral compass to influencebusiness decisions and a deep understanding of local issues•

Consumers – consumers are market demand; they need to understand how topurchase, use and recycle responsibly; and, be willing and committed to doingso.

William McDonough points out that the word “competition” is derived from the Latin
word “competere”, meaning strive together. He used Olympic athletes as an analogy
for how businesses could optimally approach sustainable development: “they get fit
together…then compete” (TED, 2005). This approach complements GS/SA’s survey
findings: collaborate to address systemic issues (disengaged investors & citizens, lackof enabling policy, resource scarcity), but move forward independently to develop
sustainable products and services (GS/SA, 2012).
While all will benefit through collaboration in moving toward a sustainable economy,
SMEs will also realize benefits to their individual organizations’ operations:•

As new policies are being developed, participation challenges specific to theirbusinesses (and business size) can be considered•

In truly partnering with multiple stakeholders, new opportunities forcompetitive advantage will become available••

Knowledge transfer is facilitated with minimal cost
Leveraging the resources and expertise of others reduces their business risk indeveloping new business models and introducing sustainable products. This
also mitigates their primary challenge: resource poverty.

Conclusion“The question becomes not ‘growth or no growth’ but ‘what do you want togrow’?” William McDonough, co-author Cradle to Cradle

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There is a compelling argument for engaging SMEs in the SD battle due to SMEs’
aggregate impact, organizational structures, and the economic function that they
provide. Most SMEs rely heavily on their local economies, are intimate with theircustomers, and their owner-managers have stronger motivations than profit
maximization. While sustainable development is a global issue, it requires local
solutions. In addition, historically, the majority of disruptive innovations have been
introduced by SMEs, so they are optimal since new business models will be required
to transition to a sustainable economic structure. Governments, NGOs, and large
corporations can facilitate the inclusion of SMEs through implementing policies andprograms that take into consideration the resource poverty and lack of codification
within SMEs.
There is an equally compelling argument for engaging SMEs for embracing SD. In
addition to their local economic reliance, most SMEs have an innate sense of
responsibility to their customers and employees. This provides the incentive toparticipate in the betterment of their communities and, in adopting sustainable
principles, they are better positioned than larger firms to satisfy these stakeholders.
When SMEs view current business models and their products and services through thesustainability lens, creativity and innovation is nurtured, generating new opportunities
for these organizations to thrive. To play their part, SME owner-managers must
display leadership by developing their competencies and those of their organizations
through awareness, knowledge, and collaboration within networks and alliances.
To slay the twenty-first century Goliaths, twenty-first century tactics are required.
While it has been demonstrated the SME Davids are critical warriors, today’s giants
cannot be slain by a slingshot alone. No one stakeholder has all the answers; no one
business has all the resources. A collaborative approach between all stakeholders will
most successfully develop solutions at the speed and scale necessary.

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