The Small Business Association Describes Innovation

The Small Business Association describes innovation as â€Å"a process that begins with invention, proceeds with the development of the invention and results in the introduction of a new product, process or services to the marketplace† (Acs Audretsch, 1988). We all play a role in the world’s economic activities. We consume goods and services and often times we have brand preferences based on our affinities and experiences. While many of us enjoy the brands of some of the most prominent companies around the world like Hewlett-Packard for instance, many consumers prefer the niche services of small firms like Origin PC; a company that allows gamers to custom build personal computers based on individual specifications. This example speaks to the†¦show more content†¦Proportion of Large Firms In 1909 Joseph Schumpeter said that small companies (firms with fewer than 500 employees) were more inventive. Several decades later in 1942, he reversed his thought upon further research. He submitted that large firms (firms with more than 500 employees) have more incentive to invest in innovation because they can reach a broader market and recuperate the cost of RD investments more quickly (Canter, 2016). He also believed that the disadvantage of the innovation process to small firms in a competitive market was that inventions could quickly be imitated, cannibalizing potential profits. In recent years Schumpeter’s theory has been challenged and researchers like Acs and Audretsch have expanded upon his findings to reframe the measure of firms’ innovative activities in the context of today’s economic conditions. They believed that the smallest firms’ contributions to innovation across industries were often overlooked due to a lack of quantitative measures in assessing their outputs. The two proposed that small firms are actually more prone to innovate in industries mostly composed of large firms (Acs Audretsch, 1988). From their empirical analysis Acs and Audretsch wrote the following â€Å"The greater extinct to which an industry is composed of large firms, the greater will be the innovative activity, but that increased innovative activity will tend to emanate more