Investment in IR&D Amidst Technological Outage

In today’s global landscape, the reorganization of global industrial and supply chains presents various risks and challenges to their safe and stable operation. Key core technologies have become integral to global economic competition, driving this restructuring process.

A team of researchers from the School of Economics and Management at Southeast University conducted a study focusing on how product manufacturers can mitigate the risk of losing access to key core technologies in the context of international competition.

Using a duopoly Hotelling model, which represents two competing products from different countries, the study incorporated game models to analyze different scenarios. These scenarios included whether enterprises experiencing a core technology outage choose to pursue independent research and development (IR&D) or not.

Lindu Zhao, the corresponding author of the study, explained, “We examined four scenarios: the benchmark scenario without IR&D before and after a technology outage, and the IR&D scenario before and after the technology outage. Additionally, we evaluated the risk of outage by comparing the impact of a government-initiated outage on the profit change of firms in the initiating country and the firm whose supply was disrupted.”

The team compared the magnitude of profit changes between enterprises in two countries that implemented IR&D after experiencing a technology outage. The analysis highlighted the effectiveness of IR&D investments made by firms in managing the risk associated with such outages.

Zhao shared, “Our analysis reveals several key findings. First, initiating a core technology outage may result in greater profit loss for the country responsible for the outage, while the country possessing the core technology may experience a larger change in profits compared to the country investing in IR&D. Enterprise investments in IR&D can create a strategic advantage and influence the dynamics of the game between countries.”

The team published their findings in the journal Fundamental Research.

Zhao added, “By reducing technological disadvantages, the IR&D strategy can mitigate the urgency associated with the risk of technology outages and weaken the absolute control exerted by the rival country responsible for the outage. In other words, IR&D investments empower the country to establish a certain level of control and influence over the situation.”

According to the researchers, modeling and incorporating dynamic changes is a crucial challenge for the future of supply chain risk management. Further exploration in this aspect will enhance our understanding and improve decision-making in the field.

Quoting an old Chinese saying, Zhao stated, “‘Kill one thousand enemies and self-defeat eight hundred.’ This saying emphasizes the critical decision both countries face when weighing the potential outcomes of IR&D investment. It raises the question of whether pursuing such investment would result in a ‘Pyrrhic victory,’ where the costs incurred outweigh the benefits gained.”

 

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Denial of responsibility! TechCodex is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.