Change Capitalization in Small Business

In business there are challenges, especially when one has come with a new technology and wants to use that technology to venture into business. Some of the challenges include competition from similar technology already in the market, lack of capital to startup the industry, market for your new products, reluctance by potential investors to adopt a new technology for the fear of generating losses instead of profits. For a new inventor who wants to venture into business he should integrate several factors and balance them out .For our case, George is an inventor, but does not have experience in business policies .

Before starting up his business, George could have considered the following factors. Knowledge or expertise is required before one starts up business. Some basic knowledge and experience is required .Gorge should have been aware of the business he intended to start. Since he wanted to startup his own company, because he had limited knowledge in business, he could not sustain his business, as he could be easily fooled by the suppliers, vendors and competitors. He should have the relevant expertise in hydrogen producing devices. For the case of hydrogen producing devices, it requires more knowledge and expertise.

 He should have studied the demand of the product in the market. He should have first of all explored the market for the hydrogen gas he intended to produce, whether to sell it locally or internationally. This is because the certain products will have a good market at the local level and others will be successful at the international. In the case of George, his company of production of hydrogen gas, hydrogen gas has got a wide range of market starting from the local to the international level. First of all he should have assessed his market whether it is local or international.

Another important factor is the total cost of the project. He should have assessed the total project cost that should run the business successfully. For the case of hydrogen production plant, the initial capital could be high. He should have considered the total project costs. In the manufacture of hydrogen the initial cost to set up the plant could be very high in the installation of new machinery, getting of raw materials, even the labor force needed. Above all, one should consider the working capital after all the initial installation.

George could have considered the financial capital which was at his disposal, if he had insufficient funds to start his firm, he could have opted for seeking the financial assistance from the local banks. He could have asked a financial assistance from the local banks, submit his budget estimates for the business, and in return, the bank could have granted him financial assistance. First of all, he could have assessed the cash he had at hand and additional funds could be borrowed.

Another important factor he could have considered is competition. Since he wanted to start his own hydrogen manufacturing plant, he could, first of all, have determined whether there were competitors already in the market. If the business was to be monopolistic, then competition would not be the issue. If competition in the market was stronger, then it means that his firm should be more competitive that the already existing firms in the market.

Another important factor is the location of the business, he, first of all, should have chosen a good place where he could easily get raw materials, such as water and location where he could get cheap labor and probably a populated place to increase the chances of the market. For example, when somebody wants to set up a retail business, the niche population is highly crucial. The local population matters a lot, as they are the potential buyers of the products.

He could have also approached a lawyer to guide him on laws, rules and regulation. Every country requires that before you set up a firm, you are supposed to register with the ministry of commerce, so as the government to deduct taxes from the employees working on the firm. The registration of the company name is required by the ministry of commerce, otherwise, failure to compliance of the country’s rules and regulations could lead to the huge fines and penalties.

The return on investment of his firm is also an essential factor. It is counted as the net profit, which is divided by the made investment. If the ROI is low, and is expected to increase on a year basis. It is important also that he considers ROI with returns that could be earned from his alternative business.

Technology is another important factor that George could have considered and that he should have chosen the best technology of the time .This will enhance his company to produce the best quality products with the modern technology. He should choose the best software to run the company.

Finally he should have chosen a location, where he could get the manpower both skilled and unskilled, since employees are the ones to run the company on his absentia.They are simply the makers and the breakers of the company. 

Licensing process has got risks and opportunities associated with them. First of all, I could advise George that licensing process would grant him rights to use up his technology for the further development towards commercialization; the licensing process is quite hectic, but crucial in business, first he should start up with the licensing fee. It is paid once the agreement is signed and the amount depends on the value of the technology. After that there is a payment of a patent reimbursement fees to the University in order to defray any patent processing costs. At this stage, the foreign  and domestic patent fees, intellectual property and other  fees which are being captured by the patent’s reimbursement fee. In case all these payments have been settled, then there is a period of development with the milestone payments .Since George’s technology requires the extensive development, the licensing agreements will provide for a development period .This automatically means that he will be asked to submit a development plan that outlines the work he intends to do during the development period. Thereafter the progress and the milestone of the plan are confirmed. The milestone help reduces the initial license fees on the high risk project and these payments are met, when the milestone has been achieved. 

Then there is the issue of royalties. They are paid when the products that use the technology are sold. Royalties are calculated on the sales percentage. They can also be calculated on fee per unit basis, although, this depends on the standard of the market .At the end of any internal or external development periods there is an expectation of an annual minimum loyalty. This is not an additional fee but encourage for an active marketing technology.

Though Georg’s innovation and setting a company Electrolytic solution seems to be real, there are risks that are involved. With the developments in life sciences and the innovation of the digital technology, and other current technologies, they have opened up a vast of new possibilities of production (Hutton and Giddens, 2001, pg 8). Innovation of the internet have made possible to access information and resources across the world .The internet can also be used to co-ordinate the activities of the real time.

The rise of knowledge concerning the economy has put the economists into the task to look beyond labor and capital as the central factors of production. Author Paul Roomer and others have argued that technology has to be viewed as a third factor in leading economies (Roomer 1986). In this case, George’s information concerning the new technology can leak with the advent of the internet it aloss in the business .There are risks of loss of accountability and control in the business. This might be resulted by incompetent staff. There are risks in planning and implementing the new technology .It is associated with a high initial capital, in addition workers and managers.

The middle and senior level managers are reluctant to adopt the disruptive technology, because this technology is not tested in the market. It is a new technology and a lot of initial costs of installation of the equipment might be cumbersome and can lead to the disruption of the existing business. Since already they have a running business, they fear that during the transition period of the change in technology, it can lead to severe losses. Though the engineers have acknowledged the importance of the technology, the fact is that engineers themselves don’t understand the economic consequences of the change in technology. For them, they view it at the technical point of view and not at the economic point of view. Sometimes adopting the new technology can result in the losses, as a result of the change of quality of the product. In addition to that, the new technology might need new expertise to handle the process of production. These means that the company has to incur an extra cost in training the manpower for the new technology or can lead to the layoff of the existing manpower and lead to the loss of employment of the existing manpower hindering the economy negatively. Furthermore, there might be a requiment that all the existing manpower be compensated. 

Minimills technology was viewed as not a threat to steel production in the US. The fact is that this technology later on became one of the most powerful technology of steel production in the USA.This Minimills technology used the new technology of recycling scrap, but it was able to steal the market of most integrated company .This technology then overtook all of its competitors who were already in the market for a longtime. It finally took the high end, high margin in steel production. This scenario can be paralleled to Georg’s case in such way that Salvation technology in the production of the tabletop in the production of hydrogen can ultimately produce a major threat to the already hydrogen producing firms in the market .When Minimills was set up, it was seen as no threat nor disruptive, but it was later proved to be the best technology in the steel production. Salvation technology started as a small firm, but later became a threat to its competitors. This case the other firms have no choice but to adopt the new technology, in order to compete favorably. Salvation technology was disruptive, but proved to be the best technology.  

To conclude, George, though inexperienced in business, later on emerged to be successful in the fact that his new technology of hydrogen production using the tabletop emerged to be the best. Firstly this technology was observed by the competitors to be undisruptive, but later it was proofed to be disruptive, but produced with large quantities of hydrogen. This shows that change in technology can have an economic impact to some extent either positive or negative.

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