Product-line manufacturers need a continuing flow of new products. You need new products for corporate growth. You need at least some new products just for survival; product life cycles are getting shorter all the time.

There are only three places these new products can come from:

• Internal R&D - you hire employees to develop them yourself.
• Corporate Acquisitions - you buy other companies and add their products to yours.
• Licensing - you license products, developed by outside individuals and companies, that you're in a better position to manufacture and sell than they are.

Historically, this has been the order in which new products resulted. Most came from internal R&D, fewer came from acquisitions, fewer yet came from licensing. However, changes during the past 30 years are challenging this order.

Internal R&D

Internal R&D has never been terribly efficient. Battelle Institute in a report a few years ago estimated that only about 20% of U.S. corporate R&D dollars resulted in products that were successful in the marketplace.

There's been much verbiage and advice the past few years on how to increase the efficiency of our R&D. But the bottom line is that these offer only incremental improvements swimming against a tide of increasing costs.

Even with significant improvements in efficiency, it's obvious that internal R&D can no longer be counted on as the primary source of new products for the vast majority of manufacturers.

Corporate Acquisitions

Corporate acquisitions involve much more than the simple acquisition of products. They come with people -- and corporate cultures -- that somehow have to be blended into an operating entity, with hoped for synergy.

That this isn't an easy problem is evidenced by the record. Those that seem to do it successfully (e.g., Masco, JP Industries, etc.) are extraordinarily good people managers. They allow their acquisitions exceptional autonomy, resist the urge to "blend" the operations, and look for synergy primarily in capital formation and utilization, building related sales to levels that can better afford adequate internal R&D.

Unless a manufacturer has this level of management skill and maturity -- and it's clear that most don't -- corporate acquisitions are not an answer to manufacturers' new product needs.

Licensing

Consider what the Japanesee have done, and continue to do, to our large manufacturers through licensing -- of our own technologies.

When two companies (of whatever size) compete, and one seeks out new ideas and products wherever it can find them -- and the other believes that the only "smart" people work for it -- it should be obvious who will win.

American manufacturers need to take a much harder look at licensing. They need to actively seek out new products and technology, and by "actively" I mean much more than what even the "aware" companies are currently doing. Assigning someone, in or associated with the company, to look for new products is a step in the right direction. But it's not nearly enough.

What's needed is for manufacturers to communicate -- disseminate -- their "wish lists". Every product-line manufacturer has a wish list, formal or informal. These lists consist of technological problems (or deficiencies or objectives) that if they had solutions to, they could achieve significant competitive advantage in their market.

But manufacturers keep these lists "top secret". Heaven forbid they let their competitors know what they're working on, or what they're planning, or what they consider important!

But, of course, their competitors do know. Being in the same business, they've compiled much the same list, and if they want confirmation of the other's list, or explore what subtle differences might exist, they simply hire one of the competitor's marketing or engineering managers.

The people who don't know are the thousands of outside inventors and innovators -- individuals and small companies -- who could well come up with solutions to these problems -- using their own resources -- if they knew the need existed and someone was interested.

We see dozens of inventions that people have invested a great deal of their time and money in -- based on their perception of market needs. But the people who really know the needs of those markets -- the companies actively doing business in them -- keep their mouths shut, and effectively tell the outside world, "If you want to guess what we need, we may talk with you". What a waste! This is NOT an attitude destined to maintain this country as a world-class competitor.

It is recognized that there are serious legal liability problems to be solved to effect this kind of open communication. But law, like everything else, follows need. And there's a real, live, urgent need here. This country's economic vitality is at stake, and the solution is legal -- not engineering nor scientific.

The following checklist will help you determine if you can benefit by searching outside for new products and technology. For every question that you answer positively, your benefits will be greater.

1. Would you like to more fully utilize your manufacturing facilities?
Excess capacity can be used to produce new products or technology under license.

2. Could your production personnel work more to their capacity if only they had more work to do?
If workers are currently employed at less than capacity, their excess time can be devoted to work in the production of new licensed products.

3. Do you want to avoid selling your products in a mature or declining market?
You can effectively broaden or diversify your market position by licensing a new product in a field offering good growth potential.

4. Would introducing a new product in the next 12-16 months be beneficial to your company's overall image and momentum?
You can typically expect to have in production a new, licensed product in from 12 to 16 months after initiating your search. This includes time for researching potential licensors, making contact with them, reviewing the product opportunities, negotiating the license agreement and implementing the production of the new product. In many cases, this time frame can be shortened significantly.

5. Are you in a position where growth through merger or acquisition is not feasible or desirable?
If you do not want to merge with another company or if you simply cannot justify an acquisition, licensing new products offers an excellent form of corporate growth.

6. Are your current "true" R&D efforts minimal, or directed to projects which may not reach the market for several years?
If your possibilities for growth are limited by a small R&D budget, going outside your organization to license a product from another company can fill this innovation gap at a minimal cost. If your R&D efforts are on long range products, licensing offers a chance to quickly introduce new products and technology.

7. Would you like to broaden your product mix with minimal effort?
If your current products are successful and you have good marketing capabilities, you can capitalize on that by manufacturing and marketing under license new products compatible with your current ones which can be easily integrated into your existing marketing program.

8. Would you like to introduce a new product which has already been proven successful and possesses international prestige?
In many cases, a product produced under license has already met with success (especially an international opportunity) and has a track record to offer in its home country. The fact that a licensed product was developed in another country can lend prestige to your home market sales efforts.

9. Would you like to reduce product development costs by as much as 90%?
By producing products under license, you take advantage of other companies doing your product development work for you. It has been found that you can acquire the rights to a fully developed new product under license for as little as 10% of its actual development costs.

10. Would you be interested in deferring the majority of your product development costs until after the products are sold?
When your new products come by way of internal R&D, your cash expenditures are up front. These expenditures are substantially at risk since you cannot be certain that the results of your R&D program will be successful, let alone marketable. When products are produced under license, their costs to you are usually paid in the form of royalties based on products sold. Therefore, your cash flow position is considerably improved.

These are just a few of the more obvious benefits of licensing new products and technology. A few of the others can include an increased level of engineering expertise and sophistication gained through the licensed technology, introduction to on-going sources of new products and technology, exposure to joint venture, acquisition and equity investment partners, increased company morale, possibilities for cross-licensing, etc.