Question

In some advanced technology industries. Products are developed collaboratively across networks of firms. Explain why such collaborative development may be expected to arise, and what kinds of accounting practices firms could use to coordinate their individual investments at the network level. Illustrate your answer by reference to one or more relevant examples.

Answer 1

A collaborative network of firms is a network consisting of a variety of firms that are largely autonomous, geographically distributed, and heterogeneous in terms of their operating environment, culture, social capital and goals, but that collaborate to better achieve common or compatible goals, and whose interactions are supported by computer networks. The discipline of collaborative networks focuses on the structure, behavior, and evolving dynamics of networks of autonomous entities that collaborate to better achieve common or compatible goals.

Collaboration is different from outsourcing.Many firms mistakenly applied a “production outsourcing” mindset to collaboration, viewing the use of partners only as a means to achieve lower costs through “wage arbitrage” – substituting a US resource with a cheaper one of equivalent skill. These firms saw little need to change the way they organized their innovation efforts to facilitate collaboration. By contrast, successful firms went beyond simple wage arbitrage, asking global partners to contribute knowledge and skills to projects, with a focus on improving their top-line. And they re-designed their organizations, to increase the effectiveness of these efforts.

Why such collaborations occur?

Collaboration is similar to cooperation.Teams that work collaboratively often access greater resources, recognition and rewards when facing competition for finite resources.Structured methods of collaboration encourage introspection of behavior and communication.Such methods aim to increase the success of teams as they engage in collaborative problem-solving.In its applied sense,"collaboration is a purposeful relationship in which all parties strategically choose to cooperate in order to accomplish a shared outcome."

An Example for collaboration

Biotherm + Renault: Skin-care and automobiles: an unheard-of collaboration

The skin-care company Biotherm (part of the Luxury Products Division of the L’Oreal Group) and the automobile manufacturer Renault have devised a new concept in cars: the Spa Car, designed to simultaneously care for the health of its occupants and to protect the environment.

Experts from each company contributed their know-how to develop features that are novel for a vehicle’s interior. Biotherm contributed its knowledge on cellular mechanisms in the skin and on the befits of aromatherapy, from work dating back to 1952. Renault provided its expertise in designing and testing equipment for vehicle comfort, fruit of its more than 110 years of experience.

The ZOE Spa Car, slated for launch in autumn 2012, is a 100%-electric car. It features advanced air filtration and purification systems to protect passengers’ health and improve their sense of well-being while inside the vehicle:

• Unlike traditional air-conditioning systems, which are optimized for temperature control but often have a dehydrating effect, especially during long trips, the system used in the ZOE exploits a totally new design to provide intelligent climate control that avoids loss of humidity inside the cabin so that passengers’ skin stays hydrated.

• Passengers will travel in a clean environment, thanks to a toxicity sensor and various particle filters installed in the cabin that open and close the air vents as needed.

• An electric scent dispenser, to provide aromatherapy using essential oils in function of the driver’s needs: stimulation for the morning, relaxation when returning from work, alertness for nightdriving. The ZOE is also equipped with an ambient music system developed in conjunction with Creative Diffusion (associated with Qwartz, International Electronic and New Music Awards), to provide relaxing or stimulating music as needed. The vehicle also includes a light-therapy system developed in collaboration with Philips, whereby a screen emits light to improve passengers’ sense of wellbeing.

How it is accounted ?

Accounting for collaborative arrangements is done as per the standards prescribed by the Accounting body such as FASB or IND IAS( applicable for Indian Firms).