Innovation+versus+arbitrage

There are two types of opportunities: innovation and arbitrage.

Innovative opportunities are situations in which new goods, services, raw materials, markets and organizing methods can be introduced through the formation of new means, ends or means-ends relationships (Schumpeter, 1934). According to the authors, this type of opportunities has been the main focus of entrepreneurship research.

On the other hand, technological arbitrage opportunities involve the imitation of innovative practices introduced by others. When new innovations create more efﬁcient ways of exploiting factors of production, they allow innovators to increase proﬁtability by reducing costs. Alert "imitator-entrepreneurs" rapidly imitate these technological advances to create temporary cost advantages. In short, technological arbitrage is the imitative activities that cause new technological advances to diffuse.

In a recent article in Small Business Economics, Sergey Anokhin, Joakim Wincent, and Erkko Autio (2011) make a distinction between these two types of opportunities at the country level. Here is a graphic of levels of innovative opportunities versus technological arbitrage opportunities by country. Note well which countries are high on innovative opportunities and low on arbitrage (Chile and USA) and those that are high on arbitrage and low in innovative opportunities (Jordan, Kazahkstan, Azerbaijan, Bulgaria).

AZE Azerbaijan BLR Bulgaria CHL Chile HUN Hungary ISR Israel ITA Italy KAZ Kazahkstan JOR Jordan LTU Lithuania NLD The Netherlands PHL Philipines POL Poland PRT Portugal USA USA ZAF South Africa ZWE Zimbabwe || Anokhin, S., Wincent, J., & Autio, E. 2011. Operationalizing opportunities in entrepreneurship research: Data envelope analysis. //Small Business Economics//, **37**: 39-57. Schumpeter, J.A. 1934. //The theory of economic development//. Cambridge, MA: Harvard University.
 * [[image:profcraigarmstrong/innovative_vs_arbitrage_opportunities_by_country.JPG width="540" height="503"]] || **Country Key**