Industries where competition revolves around a high level of innovation are some of the most attractive and complex investments options. Changes occur at the speed of the light and its one of those industries where fittest and the fastest survive. The differentiation and competitive advantage for a company in specific industry depends upon the level of innovation carried by a company.

Even though industries like food processing, luxury goods, or financial industry does not need the same level of technological innovation like software, pharmaceutical, the consumer electronics industries; innovation and the application of new technologies, however, are important sources of competitive advantage for any company operating under any industry.

Especially in the technology industry, investors often get confused in deciding whom they should follow: An innovator or a follower? Historical evidence suggests that in some products the leader has been the first to grab the prize, in others the leader has succumbed to the risks and cost of pioneering. Optimal timing of entry into an emerging industry and the introduction of new technology are complex issues, the extent of first- mover advantages or disadvantages depend upon on the following factors. Investors can use these aspects as a guide to find out whether investing in a particular company is a good option or not.

1)      Find out to what extent an innovation by a company can be protected by property rights or lead time advantages: A company can reap the advantages of an early mover if an innovation can be protected through a patent, copyright or lead time advantage. The most appropriate example is the pharmaceutical industry.

2)      The market standard and the influencing power: In technically advanced markets like the US, markets converge towards the technical standard. So, greater is the importance of maintaining technical standards in the market, the better it will be for those companies who are the first movers; helping them to influence the standards and gain the market leadership. The personal computer and the software industry are the good examples.

3)      The significance of harmonizing resources: Sometimes the need for acquiring additional resources to exploit an innovation also influences the company future. So, if harmonizing resources are more vital in introducing an innovation, riskier and costlier it becomes for a company to pioneer.