The Interaction Between The Tangible And Intangible Economics Essay
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Published: Mon, 5 Dec 2016
Assets is one of the most controversial concept in financial accounting. The historical accounting scientist are trying to give a satisfactory definition of the assets, but so far, an authoritative, academics and practitioners are accepted definition, has not yet appeared. The resources formed from past transactions or events by enterprises owned or controlled, and the resource be expected to bring economic interests to enterprises which is called assets. Classified according to different criteria, assets can be divided into different categories. In accordance with the length of the consumption period, can be divided into current assets and long-term assets; according to the specific form, Long-term assets can also be further classified, according to whether the physical form, can be divided into tangible and intangible assets.
Financial: Firm’s cash account and cash equivalents
Firm’s capacity to raise equity
Firm’s borrowing capacity
Physical: Modern plan and facilities
Favorable manufacturing locations
State of the art machinery and equipment
Technological: Trade secrets
Innovative production processes
Patents copyrights trademarks
Organizational: Effective strategic planning process
Excellent evaluation and control systems
Source: (Strategic Brand Management 2003)
Assets that are relatively easy to identify are called tangible resources. they include the physical and financial assets that an organization uses to create value for its customers. Among them are financial resources (e.g.: a firm’s cash and accounts receivables as well as its ability to borrow funds) physical resources (e.g.: the company’s plant equipment and machinery as well as its proximity to customers and suppliers): many firms are finding that high–tech .computerized training has dual Benefits; it develops more effective employees and reduces cost at the same time ( J.B. 1991)
A tangible asset is the physical form of assets, including fixed assets and current assets, tangible assets consist primarily of: housing, machinery, equipment, and other forms of assets. Narrow sense of tangible assets usually refers to fixed assets and liquidity. Generalized tangible asset including: funds, resources, products, equipment, apparatus, plant, personnel information, including all the factors of production. Generally speaking, the tangible asset is the assets of a certain kind of form. (Jobber. 2012)
Existing assets to the specific material and product form, including the production of tangible assets and non-produced tangible assets. Production of tangible assets is the production activities to create assets; tangible non-produced assets are natural assets without production achieved. Production of tangible assets, including tangible fixed assets, inventory (stock) and precious items . Tangible fixed assets, that is including residential, houses and buildings, machinery and equipment, raw materials and supplies, on the move, that is finished goods, and resell the goods; Non-production of tangible assets include land resource, uncultivated biological resources and water resources.(Wilson. 2005) Tangible assets can be further divided into physical and financial assets. Physical asset is the value in use of the property or material. Financial asset is the currency and securities.
The value of the tangible assets created by its physical nature, that is, given the value of tangible assets by tangible, physical and visual factors. The value of the tangible assets from its material characteristics, their property rights are intangible, but it comes from their material characteristics.
Human: Experience and capabilities of employees
Firm specific practices and procedures
Innovation: Technical and scientific skills
Reputation; Brand name
Reputation with customers for quality and reliability
Reputation with suppliers for fairness, non-zero-sum
Source: (Strategic Brand Management 2003)
Much more difficult for competitors and for that matter . A firm’s own managers to account for or imitate are intangible resources .which are typically embedded in unique routines and practices that have evolved and accumulated over time .these include human resources (e.g.; experience and capability of employees, trust ,effectiveness of work teams, managerial skills ),innovation resources (e.g., Technical and scientific expertise ,ideas and reputation resources (e.g.: brand name ,reputation with suppliers for fairness and with customers for reliability ,and product quality . a firm’s culture may also be a resource that provides competitive advantage. (.Barney.1991)
Intangible assets refer to enterprises for the production of goods or rendering of services, for rental to others, or for administrative purposes and holds a long-term, non-monetary asset without physical form.
Generalized intangible assets including financial assets, long-term equity investments, patents, trademarks, etc., because they do not have a material entity, but the performance of some kind of legal rights or technology.
Intangible assets including patents, technology, brands, copyrights and royalties, the use of the land . Intangible assets can be divided into identifiable and non-identifiable intangible assets. Identifiable intangible assets, that is including patents, proprietary technology, brands, land use rights and concessions,. Intangible assets following conditions are satisfied at the same time, in order to be recognized .The intangible assets related to the economic benefits are likely to flow to the enterprise; the cost of the intangible asset can be measured reliably.( Ghemawat.1991)
Role of intangible Assets¼š
Use of intangible assets as security for loans (such as trademarks, patents, copyrights, equity pledge registration as security for loans), commercial registration, increase investment, equity participation, shareholders funded immaterial property, license to use, transfer, lease contract, liquidation auction;
Increase brand awareness, show the strength of enterprises, enhance cohesion, brand image¼›(Jorissen. 2007)
The enterprises operating intangible assets with international standards, and then enter the international market Protection of intellectual property rights claims is based requires companies to crack down on counterfeit products, infringement and litigation .Through the evaluation of Intangible assets, the business of the inventory can be completed¼Œ to provide the management information to operators thus reasonable allocation of resources.
Project financing, joint venture, merger, acquisition, attract investment, investment in intangible assets, investment, Intangible assets is the core attraction of foreign investment such as commercial brand, corporate profitability, sales, channels, personnel , etc.
Intangible assets capital to invest in shares can bring many benefits for the enterprise. First of all, can ease the difficulties of registered capital and increase investment. Some people want to start a business, because of lack of funds to run the new company, can use intangible assets as part of the of registered capital to be registered, especially in some high-tech enterprise, especially; The number of enterprises registered capital is too low, giving the marketing difficulties, want to increase the registered capital, but the lack of funds, then can use the immaterial property investment shares to overcome this difficulty.( Gregory 2003)
In the era of the industrial economy, the economic growth is mainly dependent on the plant, equipment, funds, and in the era of knowledge economy, patents, proprietary technology, trademarks, goodwill, information, computer software and other Intangible assets of innovation and sustainable development of economic growth play a decisive role.
Intangible assets unlike land, buildings, machinery and equipment as a specific physical form in front of people, but in the era of knowledge economy, it does play a role can not be ignored for the sustainable development of enterprises.
In the era of knowledge economy, the process of economic globalization in further exacerbated, it should be recognized that there is a process of continuous improvement of the status and role of intangible assets, when the increasingly competitive market, the more complex the business activities, intangible assets continues to increase, while its status and role of the more trend in the core, so that the number of high-tech enterprises are facing the danger instance to be suspended because of the loss of Intangible assets and can not sell their products.( Wilson, D. 2005)
Role of intangible assets in Fast-paced Technology Market:
In the day-to-day purchasing behavior, will you confused with a wide variety, all kinds of brand? And do not know how to make your decisions? What are the determinists to help you to choose goods finally? Of course, we want to buy the most cost-effective products, imagine that, we can not get them to try one by one, we will proceed from experience to choose reputable manufacturers and the well-known brands. In our selection process, in fact these Intangible assets play a role in the process. It has a strong appeal and influence, sometimes forcing us to make not entirely rational choice, wonderful role of the brand is to be able to win the goodwill of consumers to obtain the trust of consumers, which products sold, win opportunities to make goods in an invincible position in the competition for a long time.( Riezebos.2003)
In the context of the era of knowledge economy, the value of Intangible assets can be much higher than the tangible assets, because the value of the tangible assets, after all is limited, while the value of Intangible assets can be unlimited200 brand value rankings released by the United States
Let us look at the following data: In the high-tech is widely used in the United States, the research and development expenses of non-financial firms as a percentage of GDP, rose from an average of 2.2% in 1980-1989 to an average of 2.9% in 1990-1997, The proportion of investment in the world in tangible assets fell to 14.1%. At the same time, the S & P500 index reflects the market value of the main American. The companies’ index from 135.76 points in 1980 raised to 1342.62 points on November 20, 2000, an increase of nearly 1O times. This shows that intangible assets play an increasingly important role in the creation of enterprise value.
The interaction between the tangible and intangible assets:
In addition, activate tangible assets with intangible assets, is the best way for low-cost expansion, the greatest advantage is to avoid repeated investment and redundant development. It is crucial for the adjustment of economic structure, promote the virtuous circle of the whole national economy.
Haier as the number one of Chinese home appliance brand, one of the features of the expansion is to make an activation of tangible assets with intangible assets, which is written into textbook as classic case of Harvard Business School. (Itami..1987)
Before Haier mergers Qingdao Red Star Electric Appliance Factory, total assets of 400 million Yuan, while total liabilities amounted over to 500 million, 133 million insolvent, and the debt ratio up to 140%. After taken over by Haier Group, it was reorganized as Haier Washing Machine Corporation, and directed to employees with a series of management concepts, these ideas like an invisible hand united the almost defeated team and elevated to an orderly, self-discipline, quick job status, burst out of powerful life and been enable enterprises to gain the extraordinary development: made up the deficits and get surpluses in three months, profit $ 1.5 million in the fifth month, passed certification of the IS09001 international quality system in the Second year, won Chinese washing machine “Top 10 Brands”, consumers shopping preferred brand, etc; market share has risen to 22% of 100 large shopping malls in the country at the end of 1996, It rose to 28.31% the first half of 1997, five percentage higher than the second. The International market share is far ahead of other brand in China, the number of Automatic washing machines exported to Japan has been accounted 95% of total exports, accounting of 61% total imports of Japan; On this basis, Haier Washing machine merger the Guangdong Shunde washing machine factory again as an investment holding company brand in May 1997, after that set up Shunde Haier Electric Company and resume production within two months, created people are even saying so ” terrible Haier speed”; September 1997 in cooperation with West Lake in Hangzhou, Haier take advantage of value of intangible assets, set up the Haier Holdings Electric Company Hangzhou without invest a penny and successfully developed a series of TV with Haier brand. (Field, A . 2005)
In June 2001, the Haier Group’s acquired global line of credit of 300 million U.S. dollars from the Bank of China, This is the bank of China the first and the only time to give China enterprise a global credit in China. With the global credit of Bank of China, Haier financing approval procedures will be greatly simplified, the domestic and foreign investment projects within 300 million US dollars will be more rapid and timely service; In addition, the Bank of China branches and agencies around the world will give Haier Group worldwide localization financing to facilitate. Haier brand value there are 74.9 billion Yuan in 2006, equivalent to nearly $ 10 billion. The value created by a brand is far beyond than several generation of people’s hard work. Haier could not successfully obtain such wholesale funding without such huge brand effect of Haier.
Trends of Intangible assets:
Intangible assets can bring huge profits for the enterprise, profit has a powerful allure and penetrating power, right here only cited one case to illustrate this. Let’s look at the World Brand Lab recently announced 2008 World Brand 500: Harvard University – ranked first; Coca-Cola – second in the world; Citibank – ranked third in the world; Google – ranked fourth; Mercedes-Benz – the world’s fifth; Wal-Mart – the world rankings sixth; Microsoft – the world ranked seventh; McDonald – ranked eighth in the world; International business opportunities – ranked ninth in the world; Apple Computer – the world’s tenth. These world-class brands, its brand value is amazing, Coca-Cola reached $ 55 billion, the highest IBM brand value of $ 59 billion, Google’s $ 25.5 billion in 2005 alone. (Selam Nuri 2012).
With the extensive use of knowledge, technology and information in the social production and life, the human social economic form gradually changed from the agricultural and industrial to knowledge industries. (Gu. F. and Lev, B .2002).The 21st century is the era of the “knowledge economy” (Knowledge Economy), the knowledge economy is an economic form based on knowledge resources, its significant characteristics: Knowledge intensive technology as the foundation of the knowledge industry or new and high technology industries, has become the core of the entire industry, it is the major driving force for a country to obtain a long-term competitive advantage and sustainable socio-economic growth boosters. The arrival of the knowledge economy is a result of the development of high-tech industries, on preliminary information developed countries in the world, their computers, electronics, and aerospace and other high-tech industrial output and employment growth is the fastest. High-tech enterprise intangible assets accounted is bigger for the proportion of total assets in comparison with the traditional enterprise The high-tech enterprises are typical of knowledge and intellectual support enterprises, it has a high quality of intangible assets as a prerequisite, rich in scientific and technological content of its products are technically complex, a high degree of innovation, the short lifetime of the product guide the demand characteristics.
Currently, many U.S. high technology enterprise intangible assets has more than 60% of total assets. In the Microsoft does not have raw materials, plant and equipment on a large scale, It has a main resource is the wisdom of the people, have the product is in the floppy disk and the floppy disk that contains knowledge. Although Microsoft does not have the characteristics of the traditional large enterprises on the surface, but its enterprise value is more than General Motors Corporation in the United States and other giant enterprises, become a truly high-tech industry giant, the only one reason is that Microsoft has a huge amount of intangible assets.
The economic benefits of Knowledge which created by intangible assets has constituted the main body of the economic benefits of high-tech enterprises. In summary, there is no new and high technology enterprise without these invisible assets. (Gunnar Hedlund.2012.)
The assets are the most important economic resources of an enterprise. Under conventional economic conditions, tangible assets relative to intangible assets in a more scarce position, the knowledge contained in the company’s products and technology content is not high, the core position in the competition tangible assets rather than intangible assets; In the era of knowledge economy, the role and status of intangible assets is rising, intangible assets play an increasingly important role in the economic development, competition among enterprises has evolved into a competition intangible assets such as knowledge, technology, management ability and innovation ability. Intangible assets of the enterprise is becoming a key element in the survival and development of enterprises, it is an important value source of enterprise. Especially in the high-tech enterprises, the crystallization of the knowledge and wisdom of the patent, patented technology, goodwill, trademarks, research and development, franchise and other intangible assets have gradually become the most important resource instead of tangible assets. For science and technology as the core of the high-tech enterprises, its asset structure is different from the general characteristics of enterprises that intangible assets in a larger proportion of total assets, in other words, value creation of high-tech enterprises will mainly depend on intangible assets, thereby intangible assets has a more important meaning in the high-tech enterprises.( Keller.2003)
A large number of foreign findings show that: the intangible assets of the value of the enterprise to create an important role and can make a significant contribution; there is a strong correlation between the value of intangible assets and the company’s market; intangible assets information disclosure status will affect the development of the capital market, the investor’s investment income and business growth.
Be seen from the above: intangible assets so important for businesses; this trend has been vividly interpreted by Larry Wright who’s the famous Brand strategy experts in American. Owns the market more important than having the factory, and the only way to have a market is to have the brand as intangible as the core which is dominant in the market.
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