For the past two weeks, Alex Haigh, Managing Director of Brand Finance Asia Pacific, has looked at divergent trends in intangible assets across the world and the consequences of these trends. This week, Mr Haigh assesses what should be done about this.
So what should be done?
Of course, the situation could benefit from a boost in government support in the form of grants, tax credits, training, loan guarantees to name a few in order to make it easier to self-finance IP development as well as to provide more reassurance and support to external investors. Singapore’s IP Financing Scheme and its general IP Hub Master plan is obviously a great example of forward thinking about the development of an environment.
Governments, along with trade bodies, investors and businesses need to help improve institutions in order to provide guidelines and education for those building intangible assets as well as reporting on them. For example, more university-business partnerships, schemes to train business and IP valuers, better rules and standards for valuation.
But from Brand Finance’s point of view, the most important thing to do is to update accounting rules in order to encourage the identification of intangibles and to encourage the explanation of how they are expected to bring value to the business. This should feed into annual valuations of the business overall and the valuation of the different classes of intangible asset. Until the rules are changed, companies should be doing these valuations voluntarily and posting the details to the notes to their accounts – as many already do.
Together with the updating of accounting rules, we need to continue to encourage a secondary market for IP, both in the form of ongoing licensing businesses but also in the form of outright purchase. While this is being created and improved, companies themselves can add more security to the valuations of their intangible assets by separating them out within brand companies and testing their value through license agreements. In many cases, this will unlock value that most brand owners were not even aware they could access.
Warren Buffet famously talks about intangible assets as “moats” that are important for protecting value and therefore a focus of his investment strategy. With this in mind, intangible asset owners need to avoid pulling up the drawbridge and instead find ways to showcase and value themselves better to investors. The cumulative effects of not doing so are too great to ignore.