Competition From Emerging MarketsBy Faisal Hoque | Posted 2008-09-02 Email Print
Learn how innovation and knowledge management is leveling the playing field of the knowledge economy. Examples include: Daiichi Sankyo Group, Ranbaxy Laboratories, Boeing and its 787 Dreamliner, InnoCentive, the Linux operating system, Cementos Mexicanos, China’s Haier Group and changes in global Internet use.
Not that long ago, Americans cast a worrisome eye on Japan and saw a rising economic juggernaut that would conquer the world. Some of that did unfold: Japan’s automakers, for example, give U.S. car-makers serious competition.
But something quite different is happening today in Japan and in nations of the developing world. It could be either a threat or an opportunity, depending on how companies in the developed world react, but it will clearly change the playing field for all.
The knowledge economy is taking shape, and knowledge doesn’t require complex corporate structures or massive factories to flourish—nor does it necessitate a nation with a huge gross national product. Knowledge begins with an innovative mind that has connections to other minds. Those connections are now being made around the world, and they are expected to lead to a new kind of competition for the developed world.
Consider Daiichi Sankyo Group, Japan’s third-largest pharmaceutical company, which invested $4.6 billion to acquire a controlling interest in Ranbaxy Laboratories, India’s largest pharmaceutical company. Daiichi will gain access to Ranbaxy’s low-cost research and production facilities and its expertise in generic drugs. Citing their joint pool of scientific, technical and managerial resources and talent, the companies plan to expand aggressively in both developed and developing countries, with the United States a major target.
Bringing a drug to market generally involves huge costs, but the pharmaceutical companies of the East and the developing world are lowering these costs through collaborations such as Daiichi Sankyo and Ranbaxy. Other pharmaceutical companies are equally busy making connections—and doing so with a cost advantage over their developed-world competitors. They can, for instance, conduct preclinical trials for 40 percent to 60 percent less than the cost of doing so in the United States.
The expansion of knowledge and advances in skills are occurring in other industries as well. Consider the following:
Boeing signed on more than 40 partners to help design and build sections of its new 787 Dreamliner at more than 130 sites around the world.
Linux, the open-source computer operating system, has been created and improved by more than 3,600 developers across the globe. More than 270 companies have employees involved in this effort.
InnoCentive, the Internet-based market where organizations with problems connect with freelance problem solvers, has registered more than 145,000 solvers in 175 countries. InnoCentive’s CEO says the diversity of viewpoints makes a difference in problem solving.
In addition to becoming sources of innovative ideas, developing nations are growing economically as well. Though the World Bank estimates that growth in developing countries will slow from 7.8 percent in 2007 to 6.5 percent this year, that’s still ahead of the industrialized world’s estimated growth in 2008 of 2.7 percent, albeit from a lower base.
Emerging markets have driven initial public offerings to record highs, with seven of the top 10 IPOs in 2007 coming from emerging economies, says PricewaterhouseCoopers (PWC). Emerging economies account for 45 percent of world exports and have amassed 75 percent of foreign-exchange reserves, effectively financing large portions of developed nations’ indebtedness.
In its annual Global CEO Survey, PWC found that “as they are increasingly competing on an equal basis, CEOs in both sets of countries … had surprisingly similar responses on their main source of competitive advantage, with technological innovation leading the way. This underscores how the rules of competition are converging around similar principles for all global companies, whether they are based in developed or emerging nations.”