Improving the MarketBy Faisal Hoque | Posted 2008-09-02 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.
Improving the Market
Companies in the developing world bring a unique set of strengths to the global marketplace.
They take advantage of new technologies. An article (“Of Internet Cafés and Power Cuts”) in the February 2008 issue of The Economist illustrates how technology is spreading to emerging markets faster than it has done anywhere else.
- China will overtake America as the country with the world’s largest number of Internet users. For the past three years, China has also been the world’s largest exporter of information and communications technology, and it already has the same number of mobile phone users as the whole of Europe.
- Half of all urban dwellers in India have mobile- or fixed-telephone subscriptions, and the number is growing by 8,000 per month. India makes software for racing cars and jet engines and is one of the top four pharmaceutical producers in the world.
- In Africa, people who live in mud huts use mobile phones to pay bills or to check fish prices and find the best market for their catch.
The technology resources available to firms in the developing world are huge and have very low costs compared to legacy assets in the industrialized world. Open-source software and software services such as Amazon’s cloud—not to mention ubiquitous cell phones and free social networking resources—give these firms everything they need to become players in the global marketplace.
They approach innovation unconstrained by tradition. Donald Sull, an associate professor of management practice at the London Business School, writes that companies in the developing world “share a distinct approach to innovation: They strategically exploit an intimate knowledge of their customers’ mind-sets, they innovate around (rather than through) technology, and they scour the globe for good ideas. They take pieces of practice or technology that they find and recombine them in novel ways to solve customer problems.”
Take Cementos Mexicanos, the world’s third-largest cement company, selling in more than 60 countries. The firm created a GPS system to supply contractors with just-in-time delivery. It got the idea from a 911 call center in Houston. CEMEX execs figured that a system that enables medical response teams to respond quickly would also work for urgent cement deliveries.
They live where the big problems are. When employees of China’s Haier Group, which sells appliances, visited rural customers, they discovered that the customers frequently used their washing machines to clean vegetables. With a few minor changes, Haier was able to market its machines as versatile enough to wash both clothing and vegetables, and it rapidly became the market leader in its home country’s rural areas.
The developing world is the next big market, and companies are focused on how these new customers think and act.
Not surprisingly, the major international companies also are finding ways to tap into these new markets and the innovative ideas they have to offer. A study conducted jointly by India’s National Association of Software and Service Companies (NASSCOM) and Booz Allen Hamilton found that the worldwide sourcing of innovation is growing far more rapidly in nations such as India, China, Thailand and Brazil than anyone anticipated a few years ago.
The study reports that current global spending on offshored engineering is $15 billion. By 2020, that will expand to between $150 billion and $225 billion, with the growth coming from emerging markets such as India, China and Russia. “Although the impetus to reduce labor costs accounts for more than 90 percent of offshored innovation work in emerging markets today, that goal will give way during the next 10 years to more strategic priorities: market access, resource quality, increased productivity and expanded capacity,” the study says.
Industry leaders are already expanding their innovation footprint to tap into the skills and creativity in the emerging world. According to the study, “One major automotive-component supplier is aggressively expanding its network into China and India. At its automotive R&D innovation site in Bangalore—one of the largest in India—3,000 employees are working on high-end electronic control units, tools and diagnostics. Toyota has set up a center for small-truck design in Thailand, its first non-Japanese product design facility. And of all the regions in its network, Cisco is winning the most U.S. patents for new products developed at its Indian R&D operation.”
This is the first lesson for countries in the developed world: to view innovation as a collaborative endeavor. An internal R&D department may be necessary for strategic continuity, but, as has often been said, the smartest people don’t work for your company. They must be found and engaged.
Also, innovation involves more than products: It is very often found in processes and business models. Nascent companies in emerging markets may have the ideas, products, processes or models that can be the next step for an established company.
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