Emerging and developing markets are benefiting from trickle-up innovation
Mauro F. Guillén, Director, Joseph H. Lauder Institute
New product innovations used to be the province of developed markets. Companies responded to cues from the market by designing products and services that might once be introduced into emerging or developing markets. Major technological breakthroughs would first be incorporated into products and services in developed markets, and only launched in emerging and developing markets years later.
This traditional trickle-down sequence has been upended by the shortening of product life cycles, which now call for the nearly simultaneous of products across the world, and especially by the emergence of trickle-up innovation. An increasing number of products, product modifications, or services are now being imagined and brought to fruition in emerging and developing markets first.
Examples abound. Many simple mobile phone applications have been developed for the Kenyan or Indian markets, for instance, than then rolled out in developed markets. For instance, Infosys developed OnMobile in the 1990s, a platform that provided mobile-advertising support and ringtones. After succeeding in India, they rolled it out in international markets. In Bangladesh, Danone co-developed with Grameen Bank a new cost-effective technology to make yogurt at small-scale plants, thus reducing the need for transportation and freezer storage space, which are expansive in many developing countries.
Healthcare is undergoing a rapid transformation in developing countries as local inventors and foreign firms alike test out new concepts and possibilities. Everything from battery-operated medical devices to low-cost prostheses and wheelchairs are improving the lives of millions at low cost. These innovations are attracting the attention of companies and healthcare providers in developed markets, where costs have been soaring for years. Another example is the extensive use of healthcare services delivered over mobile phones in countries such as Kenya, where people in rural areas take a bus for up to two hours to visit the nearest doctor. Some of the applications and systems developed in developing and emerging markets are now being explored by healthcare providers in the U.S. and Europe.
There are many ways in which trickle-up innovation may take place. Adapting available technology to small-scale product markets is a well-known way in which emerging-market companies seek to serve their home markets. With the fragmentation of consumer preferences in developed markets, and the trend towards customization and on-demand products, this know-how will become quite important in developed markets, giving emerging-market firms an edge. One example refers to the growth of Chinese companies that sell specialized building materials made of bamboo used in Europe as wall paneling or as gazebos for hot tubs, gardening or entertainment. American and European chemical companies, whose market shares have suffered as a result of Asian producers, have learned that they can remain competitive in niche markets with small-scale technologies pioneered by companies in developing countries. In so doing, they can focus their competitive efforts on segments of the market that require flexibility, responsiveness, and short time-to-market.
Another avenue for success involves ethnic branding, or making products and services appealing to immigrant communities in developed markets based on innovations from their countries of origin. Increasingly, some of these products and services also appeal to niches within the native population. Many food products originating from developing and emerging markets have gained popularity in developed markets, from chips to wraps, and from casseroles to sauces, companies are increasingly coming up with refrigerated or frozen products sold in developed markets. Another area is personal care products, where emerging markets can contribute new ingredients and combinations. Companies such as L’Oréal has over the years found that hair coloring products are highly localized. Accessing the knowledge behind the effectiveness and quality of coloring in different parts of the world has enabled it to compete more effectively in markets with diverse populations, as the U.S. and Western Europe increasingly have become.
Project-execution capabilities in developing and emerging economies, where dealing with the government and with the lack of reliable markets for intermediate inputs creates many bottlenecks, is quickly becoming a type of know-how that may help emerging companies succeed in more developed markets. After heavily investing in infrastructure for the last two decades, Chinese companies have become adept at delivering projects on time and cost effectively. The new “One Road, One Belt” initiative will catapult these companies into global markets not just thanks to preferential financing but also because they possess the know-how to do the job effectively. Similarly, Indian infrastructure companies are making inroads into foreign markets. Historically, South Korean infrastructure companies spearheaded this type of international growth.
As market niches proliferate in developed markets, cost-cutting pressures intensify, and both consumers and service providers search for simplicity, companies from emerging markets and multinationals with operations in those countries stand to find sustainable sources of growth.
Originally published at www.weforum.org.