What is happening in emerging markets?

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It is often maintained that firms from developed nations maintain a distant edge in innovation capabilities as compared to those from developing or emerging nations. But is the West actually leading the East in innovation?

We are not seeing just any standard innovation in emerging markets. I draw your attention to products such as a 2K pound Tata Nano car, 1000 dollar GE ECG machine, 100 dollar OLTPC laptop, or 10 pound Nokia solar powered mobile phone. These are only some of the low-cost yet high quality products emanating from emerging market opportunities through a phenomenon which is gaining popularity in emerging markets, particularly India and China, called FRUGAL INNOVATION.

In the latest Bloomberg BusinessWeek’s 50 Most Innovative Companies rankings, for the first time since the annual rankings were launched in 2005, the majority of corporations are based outside the U.S and the new global leaders are coming out of mainly Asia. Entrepreneurs, leaders and managers understand how to manage and generate innovation for sustained competitive advantage. In terms of executive leader mindset in China, 95% of executives said innovation was the key to economic growth, while 90% and 89% of respondents in South America and India, respectively, agreed. Comparatively lower, in the U.S., only 72% said innovation was important.

Popularized by special report by The Economist (2010): “…”frugal innovation” or “constrain-based innovation” is not just a matter of exploiting cheap labour (though cheap labour helps). It is a matter of redesigning products and processes to cut out unnecessary costs.” Further, researchers claim that frugal innovation is in deep contrast with products, services, and processes which are typically energy inefficient, raw material inefficient, and environmentally inefficient, often produced in the advanced developed economies.

Consumers in emerging markets are benefitting from frugal innovation. But will we all benefit? As the West looks to the East for ideas, frugal innovation from EMs could offer fresh ideas and new perspectives in cost minimization and innovation maximization to a world slowed down by the recent recession. What we learn from the East might help us to maintain a high standard of living without incurring escalating and debilitating costs to not only to our personal pockets but also to our natural environment.

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