Wednesday, October 16, 2013

Innovation in emerging markets

Quite often when people think of innovation they think of Apple and the iphone. That such innovation is also relevant for emerging and developing markets is proven by the fact that China has already become the second largest market for Apple. But there is more to innovation in emerging markets that producing cute gadgets. 

If we define the purpose of innovation as the process which leads to a better satisfaction of consumer needs, or an improvement in the quality of life of the consumers, we need to firstly look at the profile of the target population of the consumers in emerging markets and see what kind of innovations can they benefit from. While luxury goods may be booming in emerging markets, they also house over a billion people living below the poverty line. Even the emerging middle class in these markets has much more modest spending power than the middle class in the West. This implies that while the Western style innovation of smart technology and slick designs is still relevant in the emerging  markets, there is also a totally new kind of innovation required for consumers who are actively seeking improvements in their lives it terms of basic aspects such as clean and safe drinking water, affordable housing, better education for their children and basic services such as banking. It is not surprising then that m-pesa a mobile phone based money transfer service emerged in Africa and not from the developed markets.

Jugaad innovation

We often use the term "jugaad innovation" in the context of emerging markets. Jugaad innovation is normally used to describe, relatively low cost, problem solving, basic, grass-root level innovation that is often the result of consumer and manufacturer ingenuity, directed at solving some problems and improving the quality of life for consumers. In the Western context, innovation is expensive as it involves expensive R&D, scores of Ph.D's pouring over their microscopes to discover new magical formulas. Innovation is normally a long drawn process with very little short-term return. While companies like Lenovo and Huawei are engaged in this Western style investment, only the most successful companies can afford to put in these kind of resources. For most companies in emerging markets the only route is frugal innovation.

Secondly, most innovation in the Western world is top-down - as the consumer needs in most areas are actually well satisfied and  it is the companies, who in search of higher profits and beating the competition are looking for ways to provide that extra stimulation and thrill to the consumers. However in the emerging markets, innovation often starts at the grass-root level, as the consumers have unsatisfied needs and often resort to cheap and crude but still workable solutions to seek solutions for their problems.

Chinese digital innovation

While the Western companies lead in innovation for technology products, one of the most active areas of innovation in China is the technology services in the digital and mobile arena. True, the Westerns platforms of Facebook and Twitter are not accessible to the average Chinese- but they have something much more suitable to their needs - Weibo. Just as twitter, Weibo allows you to express anything in 140 characters. Of course in Chinese, each character is actually a word, and hence you can say a lot more in 140 characters in Chinese than you can do in English or most other languages. Weibo has attracted more than 300 m users within a few years and has become a platform for discussion of everything from brands to social issues to corruption. Through Weibo urban young Chinese have found a relatively open but still an acceptable way to express themselves. Weibo has emerged and evolved in a uniquely Chinese way to satisfy the needs of the Chinese consumers.  

Similarly while Western companies like eBay and Amazon have made little headway in China, the Chinese e-commerce platform Taobao has 600,000 vendors selling everything from tablet PCs to freshly slaughtered chicken. Taobao was able to innovate to address several resistances towards e-commerce in China - which included a mistrust between sellers and buyers, low penetration of credit cards and extreme price sensitivity. Both Weibo and taobao have developed not through top-down innovation but through their users who have moulded the platforms to best satisfy their needs.

Innovation in emerging markets is extremely important. Not only can it add to the coffers of corporations, it can change and even save lives. Of course, to be effective it needs to be anchored to the consumer needs and a discovery of what can enrich their lives.

Written by Ashok Sethi

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