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Innovation moves East

I talked in my first post about how emerging markets are changing innovation, and two publications this week focus attention on the same topic.  The title of the latest edition of The Economist is “The new masters of management” and contains a 14 page special report on innovation in emerging markets.  It points out that not only are companies from the developed world focusing increasingly on emerging markets for innovation, but also emerging market firms (eg Haier and Huawei from China) are moving in the other direction!  They also talk about reverse innovation in terms of “frugal”, referencing the Tata Nano, the business model of Bharti Airtel and BYD’s ambition as not only a global supplier of batteries, but to be a global car company.  Many of these innovations are not just about new products, but involve completely new business models.

Business Week confirms this trend and reports the latest results of the Boston Consulting Group’s annual Most Innovative Companies survey.  Although Apple (perhaps inevitably) leads the company rankings, the more interesting finding is the shift to emerging markets with 15 of the top 50 companies from Asia (compared with 5 only four years ago).  The most impressive result is that 5 of the 7 new entrants in the list come from emerging markets.  Brazil, India, Japan, South Korea and Taiwan are all represented along with China with BYD, Haier, Lenovo, China Mobile and HTC all making the list from Greater China.  In 2008, Huawei (which is not even on the list), applied for more international patents than any other company in the world.

I think this reflects the reality that the most innovative products are those which can meet the needs of consumers who are currently excluded from a category, rather than existing users.  Emerging markets have a huge pool of consumers who for reasons of cost, access, functionality or environment do not yet use many products which are taken for granted in more developed markets.  This will change. People are also using Eco Pools for their home renovation and innovation.

The lesson for disruptive innovation is that you should always focus not on users of your products, but on non-users.  If you can meet their needs, then you have much more chance of success with any new product.

REFERENCES

The Economist, April 17th-23rd 2010

www.economist.com

Business Week, April 25th 2010

http://www.businessweek.com/innovation/

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