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Managing Innovation in Emerging Markets
Gosakan Aravamudan
Friday, October 10, 2008
Emerging markets are creating a wave of product and process innovations that are aiding established companies and a segment of innovators to achieve new price-performance levels for goods and services traded worldwide. These markets are becoming the catalysts and motivators for new product and service innovations. But, tapping the talent and growth potential of up-coming economies requires manufacturers to shed many of their assumptions about customer needs, employee expectations, operations, and innovations that they have learned in the developed economies.

They need to look beyond existing strategies in order to meet the unique needs of these markets, while still leveraging the efficiency and expertise existing in their global networks. Those that do so successfully will be most likely to thrive in the times to come in the global arena of fierce competition.

Emerging markets present a tremendous opportunity for global manufacturers. Not only do countries such as China, India, Russia, and Brazil offer lower operating costs, but they are also home to rapidly growing middle classes that are potentially huge markets for the products and services of global manufacturers.

Executing the right strategy for profitable growth in these markets is critical. Global manufacturers realize competing successfully in emerging markets as key to their corporate strategy. Identifying the opportunity these markets represent, however, is the easier part. The much more difficult task is determining what it takes to hold on in these markets, while overcoming the challenges hurled at the management.

Most manufacturers simply make minor adjustments to existing products, cut prices, and replicate existing distribution channels. Over the long-term, to achieve sustainable commercial success in emerging markets, global manufacturers must embrace a strategy based around innovation. This means that global manufacturers must acquire an entirely new set of skills and organizational structures that address the special requirements of both the consumer and the industrial buyers in these markets. Most significantly, it means that they must offer unique products at dramatically lower prices to match the special needs and lower purchasing power of most buyers in the emerging markets. Using prior knowledge from customer feedback is a useful tool.

Some firms merely take a marketing approach and add a slogan that emphasizes on innovation without actually being innovative in the true sense. One reason for companies not living up to the claims in innovation they make is that most of these companies are looking for a big innovation—a revolutionary invention that would redefine the existing norms. Such companies overlook small innovations that bring sustained incremental and additional result in relatively small cost savings that are significant in the long run. The solution to this is to recognize the value of little ideas. Consider who is probably the world’s most innovative car manufacturer. Their innovations are generally small and are often about improving the efficiency of their just-in-time logistics. This Japanese manufacturer also boasts one of the longest established and most effective idea management systems around. The company has received over a million ideas from its employees, a large percentage of which have been implemented.

Every organization that wishes to maximize their innovation potential may bring about some regulations to encourage and ensure that there is an environment of trust within the organization; particularly with respect to idea proposals—that every idea is treated with respect and even those who propose impractical ideas are rewarded for sharing their ideas. Also, creation of an alternate process that allows an employee to propose ideas anonymously provides a mechanism that allows that employee to be recognized should the idea be implemented.

Most companies particularly focus on potential threats to their intellectual property in emerging markets. Intellectual property threats and risks include the theft of key process and product know-how by employees or partners and the duplication of the branded products. This is a major cause for concern that companies have when considering joint ventures in markets where statutory protections for intellectual property are either weak or not enforced effectively. For example, the U.S. government estimates that violations of intellectual property rights in China cost multinational companies $60 billion each year. (Source: American Chamber of Commerce in China).

On a concluding note, emerging markets have an unprecedented need to protect innovation through a strong system of intellectual property protection. Unethical and ungainly dilution of innovation can prove unendurable to new economies and thus can retard sustained innovation which is vital to reap benefits.

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