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Innovation is imperative for the emerging economies

A content analysis on the term "innovation" carried out by Baregheh et al. (2009) within the organizational context, defines innovation as:

"Innovation is the multi-stage process whereby organizations transform ideas into new/improved products, service or processes, in order to advance, compete and differentiate themselves successfully in their marketplace.”

Introduction

Peter Drucker very rightly stated that “The business enterprise has two and only two basic functions: Marketing and Innovation. Marketing and innovation produce results; all the rest are costs. Innovation is an activity that runs parallel to the existing process so as to convert a mission to the achievement of goals, not only innovation but systematic innovation is the need of the hour. The upcoming economies need to understand the core competency of systematic innovation so as to exploit the changes and overcome the process of creative destruction.”In 1980 American car executives were taken aback to find that Japan has emerged as the world’s leading carmaker so they visited Japan to find out the answers. On the lookout for reasons what they discovered was that it was not industrial policies or state subsidies but business innovations that helped Japan reach success. Emerging economies are becoming hotbeds of business innovation in much the same way as Japan did from 1950s onwards. The upcoming economies have come to realize that not everything is about bottom-line. To mark their presence on the international platform they need to look beyond the profit and loss. The very nature of innovation has to be rethought. Today innovation is not just about adding a new dimension to a product but also to aim at the middle or the bottom of the pyramid. Innovation is as much a function of intent as it is of talent. Seeing the present scenario developed economies focus more on polycentric innovation but the need of the hour is to have innovation for inclusion. So the upcoming economies have to spread their wings and become the powerhouses of innovation in everything from telecoms to computers. The upcoming economies like China and India has untapped potential and the talent pool which is beyond comparisons so as to reach at the top, innovation is the key. The prevailing optimism combined with huge capacity to innovate will take the emerging world to greater heights. To quote in Churchill’s phrase “ emerging economies sees opportunities in every difficulty rather than difficulties in every opportunity. To mark its presence, the emerging world needs to prove that it can be the source of disruptive innovation, which in turn brings the necessary change.

Innovative Tigers

For years, Western multinationals have had the belief, and perhaps felt relief as well, that while they might increasingly be unable to compete effectively on price, at least they have had greater innovative capacities than the rising "tiger" economies. Today, however, with the rising economies of the emerging markets, there is no way that the West can rest on its laurels. Beware of the claws and jaws - tigers can be innovative too!

In 1980 American car executives were so shaken to find that Japan had replaced the United States as the world’s leading carmaker (Ford the pioneer in car industry of U.S.A.), that they began to visit Japan to find out what was going on. “How the Japanese could beat the Americans on both price and reliability?”, and “how did they manage to produce new models so quickly?’ were questions burning holes in their minds. The visitors discovered that the answer was not industrial policy or state subsidies, as they had expected, but business innovation leading to economic innovation. The Japanese had invented a new system of making things that was instantly hailed “lean manufacturing”.

BRIC countries which are also the developing countries are becoming hotbeds of business innovation in much the same way as Japan did from the 1950s onwards. They are coming up with new products and services that are very much cheaper than their Western equivalents: $3,000 cars, $300 computers and $30 mobile phones that provide nationwide service for just 2 cents a minute. They are reinventing systems of production and distribution, and they are experimenting with entirely new business models. All the elements of modern business, from supply-chain management to recruitment and retention, are being rejigged or reinvented in one emerging market or another. A very hot example can be the market flooded with Chinese goods.

Dream BIG

The countries that were until recently associated with cheap hands are now becoming leaders in innovation? The most obvious reason is that the local companies are dreaming bigger dreams. Driven by a mixture of ambition and fear—ambition to hop on the world stage and fear of even cheaper competitors in, say, Vietnam or Cambodia—they are relentlessly climbing up the value chain. Emerging-market champions have not only proved highly competitive in their own backyards, they are also going global themselves.

At the same time Western multinationals are investing ever bigger hopes in emerging markets. They regard them as sources of economic growth and high-quality brainpower, both of which they desperately need. Multinationals expect about 70% of the world’s growth over the next few years to come from emerging markets, with 40% coming from just two countries, China and India col;ectively called CHINDIA. They have also noted that China and to a lesser extent India have been pouring resources into education over the past couple of decades. China produces 75,000 people with higher degrees in engineering or computer science and India 60,000 every year. The reason for this being that the nations are well aware of the fact that the coming decade sees the workforce of India and China to be the most educated of all.

The world’s biggest multinationals are becoming increasingly happy to do their research and development in emerging markets.

But the opportunities are equally extraordinary. The potential market is huge: populations are already much bigger than in the developed world and growing much faster , and in both China and India hundreds of millions of people will enter the middle class in the coming decades. The economies are set to grow faster too. Few companies suffer from the costly “legacy systems” that are common in the West. Brainpower is relatively cheap and abundant: in China over 5m people graduate every year and in India about 3m, respectively four times and three times the numbers a decade ago.

This combination of challenges and opportunities is producing a fizzing cocktail of creativity. Because so many consumers are poor, companies have to go for volume. But because piracy is so commonplace, they also have to keep upgrading their products. Again the similarities with Japan in the 1980s are striking. Toyota and Honda took to “just-in-time” inventories and quality management because land and raw materials were expensive. In the same way emerging-market companies are turning problems into advantages.

Knowledge and Economical Innovation

Science and technology have led the world towards innovative solutions to today’s multi-faceted challenges, i-e, providing the foundations for economic growth and social development, as well as safeguarding our ever degrading ecosystem and have enabled us to generate new knowledge and make discoveries for mass benefit.Much of the improvement in human welfare over the past century can be accounted to advances in science and technology in areas of health, nutrition, and agriculture. These improvements have reduced mortality rates, increased life expectancy and much more.

The term “knowledge-based economy” implying an economy which is directly based on the production, distribution and use of knowledge and information, derives from the ability of a society to mobilize its knowledge and resources with a variety of inputs to create new products, processes and services, thus innovating them.Economies are increasingly based on knowledge and information. Emerging economies such as China and India have recognized the importance of innovation to economic growth, and are pouring resources into their scientific and technological infrastructure, rapidly building their innovation capacity and dramatically increasing their ability to compete with U.S. businesses on the world stage. Innovation, science and technology are no more stand-alone phenomena, it now has even a greater focus and impact. The present day challenges call for regional partnerships, especially in the context of research partnerships, collaborative research programs, regional developmental activities Primarily and justifiably the countries at the same level of development need to collaborate amongst each other for larger mutual benefits. This underscores and advocates the phenomenon of South-South Cooperation especially in the fields of science, technology and innovation Global partnerships, now a days implies firstly the shift towards knowledge-based economy, whereby now knowledge is a new and most precious ‘Factor of Production’.

Assumption Fails

Until now it had been widely assumed that globalisation was driven by the West and imposed on the rest. Bosses in New York, London and Paris would control the process from their glass towers, and Western consumers would reap most of the benefits. This is changing fast. Muscular emerging-market champions such as India’s ArcelorMittal in steel and Mexico’s Cemex in cement are gobbling up Western companies. Brainy ones such as Infosys and Wipro are taking over office work. And consumers in developing countries are getting richer faster than their equivalents in the West. In some cases the traditional global supply chain is even being reversed: Embraer buys many of its component parts from the West and does the assembly work in Brazil.

Old assumptions about innovation are also being challenged. People in the West like to believe that their companies cook up new ideas in their laboratories at home and then export them to the developing world, which makes it easier to accept job losses in manufacturing. But this is proving less true by the day. Western companies are embracing “polycentric innovation” as they spread their R&D centres around the world. And non-Western companies are becoming powerhouses of innovation in everything from telecoms to computers.

The very nature of innovation has to be thought again. Most people in the West equate it with technological breakthroughs, embodied in revolutionary new products that are taken up by the elites and eventually trickle down to the masses. But many of the most important innovations consist of incremental improvements to products and processes aimed at the middle or the bottom of the income pyramid: look at Wal-Mart’s exemplary supply system or Dell’s application of just-in-time production to personal computers or be it Apple’s customised systems.

The emerging world will undoubtedly make a growing contribution to breakthrough innovations. It has already leapfrogged ahead of the West in areas such as mobile money (using mobile phones to make payments) and online games. Microsoft’s research laboratory in Beijing has produced clever programs that allow computers to recognise handwriting or turn photographs into cartoons. Huawei, a Chinese telecoms giant, has become the world’s fourth-largest patent applicant. But the most exciting innovations—and the ones this report will concentrate on—are of the Wal-Mart and Dell variety: smarter ways of designing products and organising processes to reach the billions of consumers who are just entering the global market.

These developments are vivid testimony to our reaching a major inflection point in the history of innovation. The realm of competitive leadership through creativity, design, and deliver, which for at least two hundred years has been the exclusive province of the West, is now to be shared with newly emerging firms loaded with ideas and creative energy. And, the message is not just for Western firms, alone. Emerging market firms are also learning that cost is not an advantage to be taken for granted anywhere. Cost-leadership is almost always vulnerable to innovative disruption. The inclusion of innovative practices in any firm's portfolio of managerial pursuits is essential to maintaining the vitality necessary for a healthy organization. To consign innovation to someone else is to accept a subsidiary role in creating your own future. Perhaps that is the reason why in 2006, more Chinese-authored patents were filed with the Chinese patent office than foreign-authored ones.

They are also learning that wherever it takes place, innovation is embedded within a broader value-chain that is shared by multiple firms and all of these players need to be responsive enough, agile enough, and innovative enough to be a partner-of-choice for the other customers or suppliers within the same value chain. This requires sufficient commitment to innovation to grow with your value-chain partners into the future, or otherwise risk being left behind.

As a result, we believe that emerging economies are already being recognized as major sources of product, as well as process innovations. This reflects the size of these economies, and the recognition that they are large enough to host both cost-leaders and product innovators. As a result, Western multinationals are already beating a path to both India and China, and elsewhere in Asia, in search of brains, as well as brawn. In fact, the two are increasingly going together. It's a mistake to assume that cost-leadership is necessarily "lighter on creative, original thinking and innovation." Do not underestimate the creative competencies that go into creating innovative cost-leadership.

Seamless Complexity

For quite a while, many companies have spoken about achieving “seamless” collaboration anytime, anywhere, and with anybody. Add innovation in, however, and the complexity escalates. “Seamless communication” requires deep conversations among the various actors in an innovation network. One of the most interesting contradictions, in a world where R&D output is often measured in "bytes" in the virtual environment, is the imperative to continue to pay attention to the "atoms" in the physical environment. These physical atoms are particularly important when the location of R&D activities is being discussed, and when conversational environments are being designed.

Geography is still important in many innovation efforts! We know that R&D does not flourish everywhere, and that social and physical infrastructures can be catalysts for driving strategic innovation. The continuing innovative success of Silicon Valley and other areas in the traditional West, over successive generations of technology, for example, is as much about the risk-taking and conversational environments that one finds there, as it is about bright people and good ideas. In fact, they are all interrelated and mutually-reinforcing. Geographic proximity and economies of scale encourage innovative output. It is about working together.

When allocating resources for innovation, therefore, it is important to keep a number of key points in mind. Successful innovation requires strong leadership and the availability of educated, ambitious, bright people, who are independent and self-confident enough to push their opinions and take responsibility for their projects; as well as being entrepreneurial in the management and delivery of these projects. MNCs need to compete in local talent markets and need freedom to operate. In return, MNCs also need to assure local talent that they will have the same opportunities as any similar set of knowledge workers employed by the firm, anywhere else in the world, and they need to reassure the local authorities that they will be good local "citizens."

If these conditions are met, any MNC can be a strong local partner for the educational systems from which they hope to recruit, and the suppliers with whom they hope to work, This will result in partnerships in knowledge and competency, and development will result all along the value-chain. An important part of this is to support and reinforce local resources in developing knowledge workers.

In today's fast-moving, complex business environment, innovating quickly, reliably and effectively is an advantage for achieving profitability and growth. Yet, all too often, organizations are unable to generate sufficiently creative ideas and effectively move them to market.

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