Innovation from emerging markets: from copycats to leaders

"For two centuries since the industrial revolution, technological and other breakthrough innovations occurred in industrialized Europe and North America, and then diffused to other parts of the world. After World War 2, a few other countries, such as Japan and South Korea, joined the exclusive club of cutting-edge innovators. But since 2000, a number of emerging economies have started to produce innovations of their own. In our work on reverse innovation, Vijay Govindarajan and I argued that we may be at the cusp of a new era in which important innovations could emanate from emerging economies and then diffuse to the rest of the world, including, sometimes, to industrialized countries. The initial wave of innovations from emerging economies, such as China and India, was largely based on process innovations, particularly to make products much more affordable, often at costs that were 80-90 percent lower than in the industrialized countries. Other innovations attempted to make products simpler to use and easier to maintain in the harsh and underdeveloped conditions found in most low-income countries. Accomplishing these results did not usually require technological breakthroughs, but it was based on a lot more than the cheap labor in emerging economies. For instance, it also involved new processes and business models that were asset-light and leveraged alliances among multiple partners. Local companies often took the lead in pursuing affordability innovation, because they understood the needs of emerging-market customers better than foreign multinationals, they had a low-cost mindset, and they had no legacy of high-margin products to defend. Foreign multinationals reluctantly joined in this kind of innovation to defend their position in rapidly-growing emerging economies and to guard against future challenges by emerging-market firms in the MNCs' own backyards, i.e. developed-country markets."