Tuesday, September 4, 2012

Emerging Markets Foster Product and System Innovation

In a special report on innovation in emerging markets issued in 2010, The Economist published an interview with their Management Editor, Adrian Woolridge, highlighting the changing nature of global business innovation.

His primary message is that emerging markets have shifted from a cheap labor destination to a source of competition among multinational companies all striving to reach large populations of potential buyers. He compares this current trend to Japan’s development of lean manufacturing in the 1980s as a way to beat out American auto manufacturers. The Japanese were able to beat Americans on price, reliability, and speed of new models to market not through “industrial policy or state subsidies…but [through] business innovation.”[1] This concept applies to what we have been reading about Ikea’s product design and delivery model[2], as well Tata’s Nano. Both of these companies are “competing on price by streamlining the supply chain and challenging conventional wisdom.” Additionally, both Ikea and Tata Motors have designed products and delivery systems by integrating greater modularity into their supply chain and distribution strategies.[3]

Woolridge argues that both the challenges and opportunities to competing in emerging markets are enormous. Dispersed rural populations and variable infrastructure represent major hurdles, while the sheer number of potential customers serves as an enticing draw to enterprising multinationals and ambitious regional companies alike. They realize that, in order to take advantage of these opportunities, they must come up with “smarter ways of designing products and organising processes to reach the billions of consumers who are just entering the global market.[4]” Target customer strategy must reach beyond the global elite and focus on developing and maintaining appeal among rising middle classes. Woolridge argues that this will require a new approach to product development and supply chain systems.

As the emerging world continues to make growing contributions to product and supply chain innovations, the conventional view of globalization as a Western imposition on developing countries is changing. The balance of economic power, too, is fluid as new consumers create unprecedented demand for new products and services worldwide. 
Source: http://www.economist.com/node/15879369
Source: http://www.economist.com/node/15879369

[1] "The World Turned Upside down." The Economist. The Economist Newspaper, 15 Apr. 2010. Web. 04 Sept. 2012. <http://www.economist.com/node/15879369>.
[2] Margonelli, Lisa. "How Ikea Designs Its Sexy Price Tags." Business 2.0 (October 2002): 106-12. Print.
[3] Hagel, John, and John SSeely Brown. "Learning from Tata's Nano." Businessweek.com. Bloomberg Business Week, 27 Feb. 2008. Web. 4 Sept. 2012. <http://www.businessweek.com/stories/2008-02-27/learning-from-tatas-nanobusinessweek-business-news-stock-market-and-financial-advice>.
[4] "The World Turned Upside down." The Economist. The Economist Newspaper, 15 Apr. 2010. Web. 04 Sept. 2012. <http://www.economist.com/node/15879369>.

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