06 January 2011

Emerging Market Innovation

Today's FT has an interesting article about innovation in emerging markets.
Not only do China, India, Brazil and other countries offer companies fast growth prospects; they also generate opportunities for developing new products, services, manufacturing techniques and business processes.

These innovations do not yet involve transformational technological shifts – such inventions remain the preserve of the developed world with its long-established universities and commercial laboratories. But the emerging world is spawning product improvements with commercial implications that are game-changing. They do not win Nobel prizes but they do make money.
If economic growth is desired that innovation in emerging markets probably should be a greater focus of the world's traditional economic powers.  It is important to recognize that government R&D is not the same thing as a successful focus on innovation.  According to the FT,
But scientific pre-eminence does not necessarily lead to economic success, as is demonstrated by Russia’s struggle to diversify out of commodities. Commercial innovation matters more, as China’s rise shows. In dollar terms, Chinese research and development spending has already exceeded Japan’s and is set to beat that of the European Union and match the US in the next 20 years. With R&D labour costs only 20-50 per cent of those in the west, the numbers employed are greater than in the US, EU or Japan.

Top companies are starting to deliver. In 2008, Huawei registered more patents than any other company, according to Wipo, the global patent office. Last year it was second after Japan’s Panasonic. But there is a long way to go: ZTE, another electronics maker, was the only other Chinese entry in the top 100.

Western multinationals complain that Chinese companies steal technology in a government-backed modernisation drive. But many blueprints were handed over voluntarily in co-operation deals: multinationals bet that the risks would outweigh the rewards of entering China. Now, Chinese companies are entering world markets, sometimes in partnership with western rivals, for example in high-speed trains where China’s CSR is working with General Electric of the US and Germany’s Siemens.

Sceptics dismiss many emerging market innovations as incremental improvements. But for business, that is beside the point, when such improvements lead to better products, services and processes. Peter Williamson, international management professor at Cambridge university, says: “The innovations may be incremental. The effects are not.”