Now R&D and Innovation for emerging markets?

It has been a practice in the past that stripped down versions of products designed for developed economies were positioned as a low cost and cheap alternative in the emerging markets. This will no longer be a successful strategy and the bitter truth has been realized by many global vendors servicing the developing economies.

Now-a-days the mantra is to carry out focused R&D efforts targeted at creating products that are specially designed and adapted to the emerging economies. The needs of the emerging markets are different and so are the price points and value realized by the consumers in the emerging markets. The design of a product that gives full value to the consumer in an emerging market and serves his needs fully needs a different thought process all together.

This needs innovations and inventions in core technology areas such as material sciences, electronics, fluid mechanics, power systems and the like. Consider the example of the Nano car developed by TATA motors which needed multiple inventions/innovations in technology and also needed cross functional teams working on different engineering disciplines to come together to solve complex issues and provide solutions while at the same time meeting the targeted price point.

The key is to provide a reasonably good solution that meets all the basic needs of the consumer at a lower price point that is affordable to the consumer and at the same time not being perceived as a low end product or a stripped down version. TATA motors calls this discipline as “Frugal Engineering” which is an art as much as science.

Similarly consider the portable medical scanning devices from GE that have been used successfully in the Chinese market for diagnosing patients in rural areas in mobile clinics. This needs a different thought process and every component in the machine needs to be designed and innovated to provide value at that price point. Merely stripping down the frills of a medical scanner used in the US and selling at a lower price does not work in China as the desired consumer value is not provided by such a device.

There is a huge market potential waiting to be tapped in the emerging markets if the consumer behavior and consumer needs are well understood and if specially designed products invented/adapted/innovated for these markets are introduced. To quote CK Prahalad, there is indeed huge potential fortune at the “middle and bottom of the pyramid” which is untapped and directed innovation can help unleash this potential.

Infact there is also a term being heard in the management circles called “Reverse Innovation” where in the products designed for emerging economies are taken back to the developed economies and positioned there as ‘value for money’ products. This shifts the center of gravity where in the products once designed for advanced economies were stripped down and sold in developing economies where as now the innovations made by MNCs in the emerging markets are taken back home to the advanced economies.