BearingPoint Institute demonstrates how Western companies need a complete rethink when it comes to harnessing innovation
London/Frankfurt, October 16, 2013 – Developing world corporates are developing faster, stronger and more effectively than their old world counterparts despite the latter dwarfing the market in terms of resources and cash. In a new report, published by the BearingPoint Institute, Western strategists are urged to look beyond the traditional model of spending millions to find the ‘next big thing’ for existing customers and instead develop innovative products and services to fulfill a genuine, clear and present need from new customer groups or face being left behind in the innovation race with the developing nations. Global innovation spend is dominated by the large Western players with just 7% (the largest global firms) accounting for 60% of total R&D expenditure. But contrast those inputs with the outputs. According to the global innovation index from the European Intelligence Unit, emerging economies (score -6.3) are twice as efficient at innovating as developed world G8 nations (score -12.3).
Andreas Rindler, Partner at BearingPoint and co-author of the study, explained: “It sounds simple, but so much of Western marketing is about creating needs we didn’t realize we had in order to sell us more products, often free of charge until we get hooked in masses. In the developing nations, we see successful product innovation arising from a clear need first and then developing a solution in a way that adds clear and positive value for the customer, from day one on sale at a price they can afford.”
It is not just the way products and services are conceived in developed markets that squander innovation, but also the very infrastructure that surrounds those services. Existing processes and related operational costs often leave little margin for new development as so much time and cost is spent keeping the lights on.
The Western world can learn many lessons from developing world innovators.
- Once the need has been identified, create the product in conjunction with consumer demand, test it, refine it and learn from the customer experience during the development process.
- Aim for paying customers within the first year by keeping the price point affordable for the target market from the start. Don’t wait behind closed doors to create expensive perfection before going to market. Going early provides revenue to fund subsequent development.
- Reuse and recycle as much as possible by making use of existing infrastructure and technology.
- Refine your business model. Innovation in emerging markets does not come with high profit margins. So to keep risk levels down, market accessibility needs to be ensured from the start by taking account of population size and density and regulation.
Getting this right can provide two-fold benefits for Western companies; not only will they open up their products to new customers and markets in the developing world but they will also be able to access previously underserved customers in their own home markets. The size of this pool of customers is enormous, representing an unaddressed market of US $5 trillion a year for the global population currently living on less than US $3 thousand a year.
In conclusion Jean-Michel Huet, Director at BearingPoint and co-author of the study, said: “It’s time for a rethink. We can see clearly that developed world companies don’t have the monopoly on progress. Companies in the developed world have to act without pride and realize that the majority of their knowledge, ideas and innovation lie not within corporate headquarters but out in the field, often across the populations of emerging economies. Successful leaders will be those who identify new business opportunities from both within their organizations and in collaboration with a broad set of business partners. These leaders will understand that some of their massive R&D budget should be spent in the field, nurturing change agents who can not only see the potential of innovative new products, but who also excel at bringing them to new markets.”
To read more about the lessons the West can learn from innovation in the developing nations please download the BearingPoint Institute paper “Innovation with Frontiers”, which can be found at www.bearingpoint.com
- Read the full report
- Download the app for: iPad on iTunes | Amazon for Android | Google Play
- Watch the YouTube video
- Infographic on visual.ly
- Andreas Rindler biography
- Jean-Michel Huet
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