Frugal Innovation

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Whether it’s called “reverse innovation”, “frugal innovation” or “jugaad innovation,” product development in emerging markets such as India and China is attracting more and more notice, even leading some to wonder whether these countries will not be posing a formidable challenge to the best-established Multinational Companies of the advanced nations in the near future. The essay should address the question: Are companies from India and China going to take over multinational companies? Frugal Innovation: Is the future of innovation in emerging markets?

In recent years, the product development occurring in emerging markets such as India and China has been truly impressive. Goods, once thought great luxuries, ranging from cars to cell phones have proliferated among hundreds of millions of new consumers. Emerging markets are defined as “new market structures arising from digitalization, deregulation, globalization, and open-standards that are shifting the balance of economic power from the sellers to the buyers.” (Business Dictionary, 2012:1). Bangladesh, Taiwan, South Korea and Singapore are also considered to be emerging markets; however, the seven largest emerging economies by nominal GDP are China, Brazil, Russia, India, Mexico, Indonesia, and Turkey. The ASEAN–China Free Trade Area, launched on January 1, 2010, is the largest regional emerging market in the world. Innovative product development in these regions has been given many names; this essay will refer to it as “frugal innovation.” Frugal innovation is the process of reducing the complexity and cost of a good and its production. Usually this refers to removing nonessential features in order to sell at thin margins to large numbers of consumers. Designing such products may call for an increase in durability, and selling them may call for reliance on unconventional distribution channels. The process allows companies to reach the vast consumer group at the base of the pyramid (the BOP), who can only afford to buy the most inexpensive products that are both functional and durable. “These people are the 4 billion who earn annual per capita incomes below $1500, the minimum considered necessary to maintain a decent life.” (Unite for Sight, 2011: 1) This essay will outline the strategies used by frugal innovators and the success stories that have surfaced from within emerging markets. It will then demonstrate the opportunities that frugal innovation presents to multi-national enterprises (MNEs) as well and how ignoring these operators in emerging markets might threaten their current market position. This essay will touch on the challenges that MNE’s will face when trying to compete with emerging market companies, while also exploring contrary evidence that it is unlikely these emerging market companies will ever pose a threat large enough for MNEs to make drastic plans. Product development in India, China, and other emerging markets has many challenges but also certain advantages and opportunities for growth. Many of these opportunities were unavailable to Western companies at their inception. Companies in emerging economies are able to “leapfrog” by deploying “state-of-the-art technology from the outset, rather than progressing through the generations of technology that have characterized industry evolution elsewhere” (Arnold and Quelch, 1998: 16). Not only is leapfrogging possible technologically, but it is also possible culturally. Arnold and Quelch also state that customers in emerging markets with newly acquired disposable income may be less conservative than early consumers in developed markets, due to the rapid growth rate of emerging economies and easily acquired aspirations for higher standards of living. There is also strong evidence that emerging markets have been attracting a large percentage of the world’s investments in research and development. “Of the more than 1000 FDI projects in R & D worldwide for which information has been...
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