A Special Report on Innovation in Emerging Markets

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A special report on innovation in emerging markets l April 17th 2010

The world turned upside down

The Economist April 17th 2010

A special report on innovation in emerging markets 1

The world turned upside down
Also in this section First break all the rules
The charms of frugal innovation. Page 3

Easier said than done
Emerging-market consumers are hard to reach. Page 5

Grow, grow, grow
What makes emerging-market companies run. Page 7

Here be dragons
The emerging world is teeming with new business models. Page 9

New masters of management
Pervasive innovation adds up to a new management paradigm. Page 11

The power to disrupt
Business innovations from emerging markets will change the rich world too. Page 12

The emerging world, long a source of cheap labour, now rivals the rich countries for business innovation, says Adrian Wooldridge


Acknowledgments As well as the people mentioned in the text, the author would like to thank the following for sharing their insights and expertise: Ge Dingkun, Wim Elfrink, Juan Antonio Fernandez, Bill Fischer, Vinod Kumar, A.S. Lakshminarayanan, Sandeep Maini, Arnoud De Meyer, George McKinnon, Charles Ormiston, Jaideep Prabhu, Navi Radjou, Sumanth Raman, V Raja, A.R. Srinath, Jianmao Wang and Dongsheng Zhou A list of sources is at

An audio interview with the author is at


N 1980 American car executives were so shaken to nd that Japan had replaced the United States as the world’s leading carmaker that they began to visit Japan to nd out what was going on. How could the Japanese beat the Americans on both price and reliability? And how did they manage to produce new models so quickly? The visitors discovered that the answer was not industrial policy or state subsidies, as they had expected, but business innovation. The Japanese had invented a new system of making things that was quickly dubbed lean manufacturing . This special report will argue that something comparable is now happening in the emerging world. Developing countries are becoming hotbeds of business innovation in much the same way as Japan did from the 1950s onwards. They are coming up with new products and services that are dramatically cheaper than their Western equivalents: $3,000 cars, $300 computers and $30 mobile phones that provide nationwide service for just 2 cents a minute. They are reinventing systems of production and distribution, and they are experimenting with entirely new business models. All the elements of modern business, from supply-chain management to recruitment and retention, are being rejigged or reinvented in one emerging market or another. Why are countries that were until recently associated with cheap hands now becoming leaders in innovation? The most

obvious reason is that the local companies are dreaming bigger dreams. Driven by a mixture of ambition and fear ambition to bestride the world stage and fear of even cheaper competitors in, say, Vietnam or Cambodia they are relentlessly climbing up the value chain. Emerging-market champions have not only proved highly competitive in their own backyards, they are also going global themselves. The United Nations World Investment Report calculates that there are now around 21,500 multinationals based in the emerging world. The best of these, such as India’s Bharat Forge in forging, China’s BYD in batteries and Brazil’s Embraer in jet aircraft, are as good as anybody in the world. The number of companies from Brazil, India, China or Russia on the Financial Times 500 list more than quadrupled in 2006-08, from 15 to 62. Brazilian top 20 multinationals more than doubled their foreign assets in a single year, 2006. At the same time Western multinationals are investing ever bigger hopes in emerging markets. They regard them as sources of economic growth and highquality brainpower, both of which they desperately need. Multinationals expect about 70% of the...
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