WP – Defining National Innovation Systems for Emerging Markets

Innovation Systems for Emerging Markets

(Version 5.23.10)

Working Abstract.

Innovation systems are a key component of the SYNTHESiST development framework. From its internal workings comes products and processes with appropriate technology for emerging markets. Generally, these come from the diffusion end of the technological S-curve and are not often captured by the Euro-centric innovation surveys.

Still, while the metrics and surveys are being worked out in South America, Africa, and just recently in the Philippines, these innovations are starting are being brought to light …

Placeholder for an Abstract to be completed soon.

A model for surveying National Innovation Systems in emerging markets that extends beyond the one in use internationally (based on the OECD model) – that has a decidedly, though non-maliciously, developed-world bias – needs to be adapted.

Developed World Innovation. Most literature on innovation from the developed world starts from basic science. They use the framework of scientific citations, in a process similar to that described by Thomas Kuhn in The Structure of Scientific Revolutions, progressively drive forward up the S-curve into diffusion for a particular domain of technology, say of petroleum, or of cancer research, etc.

Bound by the framework of citations, path dependence is the mode and the norm. Incidentally, at the leading edge of science, on the frontier so to speak, path dependence equals path breaking, say via inventions, as any step forward opens new vistas, by definition.

This innovation approach works in the developed world because it is also consistent with the basis of competition in the commercial field. To simplify a bit, leadership in science very often means leadership in commerce.

Current surveys on innovation designed by develop world scholars follows the logic of this model.

Thus, proxies to measure innovation success in the developed world include (a) number of patents, (b) R&D spending, (b) PhDs granted, and (d) new peer-reviewed journal papers published.

Obviously, being based on the developed world model, the metrics in innovation surveys will always condemn emerging markets to mediocrity.

Innovation for Emerging Markets. SYNTHESiST posits that indigenous innovation does happen in emerging markets though the working model of innovation systems is different.

Diffusion of proven technology, not basic science, is the starting point. Innovation in emerging markets start at the opposite end of a particular technology domain’s S-curve.

In a previous post, Technology Innovation Strategy for Emerging Markets we gave reasons why this is so:

• Higher cost of capital versus labor and the corresponding opportunity cost on capital makes substitution, adapting and copying more efficient.
• Distance from buying markets requiring new technology thus no efficient way to trial prototypes and betas.
• Local market is large but low purchasing power to afford leading edge products.
• Lack of STI-Learning resources, i.e from weak science and technology infrastructure.
• Lack of DUI-Learning resources, i.e. from small industry sector that does not provide enough opportunities for doing, using and interacting.

Thus it makes sense to measure innovation in emerging markets in terms of successful attainment of the whole process of (a) technology scanning, (b) adaptive development, and (c) technology diffusion, typically, to the bottom of the pyramid.

Note that in Scan-Adapt-Diffuse, the spending is hidden as product development, marketing and sales, and distribution expenses while investment are booked merely as capital budgets often of turnkey, knowedge-embedded machinery. Obviously, the innovation survey done, say by the OECD, would not work in this milieu.

I became interested in this subject for SYNTHESiST because of a paper delivered by Professor Patarapong Intarakumnerd at 6th Asialics in Hongkong on July 2009 that I posted on in this link.

Innovation scholars from emerging markets must develop metrics that are consistent with the technology diffusion model using the Scan-Adapt-Diffuse technique I have described with cases in SYNTHESiST.

Based on Scan-Adapt-Diffuse. The generic technique of Scan-Adapt-Diffuse, that I documented with cases in SYNTHESiST, works well for developing appropriate technology and innovation in emerging markets.

Innovations developed in this manner starts from the opposite end of the S-curve from the typical approach used in developed countries.

I first described the method of scan-adapt-diffuse here

While this page describes the context as below, the specific survey metrics still need to be worked out.

Innovations with Appropriate Technology for Emerging Markets. Using W. Brian Arthur’s taxonomy, I have listed examples of technologies, i.e. derived from natural phenomena, that can be described as innovative.

The technique – Scan, Adapt and Diffuse for appropriate technologies – is a powerful tool for innovation in emerging markets. I have actually used or studied it in the following applications in the Philippines: 
• Salt Replacement
• Sugar Replacement
• Laing from Gabi Manufacturing
• Robusta coffee farming
• P. Nigrum Black pepper farming
• E. cotonii Carrageenan agribusiness

There are three industries/sectors where the Philippines is among the global leaders today: geothermal energy, medical health and care, and ship crewing. It is interesting to see how the national innovation system can be reconfigured to path create into value locked commercial leadership through a technology (true or enabler) x business model set up.

Social Innovations. Continuing with W. Brian Arthur’s taxonomy, ‘technology’ that does not involve natural phenomena are classed as purposed systems. Peter Drucker labels them as social innovations.

In SYNTHESiST, I label innovations in purposed systems as social innovation with a special class of such innovations called mash-ups – a name adapted out of the Internet – that are information- and communication- or ICT-enabled.

SYNTHESiST has cases of mash-up. One case is Mobile Banking for Microfinance of which the Philippines is a global leader.

Another case of mash-up for the Philippines that also involves social innovation is the 2010 automated elections that international election observers consider at the leading edge for emerging markets.

Indian cases of mash-ups that I have not posted about include mobile medicine by Apollo Hospitals and eye care by Aravind.

Another area of social innovation that emerging markets, this time China and India, may lead is in social enterprise with triple bottom lines. Many efforts are being done in this area that may move forward quickly because (a) their are more poor people to prototype on and the need is urgent, and (b) there are no legacy systems and entities that oppose or hinder innovation.

Scope for Further Studies. The examples above would not count in a developed world biased innovation survey because they do not score well in the metrics.

SYNTHESiST recommends for further study, as suggested in the following link, the use of the Bass diffusion model as an additional metric to count innovations that happen at the diffusion end of a technology domain’s s-curve that describes most of innovations in emerging markets.

For emerging markets, leapfrogging to progress via path dependence – as was the fad in the recent past funded by mulilaterals like the World Bank – is the road to failure. In retrospect, one cannot compete with the leaders. In business strategy, followers typically attack at the corners and niches.

For emerging markets, path breaking using new combinations, in the true Schumpeterian fashion, of proven technologies in mash-ups and social innovations is the way to go. The cases I cite prove my point at the micro-economy or firm level.

Innovation systems for emerging markets are different than in the developed world. Starting with a focus on the diffusion end and more DUI- than STI-learning, more research to raise emerging markets development to higher levels.

(Note: For us in the Philippines, apparently, we do need to fix our macroeconomy and, more importantly, the leaders and the way we choose them.)

It is necessary that innovation scholars from emerging markets design innovation surveys that meet the own needs to advice policy and measure progress correctly.

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