Technology Innovation Strategy for Emerging Markets 156.0

Catching up and leapfrogging is hard; Improving winner industries in captured growth markets with enabler technologies easier
Each country, because of its level of development, will have its own bounded innovation ecosystem that is intertwined with that of the rest of the world.

The Philippines, as typical of emerging markets, does not lead in any basic science research. It is ahead in certain enabler technologies like mobile communications and information technology, for example, because she did not have legacy systems to overcome and acquired hardware near the edge of new technology.

Along the innovation curve, this leadership is at the endspace of technology diffusion that is closer to the customer instead of to science.

(Update on March 23, 2010: You may click on emerging markets innovationat the navigation line above for a summary of my views.)

For emerging markets, this is a situation to accept and take advantage through a strategy of path creation rather than to challenge the leaders on path dependence with a leapfrogging strategy.

There are at least five reasons why this approach is more logical.

Higher cost of capital versus labor and the corresponding opportunity cost on capital. Most investors and the government will find better risk-to-return profile from projects that remove inefficiences and that take advantage of legal franchises like in energy distribution, communication and infrastructure than in basic research.

Distance from buying markets requiring new technology. The local market for leading technology is small and cannot afford to pay for basic research. As such, there is no frame to make market research based on consumer needs that is more accessible in developed economies.

Local market is large but low purchasing power. Related to the above, customer needs in emerging markets are often focused on cost reduction because of the low per capita purchasing power.

Granted that there is opportunity for developing new disruptive technology to simplify mature technologies, as in the classic Clayton Christensen scenario, but this research is not along the direction of path dependence but branches or ‘path-creates’ in a detour that matches the need of the local market than the global one.

Lack of STI-Learning resources. There is not enough local science and technology infrastructure and expertise at the edge. The most qualified scientists and inventors have already been lured to the more developed countries.

Lack of DUI-Learning resources. Especially for a EMC like the Philippines whose industry has been hollowed out by unsupportive government policies, the opportunity for competence building from learning by doing, using and interacting in industrial firms is lacking. This has been identified by Bengt-Ake Lundvall as the counterpart of STI-learning interactions for a successful national innovation system.

Examples of technology innovations. The December 28, 2009 issue of Time Magazine lists eight innovations that are pioneering. Seven out of the eight in the table below represent technologies that would never be developed in emerging markets because of the five factors above.

An Indian company developed the eighth innovation in the table. As discussed below, it is a unique response to emerging market needs

The five factors above support innovation in growing markets. With weak industry and difficulty in rebuilding one due to competition from leaders like China, opportunities for the Philippines lie not in leapfrogging via path dependence along leading technology trajectories. Instead, the opportunities lie in markets where growth potential is proven to exist.

Opportunities for an Emerging Market. For the Philippines, these areas include products or services that serve the bottom of the pyramid like efficient physical distribution and microfinance, retail communications, and primary health services.

The opportunity markets also lie in grabbing a bigger market share of existing large markets like labor exports in business process outsourcing, ICT services, medical care and ship crewing by using appropriate enabler technologies that improve efficiencies or stregnthen networks.

Innovation strategy using enabler technology. To take advantage of the opportunities above, the right strategy is not basic research but product development using enabler technologies, for example, using ICT to improve traditional product and service technologies.

For example, in Post 122 for example, the Philippines has leadership in the use of mobile phone banking for micro-finance for two reasons. The first, stated above, we adopted digital mobile phone systems fast because in the 1990s we did not have enough landlines. And second, we have enough of the poor who are existing customers under existing institutions like those micro-credit.

In Post 153, Dr. Khryss Cristobal developed an innovative medical education scheme in the distant Zamboanga peninsula that graduates qualified family doctors who stay in their communities because he identified an unserved need and put together a feasible solution the problem.

There is a big opportunity in combining family doctors with other emerging market prototypes in health like mobile and tele-medicine from Apollo Hospitals, eye care from Aravind, as well as affordable drugs from Indian companies.

In both cases, no new technology is involved though existing and proven ones were adapted and recombined – remember Joseph Schumpeter – in new ways that serve the local market and have potential for export as purposed system products.

Purposed systems in Professor W. Brian Arthur’s taxonomy for innovation are ‘technologies’ that do not involve manipulating principles of natural phenomena as with the technology-enabled opportunities above. Professor Peter Drucker, in an earlier time, classified this area as social innovation, His examples from history are the bank (Holland), the university (France) and the R&D laboratory (USA) that had similar big impact to society as hard technology.

In future posts, I will focus more in enabler technology and purposed systems innovations that meet the needs of emerging markets.

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  1. [...] I have likewise discussed innovation for emerging markets in the following posts on Technology Diffusion in Sept ‘09 and on Technology Innovation Strategy for Emerging Markets in Feb ‘10. [...]

  2. [...] various posts (including this from 1/5/10), SYNTHESiST has always put forward – as a practicing industrial engineer and business manager [...]

  3. [...] in earlier SYNTHESiST posts that the Philippines, like other emerging markets, is better off using enabler technologies on existing winner industries at the diffusion end rather than the basic research end of innovation for its development [...]



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