Much of the recent, Asia-focused articles in the Economist have tackled the issue of Asian innovation and its implications on Western corporations. Following this trend, a recent article addressed the impact of frugal innovation from the emerging world and its implementation in the West (see Asian Innovation).
A couple examples of this:
Harman, an American company that makes infotainment systems for cars, developed a new system for emerging markets, dubbed “Saras”, the Sanskrit word for “flexible”, using a simpler design and Indian and Chinese engineers…GE’s Vscan, a portable ultrasound device that allows doctors to “see” inside patients, was developed in China and is now a hit in rich and poor countries alike…Walmart, which created “small mart stores” to compete in Argentina, Brazil and Mexico, is reimporting the idea to the United States.
Western companies have been concerned that cheaper technology could potentially shrink the market for expensive technology. They worry that consumers, if given the choice between the pricier product and its cheaper version, would pick the latter. For example, Asian companies such as China’s Haier and India’s Mahindra & Mahindra have picked up a significant chunk of market share by undercutting their Western counterparts.
I don’t have a problem with frugal innovation. In fact, I view it as a decidedly good thing. It should not be viewed as a threat to developed country innovation, but as a force that encourages Western firms to improve.
In addition to providing incentives for companies in the developed world to improve, frugal innovation provides the opportunity for emerging countries to make the move up the value chain. It can help them transition from economies that compete globally with low cost manufactured goods to ones that begin to compete on manufacturing innovation, and ultimately, high-end services (see Innovation in China, Part 3 for greater detail).
Though developed countries still have the overwhelming lead in innovation and high-end services (and will for some time), companies in the developed world can no longer stand by and watch those in the developing world steal local share through frugal innovation. They must be prepared to act like Harman and GE and embrace the trend. After all, it’s better to cannibalize your own products than have someone else do it for you.