Gaining Inspiration from Emerging Economies

Stephen DeAngelis

April 1, 2009

A number of my recent posts have been about good things happening in emerging market countries. While many countries are still looking for globalization to connect them to the benefits of the world’s economy (even during these dark financial times), some countries have both benefited from globalization and have been inspired by it. As a BusinessWeek article claims, “innovation used to trickle down to developing markets from rich countries. But the flow can go the other way, too” [“Inspiration from Emerging Economies,” by Reena Jana, BusinessWeek, March 23 & 30, 2009 print issue]. In posts about selling to the bottom billion (the world’s poorest people), I’ve noted that people have had to get very creative in order to make a profit. In the end, however, both seller and customer have benefited. Selling to the bottom billion is about as far away from the bulk buying found at a Sam’s Club or Costco as you can be. Instead of huge boxes of laundry detergent, merchants to the poor sell one-wash portions. Instead of buying 25 pounds of rice the poor buy just enough for a meal.

 

This doesn’t reflect a “smaller is better” philosophy but the “smaller is necessary” reality of emerging markets. However, sometimes smaller is better. Jana begins her article by noting that General Electric’s U.S. healthcare division has begun marketing an electrocardiograph machine that was developed for emerging markets. According to Jana, the machine is packed with capabilities but will sell for 80 percent less than electrocardiograph machines currently being sold in the United States. Jana writes:

“The diagnostic tool exemplifies a way of thinking that may be ideally suited to dealing with the widening recession: creating entry-level goods for emerging markets and then quickly and cheaply repackaging them for sale in rich nations, where customers are increasingly hungry for bargains. The term for this new approach is trickle-up innovation. The process turns conventional product development on its head. Over the years, multinationals have prospered by turning out premium-priced products for the world’s affluent. Rather than also designing products for poorer people elsewhere, many businesses found they could simply pass yesteryear’s models down, as if they were unloading fleets of used cars. Lately, big companies such as Microsoft, Nokia, and Procter & Gamble are discovering that they can profit by targeting the world’s masses first. And they can score again by selling these low-priced products elsewhere.”

When I discuss the Enterra Solutions® Development-in-a-Box™ approach with government and business leaders in emerging market countries, I stress that what we are trying to do is establish the standards and best practices that will ensure local products meet the needs of domestic markets but are good enough for international markets. That is exactly what GE did with its electrocardiograph machine. One of the reasons that I have been optimistic about emerging markets is that the potential growth is much better there than in developed markets that are already saturated. One of the reasons that companies like GE are excited about trickle-up innovation is that it could open up those saturated markets.

“This topsy-turvy approach could even stir demand in markets that seem tapped out. GE Healthcare dominates the market for big-ticket diagnostic machines, selling 34% of ECG machines now used in hospitals and clinics in the U.S. While some of these customers may also buy a MAC 800, the smaller, cheaper machine will be pitched to a new set of medical professionals—primary-care doctors, rural clinics, and visiting nurses—who need a device they can easily tote or simply can’t afford the pricier models.”

Jana points out that while there is a big upside to trickle-up innovation for developed-world consumers there is a potentially large downside for corporate profits. The example Jana uses is a low-cost, solar-powered lighting system that electronics giant Phillips designed for Ghana and is marketing throughout the developing world. Phillips held off selling the lighting in developed markets because it would hurt sales of more profitable products. Such corporate decisions will likely start tongues wagging among conspiracy theorists. Jana points out that there is another potential downside to marketing products developed in emerging markets in the developed world — brand reputation. She reminds readers of the Yugo, which was once touted as the cheapest car sold in the United States. The problem was the modifier “cheap” rather than inexpensive. “The brand name remains synonymous with shoddy materials and workmanship,” Jana writes, and is a reminder that quality is as important as price in industrialized nations.” Many companies, however, see a much bigger upside than downside to trickle-up innovation and, according to Jana, are sending “innovation managers” abroad to develop products.

“Nokia recently researched how young people in Ghana and Morocco share handsets to listen communally to conversations. The company’s aim was not only to come up with a more practical phone for Africa but also to work out where to put powerful speakers in the 5800 Express phones released in the U.S. in late February, enabling owners to share MP3 music and YouTube videos with others. … In February, Xerox hired two researchers the company calls ‘innovation managers’ who will hunt for inventions and products from Indian startups that Xerox might adapt for North America. And Hewlett-Packard is using its research lab in India to see how it can migrate Web-interface applications for mobile phones in Asia and Africa to developed markets. At Microsoft, 15-year company veteran Amit Mital heads a similar effort. … Some makers of consumer goods are finding new markets for their developing-world products, too. For Nestlé, it was taking its Maggi brand dried noodles—a popular, low-fat meal created for rural Pakistan and India that sells for about 20¢ a serving—and repositioning it in 2008 as a budget-friendly health food in Australia and New Zealand. For P&G, it was expanding the customer base of its Vicks Honey Cough cold-remedy syrup beyond Mexico to Western Europe and the U.S.”

I suspect that most “products” developed for marketing to the bottom billion will have limited appeal in developed markets. “Ideas” and “innovations” generated by those developing products for the poor are another matter. They are likely to have broader appeal and application in the developed world. In fact, I suspect that many of the good ideas for mitigating the challenges associated with climate change will come out of the developing world and from those working to improve conditions there. It’s encouraging that one of the first trickle-up innovations coming out of emerging markets deals with healthcare. Keeping healthcare costs down is important for both the developed and developing worlds. Perhaps it represents another area where innovations aimed at improving the lives of the poor will also end up improving the lives of those living in richer countries as well.