Wednesday, August 20, 2014

Innovation in developing economies

Recently I was asked by a Twitter user to talk about innovation in developing countries, especially in Asia.  While I have some experience with innovation, and have been to some countries in Asia, and have even led programs on innovation in two (China and Malaysia), I'm not a economic development expert.  But I did offer to give my opinions on the evolution of innovation in developing countries, so here goes.  Just remember, this advice is priceless, and if you have any concerns, there's a money back guarantee.

The first question I was asked was about the state of innovation in Asian economies.  I'll address that by extending it to encompass developing economies generally.  First, there's plenty of "innovation" in every country.  A lot of the discussion needs to start with definitions.  If we take the simplest definition of innovation, there is innovation in every corner of the globe.  I'll define innovation as "people converting ideas into valuable action" meaning that innovation isn't simply ideas, but the ability to realize an idea commercially.  When early man sharpened the first stick, and then hardened the point with fire, he was innovating.  There's plenty of innovation going on in every economy, but what make it less noticable is another categorization.  A lot of innovation in developing economies is "new to that location".  There are three categorizations we'll often use for innovation:
  • New to us (locally, segment, geography, industry)
  • New to the market (exists elsewhere but not here)
  • New to the world (completely new and different globally)
In the West we get hung up on "new to the world" innovation.  You'll hear people speak of disruptive or breakthrough innovation, because continuous improvement and incremental innovation is almost commonplace.  In the West, where we have more technology and more complexity in our economy, to innovate means to create something radically new or different.  In developing countries it may be sufficient to solve a problem with technology or solutions that the rest of the world doesn't find new or interesting.  Or with a solution that is innovative but has less novelty or technology than the West might find interesting.  The concept of reverse innovation plays well here, where the developing world may innovate more simply or more inexpensively.  The analogy is when the Russians and the US were in a space race.  The Americans created a fancy writing instrument that allowed their astronauts to write with a pen even in zero gravity.  The Russians used a pencil.  Both got the job done.

How do we leapfrog

One of the questions the individual on Twitter asked was - can we leapfrog our way to more innovation?  The challenge in a developing country is to solve important and basic needs.  In the west we have clean water, a relatively robust transportation system, clear title and ownership of intellectual property.  These infrastructure and legal mechanisms provide protection and encouragement for people and companies that want to invest in creating new ideas.  The infrastructure ensures scalability and to some degree profitability, while the markets and legal systems ensure that if the idea is successful there are ways to protect the revenue streams.  If developing countries want more innovation they need to provide these two factors, or their innovators will seek to develop ideas and market them abroad.

Secondly, you need an economy and people who are convinced that they have good ideas and can have the education and understanding to move the ideas from a nascent concept to a reality.  That means a strong educational system to help people prioritize needs, identify solutions and build and deliver new products or services.  It's been demonstrated that good innovation follows good education, and that's not merely technical education but also deep education in markets, channels, commerce and other factors that stand between an idea and a commercial success.

What would I recommend

I'm not a economic development expert, but if a developing country approached me to ask about how to drive more innovation, I'd work on deeper market education, understanding how to identify customer needs and develop new ideas and technologies.  I'd work on developing networks of people who are passionate about developing new ideas, because good innovation seems to require cross-functional networks of people who create exchanges of goods and services as well as ideas.  I'd focus on creating products and solutions that create local value and that can offer value globally.  Most local markets are too small or lack fluidity to create a larger market opportunity.

I'd pay a lot of attention to what some of the Korean firms did, because they've become innovation leaders in the last twenty years from a very basic starting point.  Many developing countries start out by copying existing technology and scaling a learning curve, which is what many of the Korean firms did, but very quickly.  It's this base of education and knowledge that then allows them to innovate new products.  It's difficult to build an innovative economy and culture with little infrastructure, whether that's a legal infrastructure, knowledge infrastructure or market infrastructure.

That's not to say that innovation won't happen in any developing economy. It will happen and it is happening.  Much of this is in the definition of innovation, and the size and scale of innovation your local market can adopt.  To enter a regional or global innovation market, you'll need investments in education, legal systems and market development, as well as the ability to identify challenges or problems that many people around the globe face, want to solve and are willing to pay for.
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posted by Jeffrey Phillips at 5:43 AM


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