Innovation from new, relatively-untapped markets is driving global innovation, creating a force that cannot be ignored by organisations in mature markets.
In today's hyper-competitive global business environment, CEOs are placing innovation at the top of their agenda but finding that their IT organisations are lacking in visionary thinking and innovation.
Conversely, organisations operating in highly constrained environments in emerging nations such as China and India are innovating at a faster rate than ever before. "In our increasingly customer-centric world we are moving away from the traditional view of innovation, as internally managed and R&D focused," says Sandy Shen, research director at Gartner. "Innovation doesn¹t come from a laboratory. It comes from solving real life problems and responding to everyday needs regardless of how sophisticated the market might be, with the ultimate goal of enriching people¹s lives."
Gartner analysts examined the increasing global importance of innovation in emerging markets and looked at how this "disruption from the bottom of the pyramid" can benefit more mature markets during a press conference at the Gartner Symposium/ITxpo, being this week in Barcelona.
According to Gartner, developing nations are adopting innovation and technology faster than mature markets for three main reasons. Firstly, emerging markets have fewer legacies enabling them to leapfrog technology and commercialise it faster, making them ideal test beds.
Secondly, in highly constrained environments, which might include poor infrastructure and low affordability, there is an acute need for products that can serve the
local market better, rather than products designed for the developed world.
For example, mobile phones which require less power and have built-in connectivity, are more suitable for emerging markets than PCs. They are also cheaper than PCs and more adaptable to the emerging market environment. Gartner predicts that mobile phones will outnumber PCs by a factor of 15:1 in developing markets by 2010.
Finally, emerging countries such as China and India have the ambition to lead the IT industry in the global market, and innovation is their only way to compete globally.
Although emerging and mature markets each have different innovation drivers, they very often yield the same kind of innovation. For this reason, Gartner predicts that by 2015, IT engineered for developing economies will drive 20% of disruptive IT innovation worldwide.
"Organisations across the globe may not have the same problems or business drivers, but they could all benefit from the same innovation adapted to meet their local needs," says Shen. "Green technology is a prime example of this. Emerging markets will require biofuel-powered products because there is no or little power. The
same products will be inherently 'green' and could be used in developed markets to address environmental-consciousness issues."
An additional example includes mobile banking.
"SMS money transfer was first introduced in emerging markets because it was not otherwise cost-effective to reach people in remote areas. This solution is now being adopted globally by leading carriers and financial institutions to address the inefficiencies of international money transmission. This development is profoundly altering the way people in mature markets use banks and other financial services," adds Shen.
China and India are emerging as powerhouses of innovation and creativity.
"In 2005, the number of patent filings in China outnumbered those in the US. Slightly less than one-tenth of world intellectual property organisation international patents were attributed to emerging markets. If the growth rates remain constant, the emerging market share could reach almost one-fifth in 2012," says Partha Iyengar, vice-president and distinguished analyst at Gartner.
Today, Chinese companies like Huawei, Lenovo and Haier are stepping up investment in new product research, and aggressively pushing into the global market as low-cost players, ultimately posing a serious threat to global organisations.
India also appears on the way to becoming an IT services powerhouse with the help of established leading Indian IT companies such as Wipro, Infosys and Tata Consulting Services. IT services account for around half of India¹s services exports and the IT services market is growing at more than 30% per year.
"Established businesses can¹t expect innovation to come to them. They have to look beyond their own borders and consider untapped markets that they
have perhaps not considered up until now if they want to continue to innovate in a global economy," says Shen. "And 85% of the world's population reside in emerging markets.
"Although today their populations have lower purchasing power with many living under the $1 poverty line, the aggregation of their purchasing power in the next decade could pass that of developed markets. In fact, the populations of China and India are moving from below poverty line, creating a whole new consumer population of equivalent size to the European middle-class in purchasing power parity (PPP) terms.
"We are looking at immense nations that are rapidly moving from subsistence living to being consumers, which in turn means a large number of new people to sell new technology to," adds Shen. "Global companies in mature markets cannot afford to ignore developing nations, given the huge untapped opportunities they offer. Don¹t dismiss the vast potential of third world markets; make them your customers."