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Innovation Management, GSB 2013 Stefan Wuyts 1 Emerging Markets ◦ What are Emerging Markets? ◦ Why the interest in EMs? ◦ How do EMs differ from HICs? From a colonial mindset… to network orchestration EMs as hotbeds of innovation 2 United Nations: four categories of countries, based on score on human development index (life expectancy, literacy, education, GDP per capita at purchasing power parity). Low/medium categories ~ “emerging” World Bank: classification based on Gross National Income per Capita, adjusted for currency fluctuations. All up to middle-income categories ~ “emerging” Burgess & Steenkamp (2006): “countries in which PPPadjusted GDP per capita, converted to US$ and smoothed for 3-year currency fluctuations, is equal to or less than the highest ranked country classified as “middle-income” by the World Bank” 3 More restrictive approaches: Hoskisson et al. 2000: A country that satisfies two criteria: (1) a rapid pace of economic development, and (2) government policies favoring economic liberalization and the adoption of a free market system Examples from the more restrictive categorizations: 4 Growth in Japan, US, Europe languishes High Income Countries are aging rapidly Economic reforms in BRIC (Brazil, Russia, India, China) and other countries Globalized competition Spectacular rise of local entrepreneurs 5 1. Political and social systems Governments; Religion; Industrial groups 2. Cultural system Schwartz: 3 bipolar dimensions of cultural values Relations of individual to the group (autonomy versus embeddedness) Preserving social fabric (hierarchy versus egalitarianism) Relations people – environment (mastery versus harmony) 3. Regulative system Rule of law Influence of stakeholders 6 (Burgess & Steenkamp 2006) 7 4. 5. Openness (to foreign investments) Product markets (bottom-of-the-pyramid versus elite; unbranded competition) 6. Labor markets 7. Capital markets 8. Infrastructure 8 (Khanna et al. 2005) 9 10 Challenges for marketing strategy when moving from HICs EMs: Market orientation Market development Relationship marketing Institutional marketing Customer satisfaction Convert nonusers to users (Sheth 2011) 11 Managers have much information at their disposal to compare countries ◦ GDP, growth rates, PPP ◦ Population composition http://www.oecd-ilibrary.org/economics/country-statistical-profile-turkey_20752288-table-tur ◦ Global competitiveness index (World Economic Forum) http://www.weforum.org/issues/global-competitiveness ◦ Governance indicators such as rule of law ◦ Infrastructure http://data.worldbank.org/ ◦ Corruption ratings (Transparency International) http://www.transparency.org/ 12 13 GE Healthcare India first targeted large Indian clients (big hospitals and universities) in Bangalore and Mumbai Then attention shifted to smaller towns and villages Partnerships with medical research institutes, NGOs, state governments to learn about health care delivery system and needs (Radjou & Prabhu 2012) 14 Partnership with Manipal Heart Institute: portable ultrasound and handheld electrocardiogram (MAC 400, $800 instead of $2000) Potential for “reverse innovation” (think local, act global) 15 GE focuses on the “Next Billion” Limited resources affordability as key design characteristic Lack of insight in their preferences and buying behaviors need to network Distribution challenge (villages) 16 Value Chain Localization Nokia built a retailer network >200,000 locations in India Value for more customers Nokia Life Tools: deliver agricultural information with SMS E.g. Market prices for crops give farmers greater confidence in negotiating with intermediaries They partnered with Thomson Reuters, Syngenta, Skymet, telecom carriers, local government bodies, NGOs Eventually launched also in Indonesia, China, and Nigeria http://www.youtube.com/watch?v=8sHb6plLELA (Radjou & Prabhu 2012) 17 Nokia Money: mobile banking solutions Obstacles; Indian central bank, consumers were hesitant, target populations dispersed Partnership with Union Bank of India (for banking services) & Obopay (for mobile banking technology solutions) Eventually shut down because of increased competition from local rivals and because not core (making phones) 18 Innovative local NGOs: Jaipur Foot in India Grameen Bank (microlending) in Bangladesh The Economist 2010: “they are coming up with new products and services that are dramatically cheaper than their Western equivalents: $3,000 cars, $300 computers, and $30 mobile phones that provide nationwide service for just 2 cents a minute” 19 Financial Times 500 List contains increasing number of BRIC companies (15 68 when moving from 2006 2008) Bharat Forge, India (forging): auto and chassis component manufacturer BYD, China (batteries) Embraer, Brazil (jet aircraft, executive jets, commercial, military, agricultural) 20