The world turned upside down
A special report on innovation in emerging markets
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April 17th 2010
The Economist
April 17th 2010
A special report oninnovationinemergingmarkets1
The emerging world, long a source of cheap labour, now rivals the richcountries for business innovation, says Adrian Wooldridge
obvious reason is that the local companiesare dreaming bigger dreams. Driven by amixture of ambition and fear ambition tobestride the world stage and fear of evencheaper competitors in, say, Vietnam orCambodiathey are relentlessly climbingup the value chain. Emerging-marketchampions have not only proved highlycompetitive in their own backyards, theyare also going global themselves.The United Nations World InvestmentReport calculates that there are nowaround 21,500 multinationals based in theemerging world. The best of these, such asIndia’s Bharat Forge in forging, China’s
BYD
in batteries and Brazil’s Embraer in jetaircraft, are as good as anybody in theworld. The number of companies fromBrazil, India, China or Russia on the
Finan-cial Times
500 list more than quadrupledin 2006-08, from 15 to 62. Brazilian top 20multinationals more than doubled theirforeign assets in a single year, 2006.At the same time Western multination-als are investing ever bigger hopes inemerging markets. They regard them assources of economic growth and high-quality brainpower, both of which theydesperately need. Multinationals expectabout 70% of the world’s growth over thenext few years to come from emergingmarkets, with 40% coming from just twocountries, China and India. They have alsonoted that China and to a lesser extent In-dia have been pouring resources into edu-cation over the past couple of decades.
The world turned upside down
I
N 1980 American car executives were soshaken to nd that Japan had replacedthe United States as the world’s leadingcarmaker that they began to visit Japan tond out what was going on. How could the Japanese beat the Americans on both priceand reliability? And how did they manageto produce new models so quickly? Thevisitors discovered that the answer wasnot industrial policy or state subsidies, asthey had expected, but business innova-tion. The Japanese had invented a new sys-tem of making things that was quicklydubbed lean manufacturing.This special report will argue thatsomething comparable is now happeningin the emerging world. Developing coun-tries are becoming hotbeds of business in-novation in much the same way as Japandid from the 1950s onwards. They are com-ing up with new products and servicesthat are dramatically cheaper than theirWestern equivalents: $3,000 cars, $300computers and $30 mobile phones thatprovide nationwide service for just 2 centsaminute. They are reinventing systems ofproduction and distribution, and they areexperimenting with entirely new businessmodels. All the elements of modern busi-ness, from supply-chain management torecruitment and retention, are being re- jigged or reinvented in one emerging mar-ket or another.Why are countries that were until re-cently associated with cheap hands nowbecoming leaders in innovation? The most
An audio interview with the author is at
Economist.com/audiovideo
Alist of sources is at
Economist.com/specialreports
First break all the rules
The charms of frugal innovation. Page 3
Easier said than done
Emerging-market consumers are hard toreach. Page 5
Grow, grow, grow
What makes emerging-market companiesrun. Page 7
Here be dragons
The emerging world is teeming with newbusiness models. Page 9
New masters of management
Pervasive innovation adds up to a newmanagement paradigm. Page 11
The power to disrupt
Business innovations from emerging marketswill change the rich world too. Page 12
Also in this section
Acknowledgments
As well as the people mentioned in the text, the authorwould like to thank the following for sharing theirinsights and expertise: Ge Dingkun, Wim Elfrink, JuanAntonio Fernandez, Bill Fischer, Vinod Kumar, A.S.Lakshminarayanan, Sandeep Maini, Arnoud De Meyer,George McKinnon, Charles Ormiston, Jaideep Prabhu,Navi Radjou, Sumanth Raman, V Raja, A.R. Srinath,Jianmao Wang and Dongsheng Zhou
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