INNOVATING IN EMERGING
MARKETS
Emerging economies have become critical
to R&D teams, accounting for a significant
share of the current global growth in
research talent, patents, and publications.
However, tapping into this growth wave
requires more than just incremental
versioning of the current product set.
As Figure 18 (below) indicates, many
R&D executives want to move from a
“development” mind-set to an “innovation”
mind-set in emerging markets. They
realize that they must resist restricting
their emerging markets resources to
repeatable development and support
activities, and that they must commit
more resources to unlocking this valuable
source of innovation. However, to make
that transition our research finds that the
best companies do not rely on superior
resources or process management, but
rather something that capital cannot buy:
trust.
Figure 18: Distribution of Companies by Global Innovation Maturity
2010 Versus 2015
High Stage 0
Home Bias
R&D is concentrated in
Percentage of Companies
in Each Stage of Maturity
developed markets.
2011
Distribution
(Current)
2015 (Desired)
Low
Low
n = 61.
1 R&D vitality measures the percentage of current year’s sales from new products.
Build Trust to Increase Your Chances of R&D Success
Trust Unlocks Innovation emerging market R&D partners. Trust
Capabilities has a significant bearing on R&D vitality1
in emerging markets, driving almost
Trust is something we tend to
three times the increase in new product
associate with social or personal
sales as would innovation capabilities
situations. We don’t often talk about it
alone (Figure 19).
in the workplace, which is part of the
Innovation capabilities such as
problem. Psychologists consider trust
innovation infrastructure, creative
to be a key tool that people use to deal
thinkers, reputable external innovation
with uncertainty. And in questions of
partners, and customer insight
innovation in emerging markets, levels of
generation cannot by themselves make
uncertainty run very high.
the difference between winning and
While most companies are well
losing the innovation game in emerging
intentioned in their efforts to develop
markets. Success requires mutual trust
innovation capabilities in emerging
more than raw skill. Willingness to
markets (They hire more talented staff,
listen to new ideas, to share ideas across
train them in innovation, establish
functional and business silos, and to take
partnerships with reputed innovation
calculated risk and learn from failures
partners, and develop a better
are all key factors in the innovation game,
understanding of customers in emerging
and they all hinge on trust throughout
markets.) they lack trust with their
Development Innovation
Stage 1 Stage 2 Stage 3 Stage 4
Globalization “Glocalization” Local Innovation Distributed Innovation
Selected development Emerging market Emerging market R&D hubs in emerging
and engineering R&D supports local R&D develops new markets own global
tasks are offshored in adaptation of global products for local innovation themes.
emerging markets. products. markets.
High
Global Innovation Maturity
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the global R&D network. Instead of
Figure 19: Effect of Innovation Capabilities2 on Emerging Market Vitality
entering a vicious cycle of R&D attrition By Presence of Trust, Estimated Through Interactive Effects Regression Modeling
in emerging markets, R&D executives
should emphasize the work challenge 32%
for emerging market R&D staff and 11%
proactively share knowledge, insights,
and intellectual property with these Capabilities Without Capabilities in the
Trust Presence of Trust
remote teams. This effort will increase
trust across your research network, n = 73.
improving both staff engagement and the
ability to connect global capabilities to
drive innovation. Typical Innovation Capability Trajectory Ideal Innovation Capability Trajectory

New Team Hired: DM R&D starts New Team Hired: DM R&D starts out
1 out assigning new EM R&D team 1 assigning new EM R&D team incremental
What Does “Trust” Mean In incremental projects. tasks/projects.

R&D? Emphasis on Execution Performance: Emphasis on Potential: DM R&D

Project performance largely gauged
“High trust” R&D teams are constructed
2 on milestone achievement, limiting DM
R&D’s ability to infer EM team’s ability
on three foundational elements—intent, to innovate.
vision, and execution. Intent-based More Incremental Projects: Unsure
trust is the belief that we’re all working 3
whether EM R&D is ready for
innovation, DM R&D continues to
together towards the company’s prioritize incremental local projects,
innovation goals. Vision-based trust closely monitoring EM staff execution
and tightly controlling IP sharing with
refers to the belief that R&D has a EM R&D.
clear, long-term, credible plan to win in Erosion of EM Trust of DM R&D: EM
emerging markets and achieve global R&D staff become disgruntled with
4 lack of work challenge, reducing their
innovation goals. Execution-based discretionary effort and increasing
trust refers to trust in each other’s intent to leave.
decisions while executing against global
innovation goals. Figure 20 shows how EM R&D Attrition: Higher caliber
EM R&D staff leave, hindering
we define and measure mutual trust 5 the development of innovation
capabilities and requiring
between developed market and remote,
additional hiring.
emerging market, research teams.
internalizes EM R&D staff interests,
2 and assesses not just demonstrated
performance, but especially future
potential of EM R&D staff.
More Work Challenge: Opportunities
3
(projects as well as IP) are migrated to
EM R&D with a view to attaining stretch
competency goals, learning from failure if
need be.
Increase in EM R&D Trust of DM R&D:
Work challenge and two-way learning
4 opportunities make EM R&D staff trust
DM R&D’s intent, vision, and execution,
increasing intent to stay and discretionary
effort.
Greater Collaboration and
Innovation: Lower attrition and higher
5 engagement help break down internal
silos, generate better ideas, and
expand the scale of innovation across
locations, strengthening innovation
capabilities.

Why The Direction of Trust

Matters
Emerging market (EM) R&D teams’ level
of trust in their developed markets (DM)
partners is rarer and more important
to the success of innovation programs.
Only 23% of the R&D organizations we
surveyed have high levels of EM to DM
trust (Figure 21a). However, EM to DM
trust has twice the impact on innovation
success as DM to EM trust. Our research
estimates the value of EM to DM trust
at about $800 million in new product
sales for the typical company as shown
in Figure 21b.
How to Earn the Trust of intent-based trust R&D leaders must
Your Emerging Market R&D discover what EM staff care about.
Leading global innovators address trust-
Partners
eroding behaviors that would normally
We believe that organizations should
go unsurfaced by making it safe for EM
take the following three actions to garner
staff to have objective and impersonal
the trust of their emerging market R&D
discussions with the global R&D team.
teams.
They also involve mid-level and junior
Action Step #1: Build Trust in Your level EM R&D staff in big functional
Intent by Surfacing Unarticulated EM or strategic decisions to elevate their
R&D Staff Perspectives perception of their importance to the
organization and establish networks
Emerging market staff must feel that
thereby improving their confidence to
they are equals in the organization,
share ideas outside their daily routine.
and see sincerity in leadership’s
communication and actions. To gain

2 Capabilities is a composite factor that includes increased R&D expenditure in emerging markets, innovation skills building, building new open innovation networks, and improved market insight capabilities.

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Figure 20: Types of Mutual Trust and Associated Markers
By Directionality of Trust
EM = Emerging Market
DM to EM EM to DM
DM = Developed Market
R&D Trust R&D Trust

Intent
Belief that:
Intent Vision ■■ DM R&D treats EM staff Vision
as equals. ■■ Belief that DM R&D
■■ Belief that EM R&D ■■ Belief that EM R&D
■■ DM R&D leadership leadership has
will protect the will develop the right
follows through with established a clear
company’s IP offerings for the local
what they say. long-term vision
market
■■ DM R&D leadership for winning in the
is sincere in its local market
communication.
■■ EM R&D can openly
speak up when things
are going wrong.

Execution Execution
■■ Belief that EM R&D Belief that:
■■ R&D invests in the right
can deliver on
complex projects projects to drive growth.
■■ R&D has sufficient

capacity to achieve
growth goals.
■■ DM R&D understands

how decisions affect EM

R&D performance.

Action Step #2: Build Trust in
Your Vision By Demonstrating the
Credibility of Your EM Plan
EM R&D staff need to hear the plan
from local leaders not DM leadership or
Western expats. This requires a timely
transition to local leadership, which can
be difficult for companies since short-
term pressures favor the use of expat
leadership. The best companies build
plans to demonstrate to EM staff that
local leadership will be installed quickly
while ensuring that expat support exists
to ensure the new leader is set up for
success.
Action Step #3: Build Trust in
Execution By Overcoming Fears of
EM Governance and Ability
Your EM staff needs to believe they
are getting the right opportunities to
demonstrate their abilities and grow.
Unfortunately, intellectual property
risk and project failure concerns make
DM leadership less likely to migrate
challenging opportunities to EM
teams. The best companies work back
from future strategic objectives to
highlight the insufficiency of EM project
migration while using transparent
and objective criteria to assess the
risk associated with providing more
innovation-critical intellectual property
access to EM staff.
For further information about the
research in this article or to learn about
our advisory services on emerging
markets entry and execution, please
e-mail Randeep Rathindran at
rrathindran@executiveboard.com.
Randeep Rathindran, Senior Director,
Global Strategic Research
Atul Dighe, Executive Advisor,
Research and Technology Executive
Council, Corporate Strategy Board

Figure 21a: Percentage of R&d Figure 21b: Percent Differential in EM Vitality Index Between High-
Organizations with High Levels and Low-Trust Organizations
of Trust By Directionality of Trust
By Directionality of Trust

31% Based on the median company size

23% 10% of $8.2 billion, the vitality differential
from having high EM to DM trust
5% translates to more than $800 million
in new product revenues.

DM to EM EM to DM DM to EM EM to DM
Trust Trust Trust Trust
n = 74. n = 72.

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