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Industrial Marketing Management 35 (2006) 373 – 382

Innovation and new product introductions in emerging markets: Strategic


recommendations for the Indian market☆
Gopalkrishnan R. Iyer a,1 , Peter J. LaPlaca b,2 , Arun Sharma c,⁎
a
Center for Services Marketing, Florida Atlantic University, 777 Glades Road Boca Raton, FL 33431, United States
b
University of Connecticut, 24 Quarry Drive, Vernon, CT 06066-4917, United States
c
Department of Marketing, University of Miami P.O. Box 248147 Coral Gables, FL 33124, United States
Received 15 September 2004; received in revised form 15 January 2005; accepted 18 February 2005
Available online 17 February 2006

Abstract

While radical innovations and growth strategies supporting such innovations may provide the firm with very high returns, there are also
considerable risks in devising and implementing such innovations. Apart from the business risks of venturing into new territories and new
markets, radical innovations also carry with them the burden of accounting for market and environmental factors that are often not under the
control of the firm. The opportunities presented by the emergence of several Asian markets, such as India and China, are particularly appealing for
Western countries willing to expand into these markets. However, market characteristics, institutional development, and customer behaviors bring
into sharp focus the choice of a specific innovation and new product development strategy for such markets. This paper examines these various
strategic issues in the context of India. The paper concludes with strategic recommendations for managers and some propositions for future
academic research.
© 2006 Elsevier Inc. All rights reserved.

Keywords: Radical innovation; Comparative innovation strategies; Innovation in India

1. Introduction 2003). The stress on innovation and new product development


is, however, moderated by sobering statistics regarding new
There has been considerable debate and angst about product product failures that raise concerns about the true value of firms'
innovation in both the academic as well as the trade press in new product efforts. Studies have shown that a majority of new
recent times. The primary reason for this focus is the evidence products fail (e.g. Booz Allen & Hamilton, Inc., 1989). Ame-
that innovation improves performance of firms (e.g., Daman- rican Demographics estimated that 17,000 new products were
pour, 1991; Hult, Hurley, & Knight, 2004; Porter, 1990). Se- introduced in the U.S. in 1993, and 85% of them failed. A 1995
veral firms have taken a more aggressive posture on innovation, study by Information Resources, Inc. found that 70–80% of
especially given the prospects of increased shareholder value new product introductions fail, with each failure resulting in a
through profitable growth (Bhide, 2000; Christensen & Raynor, net loss of up to $25 million. While this data is from the US and
accurate failure rate data is not available for India, similar
failure rates are likely in India albeit at lower costs.
Given this dismal scenario on new product success, firms

Order of authorship is alphabetical. Since one of the authors is the editor of attempting to introduce new products in international markets
this journal, the review process for this manuscript was handled by the Special are faced with several issues. The first is the type of innovation
issue editor Muammer Ozer. that should be sought by firms. While the issue of how to foster
⁎ Corresponding author. Tel.: +1 305 284 1770; fax: +1 305 284 5326.
innovation in firms has been an area of extensive research and
E-mail addresses: giyer@fau.edu (G.R. Iyer), pjlaplaca@snet.net
(P.J. LaPlaca), asharma@exchange.sba.miami.edu (A. Sharma). strong prescriptions, (Hargadon, 1998; Hult et al., 2004), the
1
Tel.: +1 561 362 6535. specific type of innovation that firms should seek has been only
2
Tel.: +1 860 875 8017; fax: +1 860 875 2318. a nascent field of research and particularly under-researched in
0019-8501/$ - see front matter © 2006 Elsevier Inc. All rights reserved.
doi:10.1016/j.indmarman.2005.02.007
374 G.R. Iyer et al. / Industrial Marketing Management 35 (2006) 373–382

international contexts with few notable exceptions (e.g., on the major pros and cons of pursuing an incremental
Govindarajan & Kopalle, 2004). innovation strategy versus a disruptive innovation strategy.
The second issue that firms face is the type of strategies that Attention is then directed to the Asian context, with particular
should be appropriate for ensuring new product success in reference to India. The various country and cultural factors that
international markets. Again, while factors contributing to new would impact innovation and new product success are then
product success are extensively researched (e.g., Cooper & discussed. The final section provides several managerial recom-
Kleinschmidt, 1995, 1996; Henard & Szymanksi, 2001), there mendations and offers some directions for future research.
is sparse literature on the cross-national success of new product
introductions. 2. Incremental innovation and radical innovation
In addition, the debate on the utility and appropriateness of
different types of innovation is growing in academic literature. While the concepts, “innovation” and “new product devel-
There appears to be a conflict between the proponents of incre- opment” have sometimes been used interchangeably in the
mental or continuous product innovations (hereafter labeled marketing literature, the key difference between the two is that
incremental innovation) and radical or disruptive product in- the term “innovation” subsumes a much broader sphere of
novations (hereafter labeled radical innovation). Some firms such managerial and institutional activity than the term “new product
as Intel and Samsung have pursued the incremental innovation development.” Innovation could be in the realm of technology or
path. On the other hand, firms such as Sony and Apple have grown management. Technological innovations could be product- or
through adding radical innovation to their portfolio of products process-level changes, while management innovations could be
(e.g., Walkman, Lisa). Influenced by the potential for high market in terms of the core business model of the firm, its strategy,
growth, profitability, and shareholder value, many U.S. firms are leadership styles, or organizational culture, to name a few of the
now attempting to develop capabilities for introducing radical or changes. Since marketing is more concerned with the product-
disruptive innovations in the domestic market place (Christensen, level innovations, it is therefore not surprising that within the
1997; Christensen & Bower, 1996; Christensen & Overdorf, marketing literature, the term “innovation” refers primarily to the
2000; Christensen & Raynor, 2003; Leifer et al., 2000). Firms are new product and new business development.
concerned that radical innovation can endanger them as In the marketing use of the term “innovation,” incremental
incumbents and the only way to combat this threat is for firms innovation refers to product line extensions or adding modifica-
to develop their own radical innovations (Gilbert, 2003). tions to existing platforms and products (Ali, 1994; Ali, Kal-
Conclusions that are obtained in advanced countries on the wani, & Kovenock, 1993). Managers design such products to
estimated likelihood of success of the type of innovation satisfy a perceived market need and expect that products and
strategy to be followed (incremental versus radical) may not be services to meet these needs would be developed in a relatively
relevant for new product introductions in emerging economies, short period of time (Ali, 1994). Banbury and Mitchell (1995)
especially those in Asia. This paper focuses on the type of examined the introduction of incremental innovations and found
innovations that should guide firms when pursuing new product that continuous innovations as well as the frequency of incre-
opportunities in international markets, with special reference to mental innovations contributed to a larger market share for firms.
India. The Indian market, as well as other Asian markets such as Therefore, the introduction of incremental innovation is critical
China, is important particularly due to the growing size of for the long time survival of firms.
middle-class consumers and the growth of businesses in prac- Radical innovations refer to two different dimensions of
tically all industrial and services sectors. Firms from the West- innovations. Radical innovation refers to the technology basis of
ern hemisphere are only beginning to understand such markets the innovation, i.e., the extent to which innovation is based on
and are still facing infrastructural, institutional, and other obsta- substantially new technology relative to existing technology
cles to market entry and product development. (Govindarajan & Kopalle, 2004). Disruptive innovations are
Successful commercialization of new products requires due market-based in which, through adoption, a small early segment
attention to the complete supply chain (both suppliers and of adopters allow the firm to develop the product and compete in
distributors) and to promotion. Specifically for technological the market, i.e., marketers of established products find the in-
products, the innovation needs to be accompanied by adequate novation disruptive in the long term (Govindarajan & Kopalle,
market sizes and investments in market-based assets as well as 2004; Tushman & O'Reilly, 1997). In the context and spirit of
building distribution capability. Profits from innovation are previous research, this paper combines these innovations due to
better appropriated if the innovation is supported by a sub- their effects and labels them as radical innovations (Ali, 1994;
stantial market size and adequate investments in supply and Ali et al., 1993). There are two reasons that firms examine
distribution (Teece, 1987). The focus of this paper is to ela- radical innovations more extensively. The first and most obvious
borate on the factors that suggest the type of innovation that reason is that these innovations disrupt the market for
would be most appropriate given the environmental context of incumbents and these innovations have led to the demise of
an emerging country, such as India, and identify the relevant incumbent firms (Christensen, 1997; Christensen & Bower,
managerial strategies that could be pursued for successful new 1996; Christensen & Overdorf, 2000). Second, incumbent firms
product introductions. are not very skillful at developing radical innovation (Chris-
The organization of this paper is as follows. Details on the tensen, 1997; Christensen & Bower, 1996; Christensen &
various types of innovation are discussed, focusing specifically Overdorf, 2000; Leifer et al., 2000).
G.R. Iyer et al. / Industrial Marketing Management 35 (2006) 373–382 375

The issue of incremental versus radical innovation has been Table 1


framed as an issue of low risk – low reward strategy for Key characteristics of different types of innovation
incremental innovations as opposed to high risk – high reward Characteristic Incremental Radical
strategy for radical innovations (Ali, 1994; Ali et al., 1993). Low-end New-market
Incremental innovations provide the firm with opportunities for disruption disruption
extending market share and market leadership. Firms, therefore, Firm's Continuous Development Development of
forego risky new opportunities in favor of less risky market and innovation improvements of low-cost new alternatives
product expansion strategies. They attempt to satisfy existing focus to product alternatives with greater
features and with sufficient simplicity and
customers through continuous improvements to products or
performance performance convenience
performance of products and explore more predictable strategies levels
for growth and success (Christensen & Raynor, 2003). However, Target Most attractive, Overserved Nonconsumers
such firms are always under a threat from a new entrant that customers profitable and customers or and less
challenges conventional wisdom and attempts to create new demanding new customers demanding
customers neglected by consumers
markets through new technologies or new ideas. Entrants with a
incumbents
vision of disruption attack based on the predictability of the Business Maintenance of New operating Development
incumbents, focus on offering benefits to consumers that are not model value network or financial, of a new value
offered by incumbents, and adopt a far less conservative strategy based on product approach, network
for market entry and growth (Christensen & Raynor, 2003). Such platforms, or both for supporting new
product developing a cost structures
entrants may target a new or unattractive customer segment and
enhancements, low cost value and customer
disrupt the incumbent (Christensen & Raynor, 2003). cost efficiencies network benefits
Christensen and Raynor (2003) make a distinction between and competitive
two types of disruptive innovations—low-end disruptions and advantages
new-market disruptions. Low-end disruptions are aimed at Entrant's Competition Limited No initial
situation with incumbents competition competition but
overserved and least profitable customers at the lower end of the
(if entrants on products with incumbents later intensive
original value chain. Such disruptions do not create new adopt such and processes for the firms' competition with
markets; instead, they concentrate on creating and profiting strategy) with unproven unattractive incumbents'
from low-cost business models that are positioned to capture the competitive segments reactions
least attractive of the existing firm's customers (Christensen, advantages
Incumbents' Shrinking Low-cost Diversification
Johnson, & Rigby, 2002; Christensen & Raynor, 2003). Some
situation (if growth rates product into domains with
examples of low-end disruptions in recent times include JetBlue incumbents over time; less extensions no prior expertise
and Amazon.com in air travel and retailing, respectively, which adopt such threats on to cover the
captured overserved and least profitable customers through strategy technology; market;
offering low cost alternatives to available choices. along with possible conflicts at
existing neglect organization/
On the other hand, new-market disruptions are focused on
strategy) of customer process levels
capturing non-consuming market segments through concentrat- value domains
ing on new product-market factors, typically simplicity and
Adapted and developed from Christensen and Raynor (2003).
convenience, that incumbent firms in their quest for technolog-
ical superiority and improved product performance often neglect entrants to the market. From the current literature, new entrants
(Christensen & Raynor, 2003; Lynn, Morone, & Paulson, 1996). stand to gain the most with disruptive strategies, while current
An entirely new value network is created that initially may not incumbents mostly follow the strategy of incremental or
challenge incumbent firms; however, with the successful continuous innovation (Gilbert, 2003). New entrants adopting
adoption of the innovation, more incumbent firm customers the path of incremental innovation, especially through compet-
are drawn to the new value network (Bhide, 2000; Christensen & itive benchmarking and leveraging available market-sourced
Raynor, 2003; Leavy, 2004). A recent example of a new-market technologies, do not stand to gain competitive advantages. In-
disruption is the Palm Pilot. The success of the Palm Pilot in cumbent advantages on technology as well as organizational
creating a new value network can be better evaluated through its knowledge and skills may far exceed those of the new entrants. As
comparison to other technology products, such as desktop or a result, new entrants may be able to gain market share only from
portable computers, as well as other organizer products, such as the market laggards rather than the market leaders.
paper-based diaries. In contrast to existing alternatives, the Palm Current incumbents that adopt the strategy of disruption after
Pilot provided a radically different way of organizing that years of competing on the basis of either having no innovation
provided customers with the simplicity (use of handwritten strategy or an incremental innovation strategy may find that the
inputs as in diaries) as well as convenience (better portability). organizational processes and cultural changes required are
Some key characteristics of incremental innovation, and the daunting (Christensen & Raynor, 2003). In such cases, the
two types of disruptive innovation are summarized in Table 1. different types of innovation may be best supported under
Note that all three types of innovation strategies among different organization forms, such as different divisions. For
incremental, low-end disruption and new-market disruption are example, the strategies pursued by GM with its Saturn launch
available to all firms, whether they are incumbents or potential were so different from the rest of the company that GM's Saturn
376 G.R. Iyer et al. / Industrial Marketing Management 35 (2006) 373–382

division remained distinct from the rest of GM, justifying the sions that affect innovativeness and new product commercial-
Saturn's positioning message of “A Different Type of Car, A ization, the Indian market lags considerably behind a large
Different Type of Company.” industrialized country such as the U.S. Some of these relevant
On the same note, it was evident from the Internet boom era differences between the Indian and U.S. markets are summarized
that few traditional firms were able to successfully grasp the in Table 2. From the indicators in Table 2, it can be concluded
complex technological and organizational issues involved in that, while India still retains most of the characteristics typical of
creating successful Internet divisions. Retail firms, such as a developing country, its growth and directions of growth in
Borders, and Toys-R-Us, that were otherwise successful in their terms of emphasis on industrial output and information tech-
traditional marketplaces failed or are faring only relatively nologies favor a rapid transition over the next several years to a
poorly in the Internet marketspace. business environment that would be very similar to developed
While the above discussion on different types of innovation countries. Thus, the Indian market holds significant promises
holds true for all types of products and sectors, including services that multinational firms cannot afford to ignore.
and retailing, a distinction needs to be made specifically for The ultimate measure of the firm's choice of innovation
industrial products or business-to-business products, consumer strategy is new product success or failure. The various uncontrol-
durables, and fast-moving consumer products. The innovation lable and controllable factors are represented in Fig. 1 in an effort
approaches outlined above may have different impacts, especially to elucidate more on the country-level uncontrollable factors that
given the types of customer segments and their buying behaviors affect the choice of innovation strategy. The remaining part of this
as well as the nature of the markets and competition. The focus of section details several of these uncontrollable factors in the
this paper is primarily on business-to-business markets and, in a context of India.
limited way, some consumer durable markets where effects
similar to industrial product markets may be more evident. 3.1. Effects of the country context uncontrollables
Focus on the innovation itself is important since it is the
logical precursor to the new product development process. The The relative impacts of marketing infrastructure, institutional
goals and criteria for new product development and manage- development, and the socio-cultural environment on marketing
ment are set more clearly and the process is managed more strategies have been a neglected area within academic research
effectively and efficiently, when firms adopt a lucid innovation (Iyer, 1997). Also, the examination of the transferability of
strategy. But more importantly, in international markets, the concepts and measures, especially as they relate to various
firm's innovation strategy provides long-term goals and helps in marketing strategies, across different countries and cultures is
resources allocation decisions to various subsidiaries and inter- only in the initial stages.
national operations. It also helps elucidate the relative chances Several country-level factors that impact the choice of inno-
of success or failure of the types of new products developed vation strategy and the success of new product development
under a variety of innovation scenarios.
The impacts of various country-level factors the choice of Table 2
innovation strategy and new product success are discussed in A comparison of India and the US
the following section.
India US
Indicators of market size/potential
3. The development of country-level innovation strategy
Population (millions)1 1,033.4 284.0
Gross national income ($ billions)1 474.3 9900.7
Following Ted Levitt's famous article on globalization Gross national income in PPP ($ billions)1 2530.0 9902.0
(Levitt, 1983), multinational strategy has slowly been moving Gross domestic product ($ millions)1 477,555.0 10,171,400.0
toward a global strategy due to the efficiencies that arise from GDP growth rates (total real product, 7.8% 2.9%
2002–2003)2
pursuing standardized strategies. This has been the conventional
Income distribution (Gini index)1 37.8 40.8
wisdom, but recently, some experts have started questioning this Industry contribution to GDP2 24% 24%
strategy. For example, Prahalad and Lieberthal (2003) suggest Services contribution to GDP2 46% 79%
that multinational firms currently impose western or developed Manufactured exports as % of total 79% 83%
country models on developing countries. They suggest that firms exports1
Foreign direct investment ($ millions)1 2315.0 287,680.0
will do better and learn more if they tailor their operations to the
Indicators of innovation and innovation
unique conditions of developing markets. Similarly, Ghemawat capability
(2003) suggests that most strategies focus on minimizing Productive enterprise R&D per capita 0.4 465.9
country operations differences between countries. He suggests (US $)3
that firms will be better off if they exploit the differences bet- Patents per 1000 people3 0.0001 3.297
Medium and high technology share 16.60 65.40
ween countries rather than utilizing a more homogenous stra-
in manufactured exports3
tegy. A special comparative focus on India and the US examines Engineering graduates per year 260,0004 59,2585
the difference between these countries and their impact of choice Information and communications 3.80 8.10
of innovation strategy. technology expenditures (as % of GDP)6
In terms of various country-level indicators such as market Sources: 1World Bank (2003), 2UNCTAD (2004), 3Lall (2003), 4Kripalani and
size, innovativeness, global competitiveness, and other dimen- Engardio (2003), 5NSF (2004), 6Dutta et al. (2003).
G.R. Iyer et al. / Industrial Marketing Management 35 (2006) 373–382 377

UNCONTROLLABLE CONTROLLABLE

Contextual Factors

- Infrastructure
- Country’s Economic
Development Path Type of
- Market Size Innovation
- Business and * Incremental
Consumer Culture * Radical

New Product
Development
Strategies

New Product Commercialization


Strategies
- Promotion Efforts
- Distribution Efforts
- Supply Chain Development
- Strategic Control

New Product
Success or Failure

Fig. 1. Factors affecting new product success.

efforts stemming from such strategy are represented in Fig. 1 and so because the quantities bought by individual customers may
elaborated below. be quite small and infrequent, thereby reducing the inventory-
carrying preferences of the various intermediaries in the supply
3.1.1. Development of necessary country-level infrastructure chain.
Economic development levels affect the availability of a A sufficiently developed marketing infrastructure is needed
suitable marketing infrastructure and the resulting market to activate the innovation adoption process. Moreover, mar-
structure across industries within a nation (Sharma & Domin- keting processes assume a basic level of customer education
guez, 1992). First, marketing infrastructure is also affected by about the market, with emphasis on the customers' ability to
such broad forces such as education and the political–legal seek alternative suppliers. A customers' inability to seek alter-
instruments available for the development of markets. Second, natives in an economy characterized by managed supply side
economic development levels as well as historic patterns of and frequent shortages of products and services would imply
regulations also result in different market structures, even in that innovation adoption may be less about quality or service
familiar industries. The primary reason may be that the levels of levels than simply about availability.
competition may be different. Thus, what could be an intensely A sufficient marketing infrastructure is also necessary to
competitive industry in a developed country, such as travel and implement newer modes of innovation adoption. For example,
transportation in the U.S., may be an industry where there might customer relationship management (CRM) thought and prac-
be only few firms, with some being state-owned. Additionally, tices in the area of e-commerce are quite developed in the U.S.
the various arrangements for supply chain, such as the avail- However, in most developing countries, including India where
ability and roles of various relevant intermediaries, may be quite there has been a tremendous growth in information technology
different. For example, distribution chains in traditional coun- investments in recent years, e-commerce relationships are yet to
tries such as in India are quite long, with several agents, brokers, develop (Dutta, Lanvin, & Paua, 2003). At the more obvious
wholesalers, and semi-wholesalers carrying out the process of level, marketing infrastructure is very important for the com-
bulk-breaking before the products reach the retailer. This is also mercialization of the product. This is especially true when a
378 G.R. Iyer et al. / Industrial Marketing Management 35 (2006) 373–382

disruptive innovation strategy is pursued. Disruptive innova- the exchange itself. Even the most perfect market, operating on
tions, both low-end and new-market, require newer constella- the principles of demand–supply and equilibrium prices and
tions of supply chain to be successfully commercialized, unless thus, approaching textbook notions of free market, is in fact
the innovation focus is at the level of distribution itself, such as governed by a complex and elaborate set of regulations (Bhide,
leveraging an existing distribution arrangement (e.g., e-com- 1994). Relevant market institutions are necessary for the
merce platform) for the marketing of other products. formation and development of markets and to avoid instances
The following examples from India illustrate the problems of of market failure. Such market institutions may include formal
focusing on radical innovation. institutions, such as constitutional guarantees, laws and regu-
lations, and property rights, as well as informal institutions,
• Radical innovations in voice mail systems and voice such as customs, codes of conduct, and taboos (North, 1991;
response systems with touch-tone dialing did not work in Peng & Heath, 1996). The differences in marketing institutions
India because the majority of phone systems are pulse-based lead to differences in marketing systems across countries (Iyer,
systems. The more successful firms adapted their existing 1997). In countries where market institutions are well deve-
pulse or touch tone systems for systems that had capabilities loped, exchange may be more formal and under the “shadow of
for both (pulse for land line and touch tone for mobile the law” (Macneil, 1980; Williamson, 1985). However, in other
phones). countries, informal institutions may be primary and exchange
• Firms developed dramatically faster modems for the itself may be more informal and governed by norms and cus-
business market. However, the technology of speed dialing toms rather than law (Plattner, 1983). Liberalization also ena-
was not compatible with the switches in the local telecom- bles the creation of new domestic enterprises offering new
munication services. Customers had to add pauses between products (Katrak, 2002).
each number to use the new modems. The increasing development of formal institutions benefits
• To increase distribution at lower prices, Pepsi asked bottlers multinational corporations since the political, legal, cultural,
to create a large fountain sales distribution network. How- and other rules prevalent in the country can be more readily
ever, due to the lack of filtered water availability, the loca- understood. On the other hand, in many traditional countries,
tions became liabilities rather than asset. the co-existence of informal market institutions has deterred the
• For critical time function, firms designed products that uti- entry and/or successful product development efforts by mul-
lized frequency of the electric current rather then the tra- tinational firms. For example, it has been argued that Japanese
ditional battery-based systems. However, due to power distribution systems are quite complex and, due to historical
shortages and back-up power from inverters and generators arrangements, linkages, and loyalties, are difficult to crack by
whose frequency may be inaccurate, the time systems did not foreign firms (Kaikati, 1993). Similar complexities are found as
work. well in the Indian distribution system, which is typically cha-
racterized by long channel lengths, presence of numerous area-
This leads to the following proposition: specific agents and brokers, and rural retailing. Moreover, due
to the inefficiency of the distribution system, a product may be
P1. Incremental innovation would be more successful than
in the distribution system for long periods of time. Given the
radical innovation in countries where the infrastructure does
importance of distribution competence in new product com-
not provide support necessary for the commercialization of an
mercialization, the adoption rate of foreign products in such
innovation.
traditional markets will likely remain low.
Market-oriented reforms, especially in India, have only
3.1.2. Impacts of country's economic development path recently started dismantling the older regimes of protections
Apart from simply the level of economic development, the from import competition, restrictions on technology inflows, and
priorities in institutional development in a country's economic foreign direct investments (Katrak, 2002). However, developing
development trajectory are very important. Institutions are countries such as India still lack the necessary institutional
essential for exchange systems to operate efficiently (North, development that allows for a rigorous implementation of radical
1991). Institutions, whether formal or informal, “create order and innovation. Moreover, success also depends on prior experience
reduce uncertainty in exchange” (North, 1991; p. 97). Institutions with technologies needed for radical innovation. It is only with
provide the rules, norms, and routines that enable and structure regulatory and economic liberalization and the increase in number
markets and facilitate market-based exchanges (North, 1991). of new technologies, either transferred from abroad or developed
Such institutional processes are necessary for the development of in-house, that a developing country like India evolves the ne-
laws, regulations, cultural norms, and liberalization processes in cessary technology institutions and experience needed for
the developing countries as well as those undergoing transition commercialization of high technology innovations (Kumar &
from historical political–economic systems. Jain, 2003).
Countries differ in the levels of institutional development, For radical or disruptive innovation to be successful, legacy
the types and extents of formal and institutional arrangements systems must not be present within the distribution system. If
prevalent, and processes by which institutional change is ena- legacy systems exist, there will be multi-generational products
bled (North, 1990). Institutional development impacts the re- with similar prices, thus creating channel conflict. In this case,
lative development of markets and the characteristic nature of manufacturers need to buy back obsolete inventory or the
G.R. Iyer et al. / Industrial Marketing Management 35 (2006) 373–382 379

distribution channel will not purchase the firm's products. This sales volumes allow firms to develop legacy-free or non-
buy-back will reduce a firm's profitability. backward compatible products. Backward compatibility is
As conditions are created that mimic innovation-stimulating expensive in terms of costs and innovations. Therefore, sales
environments, certain regions in developing countries may also volume must be very high to justify maintaining spare parts
exhibit characteristics similar to developed countries. For inventory of non-backward compatible products. Incremental
example, it has been found that both radical and incremental innovations that are backward compatible lead to a reduction in
innovations are common in Bangalore, India, to the same spare parts inventory. PC suppliers, for example, build in
extent as they are in the U.K. (Bala Subrahmanya, 2005). The backward compatibility, so that a 10GB drive can be replaced
primary reason is the similarity between in industrial and by a 40GB drive.
institutional infrastructure and the availability of human capital As discussed earlier, sales volumes of automobiles in India are
in the form of scientists and engineers in Bangalore (Bala low and the returns on radical innovation may not be realized due to
Subrahmanya, 2005). lower sales volume. Therefore, incremental innovators with lower
Again, the following examples from India illustrate the cost and price structures may triumph over radical innovators.
problems of focusing on radical innovation. Successful radical innovation may create a new generation of
legacy products that will impact the reputation of firms. Radical
• When electronic typewriters were launched in India, they innovation with low sales volumes will be constrained to be
were largely unsuccessful because of an existence of manual backward compatible so as to reduce spare parts inventories.
typewriters and an absence of an effective channel for Also, due to uncertainty of availability of spare parts, customers
electronic office products. Moreover, manual typewriters are are more hesitant to purchase the new product, often relying on
still preferred because the product involves low initial outlay, older and proven stalwarts rather than experimenting with newer
lasts longer (without risk of obsolescence), and is serviced products, even if these are derivations of existing products. For
easily and at low cost. example, in the automobile industry in India, the basic model of
• A large number of firms, including the largest long-distance Ambassador cars remained successful for more than four de-
communications firm in India still use dot-matrix printers. cades despite challenges from various other models, as well as
Their suppliers (printer distributors) need to keep spare from Ambassador's own newer Contessa product line.
parts and the suppliers (and customers) do not adopt A similar situation can be observed in the office paper
innovations easily. market. The market size for this industry is small and, therefore
serviced by only few paper distributors. The existing paper
Thus, it can be argued that: distributors pre-dominantly sell paper that is sub-standard by
Western standards. Some paper manufacturers have recently
P2a. With increasing levels of economic development, institu-
introduced radical innovation in paper that is comparable to
tional conditions are created that foster the imperatives for
Western standards; however, distributors and office supply
radical innovation.
consumers have not adopted these new paper products.
P2b. Institutional conditions would impact the success of However, with increasing liberalization and open markets for
radical innovations, especially in developing countries. imports and exports, some firms in India have started viewing
their effective target market to be more global rather than just
3.1.3. Market size restricted to India. This increase in market size potential mo-
Another factor highly correlated with development is the tivates firms to innovate on technology and bring forth radically
market size of products and services. The population of India different products and product designs for global markets. For
is currently over one billion, and continues to grow. Economic example, the largest scooter manufacturer in India, Bajaj Auto
liberalization and transition towards a market economy have Ltd., had for years relied only on a 1960s design of a classic
contributed to rising income levels; the growing middle class Vespa from the Piaggio Group in Italy (Bellman, 2004). With
base in India is already larger in absolute numbers than the increasing opportunities for scooters in the global market, Bajaj
middle class in the United States. It is expected that the is now competing in global markets with new product offerings
purchasing power of the middle class consumer will likely (Bellman, 2004).
grow in the next several years, so long as the liberalization The following proposition is derived from the above
momentum does not lose its steam. However, in spite of the discussion:
rapid pace of development, the Indian economy is only one-
P3. As the target market size for the firm increases, firms will
twentieth the size of the U.S. economy in real terms. Also, the
shift the product development strategy from one of continuous
total market size for most products and services is smaller in
innovation to focus more on radical innovations for new
India. As an example, it was estimated that 17 million
product development.
automobiles would be sold in the U.S. in 2004, as compared to
only 1 million in India.
Radical innovations are most effective when market potential 3.1.4. Business and consumer culture
is high and the sales volumes are sufficient to satisfy higher In developing cultures, both business and consumer cultures
expected returns. Additionally, radical innovation leads to greater may seek frugality and extended product usage. In the
market share that further exploits higher sales volumes. Higher traditional societies of several Asian countries, family-owned
380 G.R. Iyer et al. / Industrial Marketing Management 35 (2006) 373–382

businesses are still dominant. Even the larger enterprises are longer. On the other hand, if products rapidly evolve and older
part of some family-controlled conglomerate. For example, in product models disappear from the market place at a fast rate, it
India, family conglomerates such as the Tata, Birla, and Goenka will be very efficient for firms to maintain spare parts
have a presence in several industries and control several large inventories for the newer models rather than stocking parts
industrial firms. While each firm does operate somewhat inde- for older models.
pendently, the business culture of these family-controlled units In addition, as noted earlier, automobile sales volumes are
are quite similar within, in terms of their frugality and monetary low and the returns on radical innovation may not be realized
control (Iyer, 1999). Such business cultures often shape stra- due to the lower sales volume. Therefore, incremental innova-
tegy, especially in terms of the outlook on innovation and tors with lower cost and price structures may triumph over
imperatives for introducing new products. radical innovators. Similar longer life cycles are seen in most
In consumer markets, economic liberalization and rising products, thus making the radical innovation a relatively inef-
income levels may not produce the same results throughout a ficient and inappropriate strategy.
large country such as India. Despite a growing middle class, a However, changes in business environment and culture call
vast majority of people in these countries will be left somewhat for different approaches to innovation. For decades before the
behind, especially given the historical patterns of uneven deve- 1980s, Indian businesses made limited attempts to develop
lopment already present. Thus, while liberalization would pro- technologically sophisticated products or to invest in innova-
duce a middle class eager for new products, especially durables, tion. Government R&D expenditure accounted for most of the
that their rising disposable incomes would now provide, there research spending in India and technology imports or reverse-
will be an even larger set of consumers, with lower incomes, engineering accounted for most of the new product introduc-
who will be able to spend less on durables and continue to prefer tions (Forbes, 1999). However, since liberalization in the early
low-cost and affordable alternatives. Again, the issue of fruga- 1990s, Indian firms started investing more in R&D and have
lity and extended product life cycles continues to emerge. turned to in-house sources for innovation and new product
Even among the middle class, it cannot be assumed that development (Forbes, 1999).
rising incomes would make them more amenable either to The above discussion leads to the following proposition:
innovative new products or to foreign products and brands. In
P4. With changes in business environment and business
fact, their rising incomes would provide them with a new
culture, firms in developing countries will start emphasizing
“voice” in the market and the demanding consumers may still be
radical innovations for new product development.
looking for value rather than the best quality. As de Mooij and
Hofstede (2002) note, such consumer values may be a greater
predictor of behavior than simply income. 4. New product development success in India
The emphasis on value imposes different priorities on the
derived demand for industrial products. Locally sourced and There are several strategies that could be pursued for
manufactured products would keep costs down, but more successful commercialization of innovations in India.
importantly, the priorities for the innovating firm would be more
on developing systems for low-cost production and marketing 4.1. Focus on the platform as the product
combined with extended product life cycles. This may involve
creating completely new value chains. For example, in an effort While technological innovations are often derived from a
to produce and market low-cost washing machines, Whirlpool core platform, the successful platform itself should be the
has decentralized its operations, shifting even its design work to product in developing countries. This is evident from various
the developing countries. The result would be a washing ma- industries and from case examples of various firms in India.
chine in the $150–$200 range for the developing country mar- One such example is the basic Fiat automobile that was suc-
kets, far below the average price of $461 in the U.S. market cessful for more than two decades based on the same platform.
(Jordan & Karp, 2003). In addition, Whirlpool may develop Similarly, a local firm Bajaj ruled the scooter market for two
products for extended product life cycles thereby adding ad- decades based on a 150cc that remained essentially the same.
ditional value to their product offerings. Recently, HP's DeskJet printers have enjoyed success by
Radical innovation leads to obsolescence of older products. maintaining the same platform.
Therefore, product life needs to be short to reduce the impact of
legacy products. These conditions may not be fulfilled in de- 4.2. Concentrate on the installed base
veloping countries. Specifically, if a person is selling products
to an automobile manufacturer in a country like India, they may Since revenues from continuous innovations and newer
find that radically improving a gear box design may not be seen models may not be forthcoming, servicing of the installed base
as an asset by automobile manufacturers. One reason for this becomes a major source of revenue. Thus, automobile dealers
perception is that owners keep their automobiles for longer would be servicing cars more than a decade old, and printer and
periods of time. For example, the typical automobile life in the copier services centers and personnel would be engaged in
U.S. household may be seven years, but automobiles in a servicing “archaic” models of their products. In India, most
country like India are maintained for over 15 years. Therefore, firms make more money maintaining products than they do
firms in India are required to maintain spare parts inventory selling products. An example of this type of firm is the
G.R. Iyer et al. / Industrial Marketing Management 35 (2006) 373–382 381

Computer Maintenance Corporation, whose revenue stream is the innovation orientation and innovation climate of firms in
defined by services. emerging economies. While the construct of market orientation
attempts to bring the market inside the firm, so to speak, the
4.3. Develop distribution capabilities firm's innovation orientation is an attempt to move the firm
more solidly into the market. In this sense, both are
While the traditional system of distribution cannot be complementary to each other and successful firms must place
radically altered, firms can take steps to play by the rules of the as much attention to responding to the market as to
game and yet be able to successfully penetrate the market. understanding it.
Firms should offer continuous training and skill development Future research is also needed, more specifically on
not only for channel promotions but also for after-sales innovation strategies themselves. While the literature within
services. Thus, continuous innovation efforts are placed marketing has an abundance of new product development
outside the firm for channel and complementary asset frameworks, approaches, and practices, there is little by way of
development rather than internally for new product develop- theory building in the realm of innovation. This neglect of a
ment. Since the model of mobile phones is pre-paid, there is a firm's innovation strategy is particularly bothersome, when one
large group of dealers in the country that service all major considers the fact that such strategies provide the broad vision
brands of phones and SIM cards. and pace for the firm's new product development efforts. In
fact, apart from market factors, the relative success or failure of
4.4. Develop capability through alliances a firm's product development efforts can be gauged only in
relation to the vision of what the firm had intended to achieve.
Alliances may be needed for better penetration of the Perhaps the most practical contribution of academic research
traditional distribution system. Firms should seek alliance would be the study of how specific forms of innovations
partners that already have the distribution system and support so contribute to the firm's performance in developing countries.
that the new product introduction can successfully piggy-back Here, the focus would be on the extent to which the firm's
on the existing distribution structure. Further, an alliance partner innovation can be appropriated, and the factors within deve-
with an existing product in the same product-market would be loping countries that contribute to the development of
preferred for two reasons. One, the distribution system is appropriation regimes for profiting from innovations (e.g.,
already in place, and two, the partnership with a potential future Teece, 1987). A myriad of different factors may affect the firm's
competitor would yield better market dominance while turning profits from innovation, including but not limited to the
the competitor into a winner as well. These types of alliances institutional environment, especially the legal, political, and
have emerged in the mobile phone market where information economic institutions; supply and distribution networks,
providers have created alliances with mobile phone operators. including the extent to which the firm has co-opted the various
intermediaries into its commercialization strategy; and buyer
5. Conclusion preferences and behaviors, including the extent to which
liberalization and economic development would bring about a
This paper focused on distinguishing between different buying culture that places greater demand on quality and
forms of innovation and the country specific factors that would performance than on value and price.
impact innovation activities and form. In emerging economies,
incremental innovation may be more appropriate than radical
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