The Rise of the Rest: Hotbeds of Innovation in Emerging Markets

The rise of emerging markets will force Western companies to recognize new approaches. competitors and rethink their own innovation Conventional wisdom has long held that innovation is the strength of the West and that what gets developed in the West is modified and transferred to "the Rest." But the reality of recent years does not support this assumption. In point of fact, we're seeing a rise in the number of innovations coming from emerging markets, and we're seeing even more in the way of influence from emerging markets in the way that innovation is conceived of, executed, and delivered. Innovation happens where need meets opportunity. In emerging markets, these needs are often very basic, particularly for those at the bottom of the economic pyramid ( Prahalad 2004 ). As creative ideas for meeting those basic needs are translated into compelling innovations, emerging markets are becoming hotbeds of innovation in areas ranging from healthcare to water to transportation. And innovation activities in emerging markets are having profound impacts on the West; indeed, products created in and for emerging markets are now finding eager buyers in developed nations. Once called reverse innovation ( Immelt, Govindarajan, and Trimble 2009 ), and now also known as frugal or constraint-based innovation ( Economist 2010 ), this reversal of the traditional flow of innovation is both reshaping consumer demands and forcing Western companies to rethink their ideas about innovation and how it happens. "Emerging markets" have often been associated with the BRIC countries-Brazil, Russia, India, and China-but companies seeking to better understand emerging markets and frugal innovation must now look much further afield, as regions around the world emerge as incubators of innovation. This article highlights some recent developments in emerging markets and provides some insight into how the innovation model driving these emerging markets differs from the model invoked by their Western counterparts. Innovation Hotbeds What does a desalinization project in Israel or the United Arab Emirates have in common with mobile banking in Kenya or the Tata Nano car in India? At first blush, very little. But these places, and these products, are emblematic of the innovation power that has been fermenting in the rest of the world and that is now poised to take full advantage of globalization. Bloomberg BusinessWeek 's 2010 ranking of the 50 most innovative companies included 15 Asian companies; more than one fifth of the entrants on the list were anchored in emerging economies ( Arndt and Einhorn 2010 ). Many of those markets are evolving specializations in areas that are particularly important for their home economies ( Figure 1 ). We' ve chosen to emphasize four areas: mobile banking, microfinance, and social media; transportation; energy and natural resources; and healthcare. In calling out innovation hotbeds, we're not attempting to be all-inclusive, but rather to highlight the confluence of factors that is now driving the emergence of truly innovative products and services from unexpected corners of the world. Mobile Banking, Microfinance, and Social Media Want to be at the center of mobile banking and the mobile wallet? Go to Kenya. The M-PESA program, a joint venture between Vodaphone and Safaricom, has revolutionized the way that local farmers and small business owners manage their money. These entrepreneurs and farmers go to market with goods and keep track of purchases and expenditures using their cell phones. Cell phones replace the bricks-and-mortar bank, providing the unbanked access to credit, an easy way of paying bills, and seamless tracking of their expenditures and incremental wealth accumulations-all via text messages. The underlying enablers of this mobile banking revolution lie not only in a rethinking of the way financial institutions work, but also in innovations in cell phones to accommodate the habits of emerging-market users, such as phones that can store multiple contact lists to allow multiple users to share a phone. …