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Seizing internationalization for innovation purposes

Emerging economies (e.g. BRIC) will keep increasing their role as test bed and fertile ground for new product development and other forms of innovation. Hence it is important that European companies dispose of antennas –own ones or via intermediary organizations- to raise their absorptive capacity for capturing emerging economies-borne customer trends and to tap into the innovation assets that these economies may shelter –to raise their exploitative capacity in view of pursuing innovations. Policy support can contribute to a successful switch on behalf of European SMEs from a multinationalisation of production to a multinationalisation of innovation.

by Bart Kamp
Head of Orkestra's strategy department, Spain

September 24th, 2012

Companies that go abroaed for production or sales motives only, may miss out on important innovation spill-over effects they may reap from their international presence and from mingling with local partners in foreign places.

In line with Steve Jobs’ alleged answer to Barack Obama « Those jobs aren’t coming back »; the environment for innovation is improving in places like China and India. Whereas Jobs statement hints at the production eco-systems that become gradually unrivalled in places like China (it is not a matter of cost anymore, but the tight-knit and well-endowed conjoints of actors and facilities that are present in emerging countries that outperform eroded or outdated networks in Western economies – besides being less costly), the latter refers to the increasing attractiveness of Asia to pursue or find inspiration for innovation. Although India and China have in common that they both are becoming increasingly attractive to develop and test new products and services, the way they form a fertile ground for innovation is rather distinct and thus also the kind of modus operandi to lead to new products and services in these respective countries promises to be different .

Whereas China seems to follow more of a Science, Technology and Investigation model (« STI ») where exploitative capacity of codified knowledge matters most in view of innovation, India reveals more of a Doing, Using, Interacting profile (DUI) where absorbtive capacity of tacit insights is key for innovation. This stems from the fact that China has been making much efforts to improve its patenting, scientific publication and engineers output record. The former is illustrated by recent data from The Royal Society (UK’s national science academy), the OECD and IHS/Thomson Reuters. This implies that China has the potential to become a location where in time especially radical innovations see the light, whereas India may be more fit for incremental innovations. Take note that incremental innovations can turn out to be equally disruptive (see f.i. how Mittal’s and Tata’s minimills replaced a big part of the traditional steel mills across the globe or other examples as discussed at the INNO-Grips expert workshop on disruptive innovationin January 2012. 

As for China’s possible rise to innovative power, there seems to be a tendency to underestimate or question the equality of the engineering-patenting-researching «resources» from emerging countries : whether their engineers are as skilled as ours, whether their intellectual property system warrants the same quality as ours (which was also a point of debate at the PRO INNO Europe® partnering event in Munich, hosted by the European Patent Office in April 2011), and whether their scientific publications are as rigurously reviewed as is done in the West ? All and all, history learns us that it is misleading to trivialize the momentum of a power coming on steam. That is what happened when Japan’s and South Korea’s economic fundaments started to take shape in the 60s and 70s and early « warnings » signalling this were not taken serious until their industrial and innovative power became too big to be denied. 

India’s innovation track record, on the other hand, is a lot less based on patents or other more traditional R&D indicators. Instead, it is more based on experimentation, trial and error methods and principles of sobriety, and the subsequent innovation processes have been coined « frugal innovation » or « indovation » (essentially : aiming at « satisficing » solutions). As a consequence, India has given way to a growing number of « reverse innovation » cases : inventions or innovations that were made to respond to local demand / peculiarities and corresponding purchasing power, but then also found their way to Western markets and turn into a global mainstream product or service. In parallel, the term “reverse” refers to the phenomenon that innovations and new products are developed first for entry level consumers and are later on modified to accommodate the wants of more sophisticated users. Examples are: portable refrigerators, low cost computer tablets and handheld electrocardiogram devices.

Since the former may be a trend and opportunity for the longer run, Western companies should mentalize for this and embedd themselves (or at least monitor in a systematic manner the innovation seeds that germinate) in innovation-prone eco-systems in emerging markets. At the same time, making the most of it requires due local responsiveness and knowing what one can find in each place, which can be rather different from one emerging economy to another.

Policy makers can support companies in this respect by backing internationalization strategies of innovation support providers from the public (e.g. research centres) and private realm (e.g. consultancies, engineering companies, market research bureaus and other knowledge intensive business service providers) that can act as brokers of contacts and knowledge and can foster the intertwining of European SMEs with local user and producer communities, as discussed in a former PRO INNO mini study. They can also lead the way by setting up practices of cooperation and exchange of knowledge amongst European and Asian innovation agencies, as reported on in a PRO INNO Europe® report.

Given that - from a global perspective - the commercial point of gravity may be inclining towards non-European territory, the importance of trend spotting, demand analyses and forward looking activities with regard to customer preferences in emerging economies will continue to increase. European companies, directly or indirectly, should therefore place an eye on those economies if they want to capture global insights as to in which direction to develop their product and service portfolio. The aim of all this is not to foster a delocalization of activities and assets for innovation and/or production, but to install antenas that can capture ideas and facilitate firms to come up with responses to leads from emerging markets, with a potential to spread out towards the rest of the globe, in an effective and efficient way.