Many Americans–at their peril—continue to view the world’s emerging economies as primarly a source of cheap labor where call centers and other kinds of labor intensive activities are outsourced. However, it’s become quite clear that many of these economies, especially the so-called BRICS (Brazil, Russia, India, and China) are becoming potenial innovation powerhouses in their own right. A new Economist special report (April 17, 2010 issue) takes a deeper look. Certainly, we are starting to see lots of research facilites located in China, India, and Russia, and lots of BRICS-based firms, such as Brazil’s Embraer, and India’s Tata. are global leaders.
For me, the intersting aspect of the Economist’s report was its focus on the emergence of new business models developed in these economies. In general, not enough attention is being paid to issues of business model innovation in the US and elsewhere. One interesting exception is the Rhode Island-based Business Innovation Factory (http://businessinnovationfactory.com/). The Economist credits firms based in the Global South with pioneering new models of “frugal innovation.” An interesting example is the concept of “scaling out.” “Scaling up” is a fairly traditional model—as firms grow, they seek to reduce unit costs by centralizing. In contrast, emerging economy firms are experimenting with “scaling out.” This approach engages more–not less–people and partners in the process of production and distribution. So, instead of expanding a centralized medical centers, firms instead provide health services via mulitple mobile health care units.
A second example is the use of mass production techniques to provide sophisticated services. For example, many of India’s outsourcing firms are now moving away from traditional IT and call-center work into providing services such as legal advice. Those who previously thought these higher value-added services could never go overeas may need to rethink these assumptions.
What does all this mean? At a minimum, it means that firms in developed economies will need to embrace these models if they hope to succeed in emerging markets. More importantly, it means that all of us will need to better understand how market disruptions generated by emerging economy firms will take many forms. They will no longer simply be cheaper; they may be more innovative, too.