Developed countries have largely dominated the literature of disruptive innovation in recent years. Innovations such as Uber, Netflix and many other are mostly established in developed countries, i.e. the global leaders. The assumptions held in traditional literature are that path breaking (disruptive) innovations can only occur in advanced economies and that developing economies are path-followers of innovations. Challenging the aforementioned assumptions, this essay argues that disruptive innovations can still happen in emerging economies that have yet to catch up with the global leaders due to their unique practices and necessities. In achieving this, I would first contextualise the essay in reference to disruptive innovations coined by Clayton Christensen and define the word caught up. This essay would then draw on empirical evidence of disruptive innovations from developing countries such as the Philippines and India, ranking 57th and 39th respectively in the Global Competitiveness Index 2016 (WEF, 2016). This essay concludes that disruptive innovation is made possible in developing countries through the practice of bricolage and frugal innovation.
Definitions and Contextualisation
Employing Christensen (2015) definition of disruptive innovation, disruption can be described as a process whereby a smaller company with fewer resources, successfully challenge established incumbent businesses (Christensen, Raynor and McDonald, 2015). In the case of disruptive innovation, it involves introducing a pioneering product that may or may not involve major technological advancement and is usually produced and sold at a lower price than incumbent products (Christen, Raynor and McDonald, 2015). However, innovations need to fulfil two primary criteria as suggested by Christensen to be characterised as a disruptive innovation. Firstly, disruptive innovations need to originate in low-end or new market segments before making its way to the mass market (Figure 1) (Christen, Raynor and McDonald, 2015). Secondly, disruptive innovations are characterised by their inferiority in terms of quality as compared to incumbents’ products at their initial stage of development and can only compete with incumbents once their quality is at par with them (Christen, Raynor and McDonald, 2015). To summarise, disruptive innovations emphasise on the creation of good-enough products that can meet the consumers’ needs (Hang, Chen and Subramaniam, 2010).
Figure1
Source: Harvard Business Review, 2015
On the other hand, catching up to global leaders is defined as a process of closing the gap of technological development and economic growth to be at par or comparably close to the global leaders. The global leaders in the context of this essay is defined as OECD countries. This is because most of the OECD countries are industrially developed (Rahman and Zaman, 2016). Hence, it would be relevant to use OECD countries as a benchmark for technological and economic catch-up.
‘Path-Following’ Mode of Learning Innovation
This essay concedes that there is numerous evidence to suggest that emerging markets are path-followers and that innovations in these countries are results of imitative innovations and technological diffusions from developed countries (Grossman and Helpman, 1991). This implicit view implies that innovation that happens in emerging economies are by far sustaining innovations and imitative innovations both of which fundamentally involves, gradual improvements to an established type of product or just imitating innovations that are already established in developed markets (Wong, 2014).
Some of the prominent examples of technology spill-over in emerging economies is the establishment of Huawei and ZTE in China, whereby these companies followed the general
pathway of technological learning for latecomers in which they adopt mature foreign technology, such as mobile technology at the initial stage of development and consequently improve them through sustaining innovations (Fan, 2011).
This issue may have stemmed from the structural problems that most emerging markets face. More specifically, most emerging markets are still largely agriculture-dependent and hence significant portion of its population are involved in low-productivity sectors (Wong, 2014). Furthermore, many SMEs compete on low resource availability, including financial capital and lack the scale to pursue Research and Development (R&D) activities which may reduce innovative capabilities (Wong, 2014). This is because R&D activities are considered to be a vital aspect in providing a foundation for knowledge expansion and innovation (Watu Wamae, 2009). Such inadequacy is reflected in the R&D spending as a percentage of GDP in which emerging markets spend significantly less than their developed counterparts (UNESCO, 2016) (Figure 2). Another problem that may exacerbate this issue is the lack of competent human capital to initiate innovative activities. Such deficiency is seen as a problem given the fact that human capital, equipped with relevant knowledge and experience is an essential component for innovative initiatives to take place (Gim nez, L pez-Pueyo and Jaime Sana , 2015). This is clearly apparent given that the average schooling years for those above 15 years old in developing countries is 6 years as compared to those in OECD countries, which is almost 12 years as of 2010 (Barro and Lee, 2013). To compensate for these inherent problems, firms in developing countries need to adopt and leverage on innovations from developed countries to remain competitive.
Moreover, researches support the argument that factors such as human capital play a significant role in promoting innovative activities in emerging economies (Doruk and S ylemezo lu, 2014). Although progress has been made, developing economies are still lagging in terms of developments in several areas which can induce disruptive innovation. Hence, it could be argued that emerging markets are incapable of pursuing disruptive innovation due to structural incapability, coupled with low R&D spending and less competent human capital.
Figure 2
Source: UNESCO Institute for Statistics, 2016
Path-Breaking (Disruptive) Innovation in Emerging Markets
However, with the rise of reverse innovation (Radojevic, 2015), whereby incumbents imitate innovations from developing markets to cater for consumers from low-income segments, this essay argues that disruptive innovation is very much possible regardless of whether developing economies have caught up with the global leaders.
The existence of innovative practices is derived from the necessity of the market in which an entity operates, and necessity varies across countries and regions. Therefore, the context of disruptive innovation in developing countries is materially different than that of developed countries. This is because most companies in these economies operate in resource- constrained environments (Agnihotri, 2015). Hence, they prioritise innovations that provide high value to cost ratio (Altmann and Engberg, 2016). Moreover, most of these businesses tend to serve those in the ‘bottom of the pyramid’ market segment (Hang, Chen and Subramaniam, 2010) i.e. customers with low income per capita and low customer sophistication (Agnihotri, 2015), which incentivizes resource-constrained and low-cost innovations. Furthermore, such environments create demand for disruptive innovative solutions to solve day to day problems which consequently creates opportunities for a new
market (Hang, Chen and Subramaniam, 2010). Given these circumstances, disruptive innovation is a great strategy to serve the needs of consumers in emerging markets (Hart and Christensen, 2002).
In understanding disruptive innovations in developing countries, several practices have been studied to explain its phenomenon. One of the main impetus of disruptive innovation can be explained from the literature of bricolage. Bricolage refers to the ‘creative and strategic deployment of diverse, generic, non-specialised resources in novel contexts’ (Gurca and Ravishankar, 2016). This creative practice of adapting mature technologies to new uses incentivize firms to produce innovative and disruptive solutions to serve the lower end of the consumer base spectrum. Coupled with low costs of production, this consequently leads to lower prices for their products and hence making it accessible for low-end consumers to use their products.
A quintessential example of the practice of bricolage is the introduction of Electric Vehicle (EV) by the Reva Electric Car Company in India. The company leveraged on the recombination of resources and technologies traditionally used by incumbents in other products for new purposes. It also involved collaborative bricolage in which the company exploited efforts and inputs of multiple collaborators to successfully create low-cost EVs (Gurca and Ravishankar, 2016). This product is characterised as a disruptive from Christensen’s innovation perspective because it created a whole new market for consumers who could not initially afford EV. Secondly, the product slowly made its way to incumbents’ market having achieved necessary qualities to do so, being the first EV from a developing country to qualify for the European Union roadworthiness standards (Gurca and Ravishankar, 2016). Hence, the practice of bricolage, which focuses on the creative use of existing technologies and resources is argued to be a catalyst for disruptive innovation in developing countries. This proves that technological catch-up is not a prerequisite for disruptive innovation to occur rather, it is the focus on resource-constrained and creative use of existing technology that makes it conducive for disruptive innovation to flourish in developing economies.
Additionally, firms in developing countries also adopt frugal innovation practices. Frugal innovation focuses on creating innovative products which are developed under resource- constrained conditions (Agnihotri, 2015). Frugal innovation emphasises on creating products that are usually technologically less advanced, but good-enough to serve those in the market in which the company operates, which is consistent with Christensen’s model of disruptive innovation. Frugal innovation also paves way for elimination, reduction, raise and creation of
products and services in an effort to capture untapped markets (Kim and Maugborgne, 2005). Such strategy allows them to keep costs relatively low and focus on core features that solves the prominent problems of those at the bottom of the pyramid. This is further improved with the localised knowledge that has been imbedded in their business strategies, which allows companies in these countries to understand what the consumers actually demand in their market (Brem and Wolfram, 2014).
Frugal Innovation was clearly exemplified in the case of Smart Communications Inc. in the Philippines, where the company established a revolutionary low-cost reloading technology coupled with sachet based pricing to target low income consumers that constitutes the majority of the population in the Philippines (Anderson and Billou, 2007). The company was successful in creating a new market for low-income consumers and has successfully improved mobile penetration in the country by 70% (Anderson and Billou, 2007). This product is also consistent with Christensen’s model of disruptive innovation as it started by serving consumers initially neglected by incumbents before moving up to the mass market. Again, this proves that developing countries are more than capable of pursuing disruptive innovations without necessarily catching up with the global leaders of technology.
However, it should be noted that not all disruptive innovations from developing economies are success stories. Though disruptive in nature, failure to position products correctly in the market can lead to failures in the business model and ultimately hinder the success of a disruptive product (Kalla, 2015). An example of this is the failure of Nano Tata from India, where the car was supposed to serve the lower end of the consumer segment and the low-cost business model seemed to be an innovative approach to the consumers. The failure can be attributed to the business’s inability to create a prestige image of owning the car, which led to the low demand for the car (Kalla, 2015).
Hence, the practice of bricolage and frugal innovation in emerging markets can bring about disruptive innovations in these countries and consequently allow them to compete with incumbents in the main market.
Conclusion
In summary, path-following modes of innovation learning in developing countries (particularly imitative innovation and technological diffusion) highlight the continuing traditional perception of innovation creation in emerging countries. Furthermore, structural constraints imbedded in
the systems governing emerging markets such as scarcity of resources and human capital incompetency point to the relevance of path-following innovation in these countries. However, closer analysis would suggest that through the practice of bricolage and frugal innovation, businesses in emerging markets are able to successfully create disruptive products, consistent with Christensen’s model of disruptive innovation and compete with incumbents in various markets. Following the abovementioned argument, I reject the notion that disruptive innovation can only happen when developing countries have caught up with the global leaders. To conclude, innovation is a practice that can only be limited by the imagination of the mind. So long as the mind continues to generate ideas, innovation will continue to be abundant in both developing and developed countries.
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