International Business Globalization and Trade, Multinational Enterprise - Research Paper Example

? International Business Globalization and Trade, Multinational Enterprise Introduction Economic growth and development ischaracterized by unique inventions and innovation methods. This is happening in Asia which in the last 10 years has produced two main emerging markets (China and India). The economy of Asia composed of more than 4.2 billion people represents 60% of the world population. China and India are becoming economic giants and this evident by the way their products are competing perfectively with goods from developed countries like U.S, UK and Germany. The two nations have embraced ‘frugal innovation’ system which advocates for producing more for less. Frugal invention helps in cutting production cost of production and this has been an added advantage to Companies operating in the two upcoming economic superpowers. (Urata and Chia et al., 2006). Factors leading to Economic growth in Asian States Innovation is the application of improved solutions which meet the new requirements, inarticulate needs or the existing market needs. This is achieved through more effective products, processes, services, technologies or ideas which are readily available to markets, governments and society. This is happening in Asia where China and India have decided to end developing country life and join the group of developed countries. Frugal innovation has been highly used in china and India. Frugal innovation is the process of reducing the complexity and cost of production of a product. This kind of innovation helps firms in growing at a faster rate by reducing production cost. Frugal innovation has made many firms in Asia to have a competitive advantage (Mason, 2001). Reverse innovation is the kind of innovation used by most of the developing countries. This is kind of innovation whereby goods developed as inexpensive models to meet the needs of the developing nations. (Govindarajan and Trimble, 2012). Jugaad invention is in full force in both China and India. This is a process of improvising production materials due to lack of enough resources for production. China and India has been using and producing their products using their local readily available resources. These forms of innovations used by the two Asian nations has played a big role product development (Radjou and Prabhu et al., 2012). China and India incorporated globalization in their system. This process has helped the two nations in borrowing technology from developed countries and use it in production of high quality affordable products. Frugal innovation in Asia The origin of Frugal Innovation Using the concept of innovation, frugal innovation develops on the theories of movements and capabilities that have been there before. Frugal innovation can be traced back from the appropriate technology movement. This was as a result of a publication by Schumer in 1975 with the topic, ‘Small is beautiful: Economics as if People Mattered’ this was aimed in campaigning the local development of low technology, labor intensive, environmentally technologies as substitute to depending on technology- transfer from developed countries. After growing as a global movement, the attractiveness of the intermediate which later became appropriate technology send a warning message, for it was increasing the implications of second class quality. Due to threats like environmental challenges due to ozone layer depletion, the appropriate technology was overtaken by sustainable development which forced countries like China and India to come up with ways of growing their economy (Bound & Thortin 2012). The evolution of frugal innovation was influenced by several factors. The factors included; social movements which helped in globalization of science technology and innovation. There was availability of technology for the two countries had tapped it from some developing countries. The growth of the private sector increased networking of global innovation system as multinational firms explored new locations for R&D. Ethical capitalism helped in growth of frugal innovation (Bound & Thortin 2012). China has utilized the availability frugal innovation to advance their economy. This kind of innovation attracted many multinational companies to invest in China. Companies like Renault Nissan, Siemens and Unilever were the pioneers of frugal innovation in China. This process of innovation helps an economy to generate more business, and social values while reducing the use of scarce resources. The main theory behind frugal innovation is doing more with less, and this is the desire of entrepreneurs for this will facilitate profit maximization. Through this innovation the government of China and the firms which has invested in China are able to create goods which are affordable, sustainable and of high quality. (Gasman and Beckenbauer et al., 2013). These affordable high quality goods have been competing effectively in the international market. Frugal innovation is a flexible approach which perceives resource constraints not as a debilitating challenge but as a growth of opportunity within the production arena. This has been realized by the Unilever Company CEO Mr. Paul Polman based in China believes that scarcity of resources can be catalyst for radical innovation. The CEO has laid down a strategy where Unilever will double its revenues by 2020 as it reduces its environmental impact by 50%. This means that the company will maize on sales and revenues and through this the economy of China will continue shooting up because more revenue inform of tax will be collected by the government. A stable economy should be almost operating at full employment level, and this is the case with China where more companies are coming creating more job opportunities (Nolan, 2004). The Chinese companies are using innovative business models to change the cost structures and capabilities involved in delivering renewable energy technology. This has helped the companies to lower their production cost. This will affect pricing where most of the goods produced by Chinese companies are affordable and of high quality. This has promoted sales maximization which leads to growth of company’s operations. Through strategic partnership with technology led companies in the US, Europe they are rapidly reducing the cost of production and effectively entering the value added parts of the global technology (Nolan, 2004). China’s industrial revolution is highly based on agriculture and manufacturing. The agriculture sector is known to employ a good number of workers because the vast lands are being used for planting rice. The Chinese businessmen are adjusting their strategy in two ways. The first one is frugal innovation by the Economist. These businesses have realized new ways of making money from manufacturing high tech goods in a low tech way. For example we have BYD Company which is the leading manufacturer of battery. Over the company’s first 10 years the management of the company has been able to lower the cost of lithium ion battery from US$ 42 to US$ 1. This was possible because the company had used a designed borrowed from Japan which was replaced Japanese machinery with the hands of Chinese workers. The founder of the BYD battery company Wang Chuan-Fu through this improvisation of the lithium ion produced by Japan proved that it is was possible to train large workforces to do repetitious tasks with minimal human error. The significance of frugal innovation is that it made it possible for Chinese companies to dramatically reduce the cost of production of a certain clean energy technologies. This makes frugal innovation to be the best to be used by developing countries in the future to boost their economic growth and enhance industrialization (Knight 2012). Through the implementation of frugal innovation by the Chinese companies and producing clean energy at a lower, and affordable prices foreign companies have found it easy to partner with the already existing companies. Merging of companies has helped these local companies become strong as their working capital is increased by the new partners. This has in led to increased job opportunities to the local Chinese citizens. Merging with foreign countries has also led to globalization where Chinese farms are able to market themselves in foreign countries comfortably (Nolan, 2004). Frugal innovation has been moving in Asia from west to East and this is why economic growth in Asia has been almost uniform. The invention of the Tata Nano, the cheapest car in the world was a symbol which rolled off the production in 2009. Frugal innovation would put consumer goods, of which a $ 2,000 car was merely a foretaste, within reach of both normal Indians and Chinese. The Asian engineers were imagining how western goods with all the unnecessary frills were to be stripped out. According to the engineers the cost of savings would be high that frugal ideas would conquer the world. Through the frugal innovations in Asia multinational companies of the western have never be at peace. Some multinationals have started using ideas developed in the emerging world and deploy them in the west. This is because the frugal is producing products which are cheap compared to goods produced by the west companies. A good example is Harman, which is an American company. The company makes infotainment systems for cars, the company developed a new system for emerging markets using a simpler design and Indian and Chinese engineers (Karabag 2011). Production of GE’s V scan portable ultrasound device which allows doctors to be able to see inside patients was produced in China and became common in both rich and poor countries. This is because the device was produced using the frugal innovation making it affordable by both rich and poor nations. The western firms are worried because they think this new strategy will cannibalize the existing market for expensive technology. The question is ‘why buy a $ 10,000 device when the same company can make a slight simpler one for $ 1,000?’ This question has kept the west Companies on their toes (Nolan, 2004). India’s Mahindra & Mahindra small tractor firm sells its products to American hobby famers and this has made the John Deere be sacred. China’s Haier has undercut western competitors in a broader range of products, from washing machines, air conditioners and wine coolers. Haier sells a wine cooler foe half the price of the industry leader, and within two years it had already grabbed 60% of the American market. Frugal seems to be a big threat to developed countries, to the developing countries it an added advantage of production this because it helps developing countries to produce less, affordable using a lower production cost and limited resources. Due to this factor some Western Companies have been turning to emerging markets like China and India to develop their products. Most of the goods produced in these emerging markets are cheap and serve the same purpose as those expensive goods produced by the western countries (Jin 2009). There is a Massachusetts- based startup which has come up with a paper based diagnostic tests which the size of a postage stamp. The firm has decide to market its ideas in the emerging markets so as to avoid America’s hideously slow approval for medical services. Emerging markets have tried to avoid bureaucracy in production of goods which will boost the economic growth of the nation. This has attracted companies to join such economies which commence production immediately and at a lower production cost due to the evolution of frugal innovation in most of the emerging markets. The dream and desire of every entrepreneur is to cut cost for this helps them in profit maximization which the ultimate goal of every business organization. The emerging markets are very favorable for entrepreneurs. For example the Jane Chen the leader of Embrace sells low-costing infant warmers for premature born babies in India and other emerging markets. This trend is increasing in the emerging Markets because the West is doomed to a long period of austerity as the middle class is pressed and government cuts spending. According to some research it has been realized that some 50 million Americans lack medical insurance and another 60 million cannot operate bank accounts regularly because their income levels don’t allow such things to happen for what they earn ends in their bills and food. This is forcing such individuals to look for ways of earning extra money. There are several higher learning institutions from the West who are slowly embracing the spirit of frugal innovation. A good example is the Santa Clara University which has developed its own frugal innovation lab. The reason these institutions are embracing Frugal innovation is because it has proved to be the only system of production which makes individuals equal by producing affordable commodities (D'costa, 2012). Frugal innovations is being used in the emerging countries by small entrepreneurs in the market to hit back in case the incur losses. Entrepreneurs in developed countries find it hard to come back to business when they incur losses. This is because in most of these Western production and running cost of businesses is high compared to the emerging markets. India was hit by earthquake and most the Indians small business were affected. The only way of hitting back to the market was to look for the most appealing way which is also financially friendly. Through the frugal innovation Know how most of the Indian inventors recycled old technology to solve their local existing problem. Such inventions included amphibious bicycles, wind powered irrigation systems and tree climbing machines. According to a report released in the CNN in August 2013 had identified how some small business people were using frugal innovation to restore their businesses. The report identifies one young entrepreneur by the name Mansukhbhai who had lost everything during the earthquake. This young entrepreneur realized an innovative way of coming back to his business. Prajapati designed a low-cost clay fridge which needed no electricity and he went on with on with his operations despite the losses he had incurred. Prajapati innovation is one of the recognized frugal innovation in India (McNicoll 2013). The frugal innovation has led to the growth of the cell phone industry in China. China has taken over the market of smartphones making the growth of industry slowdown in U.S, Europe and Japan. China has overtaken U.S in both sale and production of smartphones, this due to the fact that the China phones are affordable compared to the U.S phones. According to the report about mobile commerce by the end of 2013, China’s mobile commerce market is expected to transact smartphones and tablets worth $ 24.2 billion in value and account for 11% of all e-commerce a proportion assumed it will be higher than that of the U.S Market. This growth of the China’s cellphone industry has attracted some companies from west countries to merge with the local companies in China which is cheaper for them than establishing new firms in the region. Foreign firms establishing new plants in China may lead to production of goods of higher price compared to goods produced by the local companies and this will affect the production cost of the new firm. (Heggestuen 2013). Factors which has Boosted High Impact of Frugal Innovation in Asia There are several reasons why frugal innovation have had a great impact in Asia especially in China and India the two main emerging markets in Asia. India has a ‘Jugaad’ culture which is referred to creative improvisation has created a good environment for the growth of Frugal innovation in this region. The availability of a market with a growing, ambitious middle class has created a perfect conditions for frugal innovation. The Indian consumers are known to be price sensitive and willing to experiment and this was a booster to frugal innovation because an individual cannot go for a product costing $10,000 when they can acquire the same product at $1,000. There existed an extreme situations and big gaps in service delivery inspired demand for low cost solutions in fields like health and energy. India enjoys a strong service and business model innovation and this created a benefit in remodeling of product-service environment. The availability of new sources of social finance has lowered the cost of investing in frugal innovations and this has made firms to embrace it because low cost of production is what every company desires for maximum results in their operations. There has been an increasing inclusive science and innovation policy which has prioritized acquiring more for less, as it tries to develop the institutional situations which could drive high impact for frugal innovations (Bound & Thortin 2012). Globalization is pushing Western companies to provide more value for money. This is possible because an American firm called Logitech had to create a first class wireless mouse for lower prices when the company embrace technology of a Chinese firm called Rapoo in China. John Dree firm had to do the same when they were using Mahindra of India in producing its small tractors. Globalization is also a great booster to Western countries in helping them to counter frugal innovation in emerging markets. The western firms have been borrowing this innovation mind set from the emerging markets, A good example is in the case of where the Renault- Nissan requested its engineers in France, India and Japan to compete in coming up with ideas of cutting production cost, and the Indians won; this is simply because the Indians are very aware and well equipped with the knowledge about Frugal innovation (Arrighi 2008). Conclusion Frugal innovation is the future backbone of economic growth to all developing countries. This evident with the way emerging markets like China and India have taken over in Industrialization overtaking the west with almost every department. Frugal innovation produces less for more; this is relevant to developing countries due to scarcity of resources. Most of the developing countries in the world lack enough resources for production and through the frugal technology it is possible for countries to improvise locally available resources, and use them in production. This will help in lowering the production cost of companies, as it has happened in both china and India. This evident in Emerging markets of Asia (China and India) where they have been producing quality products at a lower and affordable prices compared to their counterparts in Western countries. Production of high quality cheap products in Asia has created a threat to most of multinational firms from the west who are finding it hard to cope with the mode of production, and pricing of goods produced by emerging markets. This has made goods from emerging markets to be more consumed even by individuals from the Western countries. Other companies from the western countries have been using the technology of the emerging markets to be able to produce goods which can compete in the world market with the ones from the emerging markets. Emerging markets have made it easy for individuals to start and operate businesses and this has attracted some businesses from western countries to relocate their operations. Some countries like U.S take long in approving any innovation in the medicine sector and this is the opposite with emerging markets who only advocate for producing more for less. Emerging markets have been able to empower its citizens compared to the western countries where living cost is high and the cost of starting a business or recovering m a loss is high. India was struck by earthquake and entrepreneurs lost businesses, but they were able to hit back due to the availability of the frugal innovation which advocates for improvisation of locally available resources to do business. Bibliography Arrighi, G. 2008. Globalization and the Rise of East Asia Lessons from the Past, Prospects for the Future. [Online] retrieved from: http://iss.sagepub.com/content/13/1/59.abstract Asian Innovations, 2012. 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