Frugal Technology Innovation - Essay Example

FRUGAL TECHNOLOGY FRUGAL TECHNOLOGY According to a discussion by OECD, business world is always coupled with constant innovations. As we examine innovation trends, there are a number of alternative options (Anon, 2012, 4-8). They vary in applicability from one line of business to another. Frugal innovation is a process that has gradually been taking shape in the manufacturing industry where multinational companies design products in developing economies, inventing them purely for use in these economies. Fully grown markets intending to venture into the emerging economies do so by establishing the needs of the markets and the income levels there, and then come up with rather cheap but quality products that can be affordable to the majority of the customers there (Radjou and Prabhu, 2013, para 1-6). The Unilever Company sets a good example while serving the surging populations in Africa, Brazil, India, and China. Other examples include the Tata group and the Coca Cola Company. Majorly, the products design for developed countries are less fit in affordability to the developing countries’ markets. The cost and the technology may sometimes not be convenient for the less developed economies. In these regards, products that are already designed and produced in the developed economies are only left for use in these countries. Innovation goes a notch higher by going into the developing economies and then by adopting cheaper technology, products are designed that are purposely meant for them (Singh, Sotiropoulos and Duckworth, 2012, 7). It is done to minimize the production cost, and hence the prices are lower to fit the developing markets (Bound and Thornton, 2012, 6). It is common with durable goods such as telecommunication appliances e.g radio calls, mobile phones, and accessories, vehicles, etc. This innovation is characterized by the downward movement from the developed countries into the less developed ones.” Tata Nano” is such an innovation where the Tata group designed the vehicle in India targeting the growing middle class population of India. The vehicle is cheap, affordable and well designed to meet family needs and yet uses cheap technology. Need to access the developing markets may push developed countries to venture into frugal innovation (Zeschky, Widenmayer and Gassmann, 2011, 43-44). In other instances, this innovation also ascertains better quality for products due to advanced technology in use by these developed nations. Moreover, developing nations targeting the rising incomes within the developing countries may engage in this technology. This has also made the innovation to move from only durable goods to include also service industry such as banking sector, telephone services and off grid electricity among others. This is therefore one of the emerging marketing strategies that are easily sipping and taking over the existing market trends. Product development in frugal innovation starts from understanding the needs of emerging economies and then inventing within the developed economies. There is a growing demand for cheap technology in the emerging economies like India, African countries, Brazil and China in order to compensate the already existing major gaps in the income levels and the need to provide low cost alternatives to energy, health, and education. Innovation in the case of reverse innovation, streams from MNCs operating in less developed economies into the already developed economies (Wooldridge, 2010, para 2). The income variance for the counties is easily seen as the cause. Both markets need more or less alike products but the income curve differentiates them (Karnani, 2009, 6-7 of 14). In this regard, the developing countries develop rather cheap products, which later find their way as innovation into the developed countries such as the U.S. A good example of the reverse innovation in the U.S is the “Yoga” which traces its origin in India. Fields that are most likely to be affected in the U.S market are telecommunications sector, entertainment industry, healthcare, transport, financial services, and housing sector among others. However, in the recent past, with the onset of the reverse innovation, the previously used production faces extinction for replacement with the cheap and rather easy ways of production as is being adopted from the developing economies. The multinational corporations in developing countries are innovating products and the innovations easily seep through to developed countries. According to Ansoff (Anon, nd,), there exists four business growth options namely; market development, market diversification, market penetration and product development. Market development option involves MNCs expanding with already existing goods or services only to markets that are new. Market diversification implies expanding through new products into markets that are new. For the market penetration, already existing products gets access to already existing markets. Product development on the other hand means moving into already existing markets through products or services, which are new. With market diversification, the MNCs would take in new innovations and move through exploring new markets. On the other hand, they would employ market penetration via spreading to already existing markets with equally already existing goods. Finally, they would adopt the option of product development by inventing new goods and services but targeting already existing markets. Such is the obvious case with the reverse innovation where we find the MNCs operating and inventing better products by employing cheap technology and then introducing them into the markets of the developed economies. The above analysis clearly depicts frugal innovation as to being the exact opposite of reverse innovation. In frugal innovation the MNCs purposefully designs and manufactures products in the developing economies in order to venture into these markets and help the citizens access high quality products though at cheap prices. Reverse innovation on the other hand involve the MNCs designing rather cheap products in the emerging economies and then transfer the technology into the developed economies. Therefore, whilst in the two cases MNCs are involved, there is the deliberate move with the case of frugal innovation to target specifically people and the markets in the developing countries. Does Reverse innovation represent a threat or opportunities for western companies? Reverse innovation has been said to be a threat to the western economies though it is still beneficial to some extent. It is viewed as a threat in that most of the multinational corporations’ in the western economies that wholly depend on the internal innovation face stiff competition posed to them by the cheap innovations by their counterparts. There is market segmentation and the cheap priced commodities introduced pose the great challenge. According to (Govindaranjan, 2012, 1-3), reverse innovation would not be beneficial to the U.S as an example, as most of the innovation would be from the MNCs. Local manufacturing companies that have not expanded to produce from the developing economies are left to shut down or buy the innovations from their counterpart MNCs. It is however beneficial to the western economies in that they easily adopt the new technology and have their trading scope enlarged even to these markets that were not easy to penetrate into using costly products. The companies such as the GE, Unilever, Cocacolla and the ECG have via these innovations been able to capture wider marketing grounds. Cheap technology is introduced in the manufacturing sector and therefore production costs are lowered. Moreover, with these cheap commodities, companies and people who could not afford the higher priced commodities are given options and can now manage the cheap prices. Higher production is achieved and the profit margins also increase by the MNCs that adopt reverse innovation. The effects of reverse innovation to the global market are well pronounced as is the case to the U.S market place. According to Immelt, Govindarajan and Trimble, the western multinationals have no option than just to comply and work together with the effects of this trend of reverse innovation (2009. Para.3-4). GE sets an example of the multinational corporations that have already adopted the technology. They have developed the portable ultrasound machine for use in the U.S and Japan but are currently serving the Chinese population. In conclusion, there is a disparity between production systems adopted by manufacturing companies in the developed economies and those in use in the developing economies. The frugal innovation and reverse innovation complement each other. Innovation can be from either the developed countries and move to the developing economies or vice versa through the MNCs. On the other hand, multinational corporations have slowly learnt that the developing economies are hot beds for innovation and form rich grounds for marketing their products. They are slowly transforming into frugal innovation in order to tap the untapped riches in resources and market segment within those countries. Examples are the GE companies targeting the China market and the Tata group innovating for the Indian market. References Anon. Business growth options-Ansoff’s Matrix. Business survival toolkit.co.uk.p1-3. [Accessed on 8/04/2013]. Web: Anon. Innovation for development. A discussion of the issue oand the overview of work of the OECD directorate for science, technology and industry. OECD 2012.p 4-8. Bound K. and Thornton I.Our frugal future:Lessons from Indias innovation system. NESTA 2012.p 6. Govindaranjan V. How reverse innovation can change the world. Arabic knowledge@Wharton. April 03, 2012. [Accessed on 8/04/2013].Web: Immelt J.R., Govindarajan V., and Trimble C.How GE Is Disrupting Itself. Article review. October 2009. [Accessed on 8/04/2013]. Web: Karnani A.The bottom of the pyramid strategy for reducing poverty: a failed promise.DESA working paper No.80. 2009. p 6-7 of 14. Singh S. K., Sotiropoulos A. G. A. and Duckworth S. Frugal innovation.Learning from social interpreneurs in India. The secro institute 2012. p 7. Wooldridge A. The world turned upside down. Special report: Innovation in emerging markets. April 15, 2010. [Accessed on 8/04/2013]. Web: Zeschky M, Widenmayer B. and Gassmann O. Frugal innovation in emerging markets.Technology management 2011. Industrial research institute Inc, p 43-44. Radjou N., Prabhu J.Frugal innovation: a new business paradigm. January 10, 2013. [Accessed on 10/04/2013]. Web: Does reverse innovation represent a threat or opportunity for Western companies? is it a threat??? it is both we need to show both opportunities and threat. then we can take a little side to me it is an increased competition. driving the prices down and differentiating the market. YEs there might be quality problem issue and we should argue this in the question but in the end arent we better off? people or business that cannot afford the highest quality could always by the cheaper one coming from the reverse. Also reverse could open new fields example the GE ECG machine and many more. extra example are needed not only the one provided by the slides.. we cannot speak about the industries like telecommunication without giving a proper example. Please be aware we are not speaking about outsourcing. also youa re arguing that to import the reverse innovation to the usa is more expensive why???? it coulbe be the same mnc producing and probably they already outsource the production of other product so this does not really matter. in conclusion there is not that much to save on this essay im sorry to say this. please read everything i sent you since the ordering thank you again for your understanding and time have a good day Read More