Introduction
Why do you use a smartphone device like the Apple iPhone or the Samsung Galaxy?" to the audience. Brand/image, accessibility to cool applications, screen size, design, connectivity, and device compatibility were the most popular responses. But how would that ranking appear to consumers in Bangladesh, China, or India? Consumers in emerging markets place more value on features like speakerphone availability, dual sim card functionality, multiple address lists, battery life (due to unstable electricity supply), speakerphone quality (due to high ambient noise in the street or in large families), speakerphone availability, and availability of a flashlight.
This demonstrates how the needs of the client determine value generation. The calculation is more complicated in emerging countries because other factors like the price of the good or service (since purchasing power is significantly lower than in established nations) and the location of the customer must be taken into account. Value perception will vary based on whether the consumer is in an urban or rural setting, and it might fluctuate significantly between provinces and regions. Companies must create products with features that consumers see as important and that they are prepared to pay for in order to capture value. Many businesses keep introducing new features only to discover that customers are unwilling to pay for them.
Four revolutions, according to Me are concurrently occurring in emerging markets:
The term "demographic revolution" describes historically high rates of urbanization that have led to high demand and limited supply for goods and services related to housing, energy, food, water, hospitals, and transportation in urban areas. There is an urgent need to transform minimal resources into concrete advantages for the greatest number of people because the investment necessary is beyond the capability of the majority of cities and nations, at least by Western standards. Only by using an innovative strategy that is revolutionary can this be accomplished.
People expect an innovation revolution where they receive 80% of the benefits at 20% of the expense. To create goods and services that are easy to use, affordable, and of excellent quality, executives must think creatively. Local businesses who develop items that meet customer wants and simultaneously come up with inventive ways to deliver their offerings and expand their business models are the leaders of this revolution. A new class of global competitors can arise as a result of the local innovation revolution.
Companies that are successful in their native markets—like Airtel, Tata, and Haier—start targeting developed markets during a competitive revolution. This has already taken place. If they are to compete with emerging market companies that are evolving into global players, multinational corporations (MNCs) must recognize this new reality and embrace the revolution by taking a fresh look at the various activities across their value chains, from R&D and product development to production, logistics, marketing, and sales.
Government revolution is connected to the emergence of national leaders in emerging countries who have large resources and talents. This has a price, particularly for small and medium-sized businesses, who struggle to innovate and expand in the face of competition from such entities.
Seizing emerging market opportunities with frugal innovation
Presently, emerging markets make up 36% of the global GDP. By 2025, they might represent a US$30 trillion potential, according to some projections. At that point, the EU, the US, and Japan will be well behind India, China, and other Asian nations in terms of global middle-class consumption. It is where competition and some of the most significant inventions will first appear, as well as where growth will come from. However, the majority of MNCs now do a poor job of taking advantage of these prospects and only generate 17% of their total income from these markets. Why is that so? What hurdles MNCs face in expanding their operations in emerging regions, and what can be done to turn them into opportunities?
Low purchasing power and a significant number of institutional gaps are the two main challenges that all businesses operating in emerging economies must overcome (e.g. poor infrastructure, limited access to health and education, pollution, lack of transparency and a weak regulatory framework). Addressing both problems at once is necessary for success in such a setting. While a local business like Tata in India could be accustomed to this, for giant multinational MNCs that have focused the majority of their resources on developed markets, it is a novel and uncomfortable reality. These businesses must figure out how to cater to customers with highly diverse needs and spending power. Mahmood noted that successful examples of businesses include Logitech in China, as well as Tata, Samsung, and GE Healthcare in India.
Delivering more value to more people at a lesser cost is the goal of frugal innovation. Because you must embrace a mindset of extreme simplicity and economy, without sacrificing user experience quality, it is frugal. It involves eliminating the superfluous and providing straightforward, durable, and resource-efficient products of high quality. "Our European engineers do not have the correct mentality for emerging markets and would establish overly high standards for even the smallest aspects, ultimately leading to an over-engineered and too expensive product," said a European CEO. When designing the Nano automobile and ChotuKool refrigerator, respectively, Tata Motors and Godrej & Boyce had to choose which industry standards to drop, scale back, improve, or add.
Business system innovation must be combined with frugal innovation
However, creating a cutting-edge product at a cost that consumers can afford is insufficient. High volumes are necessary for enterprises to be profitable in emerging economies, but they can only ensure these volumes if they adapt their business models to reach these clients and find ways to make up for the weak institutions. Go-to-market innovation must be linked with cost-effective innovation. Innovation in both corporate systems and products is required.
Businesses can address the issue of affordability by selling products in portions (for example, shampoo in single-dose sachets), offering financing and microcredit services, and collaborating with other stakeholders like NGOs and governments, which can help with some of the costs (e.g. mKrishi, a technology using mobile phones, allows farmers to access usable and customised expert advice, market information and weather data). Distribution is a crucial aspect of frugal innovation; for instance, the ChotuKool refrigerator is distributed by village girls who have received sales training, and the business is looking at using the Indian post office as a distribution channel.
Success in developed and emerging markets: The Samsung example
Samsung defies the conventional wisdom that claims it is only possible to achieve large market share and profits in developed or emerging economies, not both. Samsung, a $188 billion firm, has successfully made the jump from unrecognized OEM components provider to well-known brand. It currently holds the top two positions in the smartphone markets of the US and Western Europe, respectively. At the same time, it is widely present in emerging economies and has had great success in Brazil and India, where it dominates the markets for personal computers, hotel TVs, and mobile phones.
What makes Samsung different from its competitors? Speed is Samsung's main competitive advantage. It has linked its strategy, structure, processes, rewards, and people to offer speed and cost advantages because it acknowledges "commoditization" as a feature of corporate life. Its speed results from a perfect balancing act between two capabilities: exploitation, which is about effectiveness, implementation, and execution, and exploration, which entails taking risks, experimenting, and being flexible. 2 Examples of exploration include diversifying one's bets in the face of technical uncertainty (e.g., investing in both LCD and Plasma displays and the Android and Windows mobile operating systems) and fostering internal rivalry among product development teams. As a result, Samsung was able to launch a number of goods that went on to become best-sellers initially. Samsung is brutal as well.
How can Samsung adapt this strategy to the needs of a developing market like India and get beyond the two main obstacles that any MNC must face?
First, exploration is seen as local innovation: Its well-funded R&D team is able to create a number of products that add value rather than features, such as the Samsung Rex, a smartphone that has many of the features of cutting-edge smartphones in addition to a flashlight, high-quality speakers, and a triple sim card. It was first created and developed by an Indian R&D team specifically for the Indian market, but it is currently being offered in a number of other developing nations. India served as the hub for the entire process, from design to commercialization.
preparing for economic innovation
More than just creating a less expensive version of an existing product is involved in frugal innovation. It calls for adopting a whole different perspective, digging deep to understand the true needs of bottom-of-the-pyramid consumers, looking for gaps that may be filled with opportunities, and rethinking how the business is set up and how it distributes its offerings or products on a large scale.
Conclusion
The ability to create much more economic and social value while using significantly less of the world's finite resources is known as frugal innovation. It involves overcoming the dilemma of "doing more with less" and finding a solution to it. Frugal innovation is a game-changing strategy for a "Age of Austerity" when businesses are being forced to create offerings that are simultaneously affordable, sustainable, and of high quality by cost-sensitive and environmentally conscious consumers, employees, and governments. More than a plan, frugal innovation is a completely new way of thinking, a flexible approach that sees resource limitations not as a crippling problem but as a chance for growth.
To really benefit from frugal innovations, we need to emphasize good quality solutions that are accessible and affordable created with:
1.design thinking at the product/service level,
2.systems thinking at the macro level,
3. new ways of product design & development,
4.leveraging modern technologies to deliver low cost solution
5.innovative business models to make solutions accessible (e.g.: Product as a service etc.)