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Frugal Innovation in Brazilian Multinationals

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Reverse innovation commonly refers to an innovation initially launched in a developing country and later introduced to an advanced country. Adopting a linear innovation model with the four sequential phases of concept ideation, product development, primary target market introduction, and subsequent secondary market introduction, this study expands the espoused definition of reverse innovation beyond its market-introduction focus with reversals in the flow of innovation in the ideation and product development phases. Recognizing that each phase can take place in different geographical locations, the paper then introduces a typology of global innovation with 16 different types of innovation flows between advanced and emerging countries, 10 of which are reverse innovation flows. The latter are further differentiated into weak and strong reverse innovation, depending on the number of innovation phases taking place in an emerging country. This analytical framework allows recasting of current research at the intersection between innovation and international business. Of the 10 reverse innovation flows, six are new and have not been covered in the literature to date. The study addresses questions of ethnocentrism and the continuity of the flow of innovation, and discusses possible extensions of the model with respect to the number of geographical categories and phases of innovation. Four research propositions highlight areas for future investigation, especially in the context of optimizing a firm's portfolio of global innovation competence and capability. The implications for management are concerned with internal and external resistance to reverse innovation. Most significantly, while greater recognition and power of innovation in formerly subordinate organizational units is inconvenient to some, the ability to leverage the potential of reverse innovation makes a firm more likely to succeed in global innovation overall.
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Purpose – Frugal innovation is a term that has been used to describe the low-cost products and services, as well as the systems and processes adopted by organizations to develop them. The purpose of this paper is to examine the experience of multi-national companies (MNCs) in India as they adopt the philosophy of frugal innovation to develop products that are high in technology but low in terms of cost to meet the requirements of the market conditions in India, and similar low-income economies. Design/methodology/approach – The case study methodology was adopted to understand the experiences of the Indian subsidiaries of two MNCs, Bosch India and 3M India. Data were acquired through interviews with key decision makers, documents, and publicly available information. Findings – The two MNCs have increased research and development (R&D) in India and adopted the philosophy of frugal innovation which combines high technology with low costs. Based on the analysis, some propositions are presented indicating that MNCs will shift R&D to India if there are market opportunities; they will adopt the philosophy of frugal innovation to produce high technology products that are lost cost and low cost over product lifetime and will also expand to new-to-the-world innovation and finally contribute to global innovation. Research limitations/implications – The study is based on only two case studies and a large sample study may be required before the findings can be generalized. Practical implications – Other MNCs can learn from Bosch India and 3M India in terms of adopting frugal innovation practices to be successful in low-income economies. Originality/value – The field of frugal innovation is quite new and largely based on anecdotal accounts of successful low-cost innovation. This paper provides a more detailed account of the experiences of two well-known organizations to present propositions that may be used to conduct a large sample study.
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This study aims to understand what factors allow the subsidiaries of emerging multinationals to develop innovations that are used by the parent company, that is, what factors drive reverse innovation. The respondents of the survey were Brazilian multinationals with manufacturing activities or professional services abroad. The study began with a base of 46 Brazilian multinationals operating until 2006. From this base, 30 multinationals agreed to participate in the survey. Overall, they had 93 subsidiaries. From these 93 subsidiaries, 66 foreign subsidiaries answered the questionnaire. The article uses data from these 66 subsidiaries. The hypotheses were tested through the statistical techniques of correlations and multiple linear regressions. The results confirm our five hypotheses with an explanatory power of approximately 76%. Therefore, the results show that the reverse transfer of innovation depends on the strategic orientation of the foreign subsidiary's R&D function, strong integration (communication) between the parent and its subsidiaries, the entrepreneurial orientation of the company, the subsidiary's age, and, marginally, entry via greenfield investments.
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While academic debates and practical approaches to green marketing have matured over the past few decades, one central conundrum that has remained unresolved has been the trade-off between the higher prices of green products and the objectives of environmental sustainability. In general, it has been observed that green products are priced at a premium to account for their environmentally friendly consumption and use. We argue that resource-constrained product development approaches (alternatively labeled jugaad) that are observed in emerging countries such as China and India have the potential to change the traditional models of green product development. In addition to the competitive advantage that resource-constrained product development approaches provide, we suggest that these practices have sustainability and supply chain benefits. We show that the innovation process relies primarily on frugal engineering that reduces material use (thereby reducing burden on supply chain) and meets green marketing objectives at much lower, and therefore, more affordable prices. We draw out several implications for theory and practice.
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The traditional American model of multinational enterprise (MNE), characterized by foreign direct investment (FDI) aimed at exploiting firm-specific capabilities developed at home and a gradual country- by-country approach of internationalization, dominated the global economy during much of the post- World War II period. In the last two decades, however, new MNEs from emerging, upper-middle-income, or oil-rich countries have followed completely different patterns of international expansion. In this paper we analyze the processes through which these firms became MNEs and to what extent we need a new theory to explain their international growth.
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Recent years have seen the emergence of a paradigm of “low cost” innovations targeted at economically weaker sections of the society, seeking to align business with social welfare. In many instances, results on the ground have been, however, rather sobering as firms have generally worried that “good quality, low price” products may cannibalize into their regular business. At the same time those very customers that were intended to benefit from the new approach have tended to shy away from them fearing low quality and social stigma of using cheap products. Using multiple case studies of successful affordability-driven innovations (“frugal innovations”) from India we investigate how firms can effectively reduce market and technology uncertainty of product innovations targeted at price-sensitive customers. The key criteria to success seem to lie in reducing the overall cost of ownership and enhancing customer perception of quality and image. The case studies reveal that affordability-driven innovations are especially successful when firms turn to open global innovation networks for collaborative development in all phases of the innovation value chain. (Note: Since I am continuously getting requests to upload this paper, I wish to suggest the interested reader to access the full issue of Die Unternehmung, available directly at the publisher's site: http://www.unternehmung.nomos.de/fileadmin/unternehmung/doc/DU_12_03.pdf This will help me avoid any eventual violation of copyrights held by the publisher. Second, a working paper version of this paper is very much available online for free under the title "Open Global Innovation Networks as Enablers of Frugal Innovation: Propositions Based on Evidence from India".)
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This article presents a framework for the analysis of how MNCS' strategies interact with stateS' industrial strategies. It first shows how national institutional arrangements can systematically contribute to state strategic capabilities that form a basis of competitive advantage. It then examines conditions under which these arrangements and capabilities affect, or fail to affect, the international strategies and organization structures of home firms, incoming foreign direct investors, and home firmS' international customers, collaborators and competitors.
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As product offerings of multinational enterprises (MNEs) continue to primarily serve the relatively well-to-do consumers in emerging economies, innovations to meet the unique affordability and acceptability criteria of masses at the base of the pyramid (BoP) continues to remain a daunting challenge. The academic literature is sparse on comprehensive in-depth studies about the intricate processes involved in shaping and managing technology development for the masses. Focusing on product innovation by Tata Motors of India with the Nano - the worlds cheapest car, our case study aims to understand how the innovators choices regarding the use of technology, product design and organizational practices for new product development enabled it to meet the challenge of innovation for Indias masses. Drawing on Christensens work on disruptive innovations, our analysis shows how frugal use of resources through a new combination of existing component technologies created a new modular product to achieve the unique priceperformance requirements demanded by the BoP. Our findings show that collaboration with suppliers for component design and their early integration in the design phase substantially lowered costs and helped eliminate unnecessary frills whilst incorporating features valued by mass markets. Our study has important managerial implications for MNEs and provides critical insights into the processes for a new blueprint for an untapped market segment in the automobile industry.
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Purpose – The purpose of the present study is to assess India's potential as a lead market for cost-effective frugal innovations. This is of special interest since lead markets have traditionally existed in economically highly developed countries, whereas developing countries have faced negative country-of-origin effects. In the case of India a reversal of this trend may be observed, for some time. The paper aims to identify factors which are impacting India's emerging role as a fountainhead of frugal innovations. The research will have implications for locational decisions in setting up global innovation/ research and development (R&D) activities. Design/methodology/approach – The study crystallizes the inherent characteristics of frugal innovations, their development process and market success in the domestic and overseas markets by undertaking in-depth analysis of four successful product innovations from India from multiple industries. The obtained results can be treated as critical success factors for frugal innovations. These factors are then incorporated in the “Lead market” model so that propositions about India's potential as a lead market can be formulated. Findings – Whereas frugal innovations were so far driven primarily by affordability for the consumer and economies of scale for the manufacturer, a shift towards value proposition was discovered. Intensifying competition and growing customer aspirations are changing the character of frugal innovations and the customer is looking for factors such as attractive designs. Better-designed products, in turn, have positive impact on the lead market potential, creating a virtuous cycle. The study also discovered that frugal innovations are increasingly taking place in “open global innovation” networks and are no more a purely national or “Jugaad” affair. Practical implications – Lead markets are a critical consideration while setting up R&D/innovation labs. Our research gives multinational corporations (MNCs) a useful instrument to assess India's lead market potential for their respective field of business. Both domestic and foreign firms can employ the model also to identify interesting adopter markets for their respective products. Social implication – The research confirms that frugal innovations can benefit end-consumers and firms, simultaneously. It may encourage more firms to tap markets at the bottom of the economic pyramid. Intensifying competition would potentially bring even better products for the consumers. Originality/value – Lead markets have been traditionally regarded to exist - almost by default - only in highly developed economies. Innovations emanating from developing countries, especially from their domestic firms, have been considered to be of inferior quality. This mindset caused country-of-origin barriers for non-commodity, technology-intensive exports from developing economies. This research demonstrates that lead markets can exist even in developing economies, frugal innovations can have high technological quality, and frugal innovations are increasingly created in “open global networks”.
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Much of the prior research on interorganizational learning has focused on the role of absorptive capacity, a firm's ability to value, assimilate, and utilize new external knowledge. However, this definition of the construct suggests that a firm has an equal capacity to learn from all other organizations. We reconceptualize the firm-level construct absorptive capacity as a learning dyad-level construct, relative absorptive capacity. One firm's ability to learn from another firm is argued to depend on the similarity of both firms' (1) knowledge bases, (2) organizational structures and compensation policies, and (3) dominant logics. We then test the model using a sample of pharmaceutical–biotechnology R&D alliances. As predicted, the similarity of the partners' basic knowledge, lower management formalization, research centralization, compensation practices, and research communities were positively related to interorganizational learning. The relative absorptive capacity measures are also shown to have greater explanatory power than the established measure of absorptive capacity, R&D spending. © 1998 John Wiley & Sons, Ltd.
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A critical new battleground is emerging in China: It's the "good-enough" market segment - home of reliable-enough products at low-enough prices to attract the cream of the country's fast-growing cohort of midlevel consumers. Traditionally, foreign multinationals have dominated China's premium segment, while a plethora of domestic companies have served the low end, often unprofitably. But as middle-class buying power increases, and the tolerance for high markups at the top end wanes, the middle market is growing quickly. Thriving in a market so big is clearly important in itself. But, argue Bain chairman Gadiesh and Bain partners Leung and Vestring, competition in this particular arena has more far-reaching implications. Companies that flourish in China's middle market today are learning valuable lessons they need to compete worldwide: Multinationals are discovering how to focus products downscale to break out of the premium tier, and domestic firms are building scale and marketing expertise to move up. Both are positioning themselves to export their China offerings to other large emerging markets such as India and Brazil - and, after that, to the developed markets. Ultimately, the authors warn, the good-enough space, where multinationals and Chinese firms are going head-to-head, is the one from which the world's leading companies will emerge. The authors describe three strategies for entering and prevailing in this strategically vital space. Multinationals can attack domestic players from above, Chinese firms operating in the low end can burrow up from below, and both can acquire their way into it. The experiences of such players as Colgate-Palmolive, GM, GE, Huawei Technologies, Haier, and Ningbo Bird show how challenging it is to gain a foothold in the middle market but also how much potential there is to use it as a springboard for global expansion.
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We analyze the advantages and disadvantages of developing-country multinational enterprises (MNEs) in comparison with developed-country MNEs. Developing-country MNEs tend to be less competitive than their developed-country counterparts, partly because they suffer the disadvantage of operating in home countries with underdeveloped institutions. We argue that this disadvantage can become an advantage when both types of MNE operate in countries with “difficult” governance conditions, because developing-country MNEs are used to operating in such conditions. The empirical analysis shows that, although developing-country MNEs rarely appear among the largest MNEs in the world, they are more prevalent among the largest foreign firms in the least developed countries (LDCs), especially in LDCs with poorer regulatory quality and lower control of corruption. Journal of International Business Studies (2008) 39, 957–979. doi:10.1057/palgrave.jibs.8400390
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