Term emerging markets refer to as countries which are phase between developing countries just which are industrialized and developed countries. Emerging market consists of Brazil, Russia, India and China (Pearson). Growth of these countries is very high and people expectation towards the goods is increased. People's purchasing power is more than previous; is because of the higher income and education. People use high branded quality product and more Information systems. These things attract the foreign companies. Toyota Motor, Ford Motor, General Motor and other Car Motor companies would get the benefits from the demand of automobile in emerging countries. Coca Cola, Pepsi and other food and beverage manufacturing companies get growth in emerging countries because of the high population and high living standard. Because of the foreign investment, countries economic growth is increased. High economy growth will enhance the innovation in business; increase more research and development centers and because of this, further enhance the growth of the country. Because of this continuous growth emerging countries make more innovation than developed countries and they become leader in innovation. This report describes the concept of global economy and trends; business innovation in emerging economy and because of all these things how can emerging economy become leader in innovation and continuously manage this position. This repot supports many evidence and examples.
Global Economy and Trends:
Global Economy depends on the financial performance of the world. Recent IMF survey indicates that after long recession world economy is recovering and financial performance of the market is increased (IMF, 2009). Global recovery depends on countries Domestic Growth and foreign investment. Global GDP growth depends on advanced economies like US, UK, Canada and Emerging and Developing economies like Brazil, India, China, Russia, South America and South Africa. Emerging countries' GDP growth plays important role in world Economy. Global GDP graph shows that world economy more depends on emerging economy. IMF staff estimated the future forecast of Global GDP growth; in this current situation advanced economies growth is stable and emerging economies growth is strong (IMF, 2010).
Last three decades demographics of world economy are drastically changed or changing continuously. Trends are important in changing economy. These trends are:
The Changing world output or changing world picture:
The above graph shows last 40 years US share of GDP has been constant; during 1975 to 2009 it is slightly changed from 26.3% to 26.7% but Asia and Emerging Countries like India, china share of GDP is continuously increased from 15% to 26% during 40 years and it will change the world picture and play important role in world GDP growth.
The Changing Foreign Direct Investment picture:
According to World Investment Report US participation in Total FDI stock was declined 38% to 21% during 1980 to 2004. During 1980 to 1990 Japan share of FDI was increased because of high Foreign Direct Investment in automobile industry in United States and Europe. Developing countries share of FDI increased 2% to 12% during 1980 to 2004. This analysis shows that Foreign Direct Investment picture is continuously changing.
The Changing nature of the Multinational Enterprise:
According to UN Report world's top 100 largest Multinationals; most of come from the developed countries but in current trend developing countries' multinationals are also sit in top 100 lists. Many medium and small multinationals are also growing and are transfer to international firms (Hill, 2008).
The Changing World Order:
Many of the Asia and Latin American Countries are committed to the free market economy and democratic politics. World order is changing; china and other emerging countries are growing very faster; Foreign Direct Investment is continuously increased and GDP of developing countries is increased. This will create higher opportunity for international business (Hill, 2008).
This analysis shows that world Economy picture is changing and is because of the growth of the Emerging Economy. There are some important characteristics of Emerging Economy are play important role in changing world picture.
Characteristics of Emerging Economy:
Wide spread liberalization and adoption of market based policies
Securities available to foreign investment
Increase local and Foreign investment opportunity
Infrastructure, Material, Land and Labour cost are lower
Transitional from closed economy to an open market economy
Reform its exchange rate system
Offer an opportunity to investors who wants to add risk to their portfolios
(Heakal, 2010)
Because of the Emerging market's characteristics Domestic and International companies are expanding. Many Advanced countries' multinational companies are investing in Emerging countries and they attract the business innovation in Emerging Countries.
Business Innovation in Emerging Economy:
In 1980, because of the business innovation Japanese beat the American in car manufacturing. Japanese use the new technology as called as lean production process; using this process they can reduce the waste that means to use less amounts of space, time and material and make production process easier. (The Economist, 2010) same as the Japan, Emerging countries are more innovating in business. They are used their resources and taking the advantage of large market make production process faster and easier. They are inventing new product and services according the requirement of customers which are cheaper than advanced market.
General Electric's healthcare laboratory in Bangalore has invented Electrocardiogram (ECG) which is very simplified; multiple buttons on convention ECGS have been reduced by just four. Bulky printer reduced by tiny gadgets and whole component of machine reduced and make in small pack. Because of this they can reduced the cost $800 instead of $2000 and also they can reduced the cost of patient checkup just only 1$. This innovation is very frugal innovation that means not just only innovation and reduced the cost but this is about the latest technology and simplified model. Nokia produced cheapest handset with flashlight; multiple phonebook, rubber keypad and some handset with video game. Tata Motors produce Nano car just only $2200. India's oldest company Godrej manufacture fridge in $70. These are the examples of frugal innovation. Frugal innovation is not just redesign the product but it is about the rethinking of whole process. Companies need to constrict the cost so they can reach to the more customer and they can increase the volume of sale. (The Economist, 2010)
In the Emerging Market we can see that so many companies are becoming leader in market; few years back which was cheap brand. Now Emerging countries are becoming leader in innovation but question arise in mind why?
Emerging Economies are now becoming leaders in innovation:
Main reason is that domestic companies' vision is changed. They are transferring from local market to nationalize and international.
Blue Ocean strategy: They are taking needs of poor consumer as starting point and working backward. They eliminate unnecessary offerings and gave more what consumers need (Kim & Mauborgne, 2005).
They adopted combine strategy of cost leadership and differentiation.
Education standard is increased in India and China. Thousands of students are coming up with engineering and science degree each year.
In Automobile Industry raw materials and land were costly at that time Toyota adopted strategy Total Quality Management (TQM) and Just in Time (JIT) inventories. Same way Emerging companies are finding opportunities in every problem.
Brainpower is relatively cheaper than advanced countries. According to the Economist survey every year in china 5 million and in India 3 million people graduate which is three to four times more than decades ago.
They are taking the advantage of potential market. Populations are much higher than the developed countries and growing so fast.
For cover whole market of Emerging countries and grow in these booming market; both developed and Emerging county companies have realized that they have to do hard that's why they are rethinking in every product and distribution system.
Old approach of Innovation the ethnocentric approach which is west companies make innovation in their home country and they export to the developing countries this approach is changed and transfer to polycentric innovation that means they extend their R&D centers around the world and because of this non western companies are becoming palace of the innovation.
According to Fortune 500 list companies have 98 R&D centers in India and 63 in India. GE's healthcare arm has spent more than $50 million for their R&D centers in India, Bangalore which is biggest in the world. Cisco is displaying more than $1 billion on Cisco East in Bangalore second global headquarters. (The Economist, 2010)
Emerging countries are taking opportunities from every threats and they are transferred every weakness into strength. They are taking advantage of resources and markets they become leader in innovation then also they are facing some challenges.
Challenges in Emerging Economy:
Customs administration and Competition rules, Rules of technical standard and food safety, Public procurement, Intellectual property protection; these are the key challenges in all the Emerging Countries.(OECD, 2009) Because of below several reasons Anil Gupta, of the University of Maryland suggest that Emerging markets are toughest in the world.
In Emerging market income flow can be unpredictable.
Government can be irritating; sometime worsening in basic service.
Distribution systems can be fruitless.
Pollution can be lung-baking.
Because of Pirating profit margins can be pinched.
Large number of poor people.
There are some big multinational companies also failed in the Emerging Markets. Yahoo! and eBay retreated from China; Google also pulled out from China and moved to Hong Kong; the world's two largest construction site Black & Decker is almost invisible in India and China. (The Economist, 2010)
Implication for International competitiveness:
International competitiveness is defined as the ability of the organization to struggle with competitors in the production and sale of product in worldwide. (Harrison, 1998)
If one country trading to another country they are facing problem of International Competitiveness. For obtaining high trade surpluses, advancement in high technology product and maintaining high trained labour force country have to maintain international competitiveness. This involves several factors ranging from increasing productivity and advancement of research and Development initiatives (Harrison, 2005). This analysis suggests that countries competitiveness is not stable over the time but it could be retained, improved and lost over the time. If country wants to achieve and retain competitiveness they have to measure the effects and implement the economic policy which is needed.
Recommendations for Emerging Economies become and/or maintain status as leaders in innovation:
By using frugal innovation strategy they have to make product affordable to everyone, GE's ECG machine.
They have to take advantage of high potential market. In china 1.32 billion, India 1.14 billion, Brazil 191 million, Russia 142 million. (World Bank)
They have to take advantage of cheap brain power continuously develop different IT skill and technology, In India IT sector is growing very faster.
They have to take advantage of cheap labour market and increase the production, In China labour market is very cheaper.
They take the advantage of high growing market and free market.
Because of the globalization; Companies' dreams are becoming bigger and business is not limited to the state or nation but transfer to the international market; Emerging Economies take the advantage of these things.
For cover middle and bottom of income pyramid line they have to do incremental improvement in product and process. (The Econmist, 2010)
By using constrained based innovation; they can design product and process and reach the billions of customers who are just entering in global market.
Old thinking of western firm for emerging world is the source of cheap labour was changed and now because of the unique management ideas; western firm also learning from emerging countries.
Emerging countries are taking the advantage of specialize sector and become leader in this field. India's software sector is fast growing because of some factors; large supply of engineers, cheap labour cost, high fluent English and time difference.
Conclusion:
By taking the advantage of available resources and frugal innovation; Emerging economies are growing very faster. Cheap labour is left hand of Emerging world but we can't forget the right hand as disruptive innovation. By investing in Emerging Economies; investors are able to get the profit from local economies which are growing well with confidence. Government of Emerging Economies is also investing heavily in industry, infrastructure, healthcare, education, housing and tourism and they become hotbed of business innovation. They get the opportunities to attract FDI, increase the GDP, growth of export and import trade and also with these they are increasing local employment and wealth of the counties.
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