How emerging market firms can go global
Innovation is empowering organisations from emerging economies to progress from contract manufacturers to global competitors. They’re evolving their capabilities in design, R&D, consumer research and marketing, turning to own-brand manufacturing in a bid to secure long-term value and growth. Acer, BenQ, HTC, Haier, TCL, Flextronics and Lenovo have all made this switch.
How a manufacturing firm leveraged open innovation to grow globally
One multinational manufacturing firm we worked with in South Asia started as a contract manufacturer before adding product design services and advanced manufacturing capabilities that let it work on complex, higher margin products. It then started to build internal R&D and marketing capabilities before experimenting with its own brand in a local emerging market that didn’t conflict with its clients.
While the firm had the advantage of lower-cost labour and manufacturing facilities, it didn’t have the deep pockets, well-developed managerial systems or knowledge of its clients of more advanced competitors.
To overcome these constraints, the firm fully embraced open innovation, working with us to design and deliver an innovation strategy that let it grow beyond contract design and manufacturing into an influential global firm with a well-known brand.
Strategies for competitive advantage
The firm worked with us to identify transformative growth opportunities adjacent to their core business. This ensured that their core competency and knowledge could be adapted and customised to new, related products without conflict with existing customers. After identifying where to experiment, we developed strategies for how to win, such as reorganising for innovation, identifying critical capabilities to leverage and build, and becoming more customer focused. We helped set up an innovation structure, processes and metrics tailored to help execute a mix of close to core, adjacent and new market creation initiatives.
At our suggestion, the firm created an open innovation hub to tap into external resources for technology and manufacturing innovation and used it to identify novel and emerging technologies to develop expertise in or acquire, as well as partners to help build competitive advantage. We also set up an internal corporate venture division to discover and grow new businesses. We built and facilitated training programmes to enable and empower employees to drive innovation.
Strategies for new product creation and new market expansion
The growth strategies employed by our client when expanding into a new market included:
In collaboration with a small internal venture team, we identified business ideas in high potential, but nascent market segments via trend scaping, competitive analysis, market sizing and consumer discovery.
We identified and selected consumer co-creators to help develop differentiated solutions with a deep understanding of the end user. Team members spent time interacting with and observing the co-creators, which led to consumer insights. The team rapidly generated and tested product concepts with co-creators. Using a Lean approach, we built product prototypes, ranging from virtual to low functional to proof of concept. The firm tested, validated and refined these, based on co-creator feedback and with inputs from business modelling.
To progress the idea from proof of concept prototype to validated product, the corporate venture assembled an ecosystem of co-development partners, including university research labs, design and tech companies, and an external start-up. Product development moved outside the firm while the venture had access to certain internal resources and capabilities.
This strategy enabled the venture to stay flexible and speed up development and testing of a new-to-the-world product. Consumer co-creation continued to help refine product features and validate product-market fit and the business model.
It is a challenge for an emerging market manufacturing firm trying to enter a nascent market in an advanced economy with a novel B2C product. The firm was willing to experiment with open business models to enable greater value capture and derive quick learning about the consumer, market and branding. It adopted our recommendations and purchased equity in the external start-up, located in the advanced economy.
This partnership has given the firm access to a thought leader and a strong B2C brand to facilitate a fast product launch in a nascent, yet influential, marketplace and test waters with reduced risk. The start-up, for its part, has gained access to firm’s technical capabilities and resources to expand into a synergistic niche space.
Many emerging economy firms, especially contract manufacturers climbing the value chain and expanding into advanced economies and new markets, will face similar challenges. Few engage in the breadth of experimentation that our client firm conducted during its search for a growth strategy. It takes courage and vision to try out new ideas and these open innovation strategies are worth considering by challenger businesses everywhere.
Our work in partnering with companies to take on such innovation challenges and stimulate growth has highlighted some key lessons:
- your innovation strategy needs to diversify the core business model while not competing with existing customers
- look to build new businesses in both emerging and mature markets
- build innovation capabilities and a consumer-centric culture
- use a start-up approach to conceptualise offerings via small teams and experiment with different approaches to product ideation, development and market launches for new businesses
- co-create with consumers and test, validate and refine product concepts using prototypes
- employ open innovation partnerships for product co-development to reach the market faster with less risk.