Role of Multinationals in Innovation in Emerging Markets, Essay Example

Emerging markets such as India are the next frontier for multinational corporations. India is enjoying a booming middle class and the markets for a significant number of products and services such as cars and smart phones is still in infancy in India as opposed to developed economies where they have saturated or enjoying low growth rates only. Even though there is no lack of management literature that stresses upon the need to take into account cultural differences as well as local needs, it is not uncommon for some international companies with strong brands to overestimate the universal appeal of their products or services. As a result, they adopt the same marketing strategies that may have worked at home or in other markets and hope locals will embrace the products or services. There is a reason why Apple still doesn’t have a significant presence in India as opposed to Samsung and Nokia.

Thus, one of the most effective ways of effectively innovating in emerging markets like India is to pay close attention to local needs and lifestyles and figure out how technology may hold the solution to a complex question. A very good example may be mobile banking in India where many impoverished areas do not always have local banks or reliable means of sending and receiving money. Another great example is Tata Nano. Tata Motors understood that most low-income groups just want to get from point A to point B and don’t care for amenities. They also understood cars bring prestige to families that motorcycles don’t. As a result, they built a car that didn’t even have the basic amenities such as A/C and radio.

Another strategy to innovative effectively is to allocate more resources to research and development. One of the lessons of the globalization has been that it is even more important to build core competencies as well as intellectual assets which are difficult or very expensive to imitate for the competition. Even leading multinational companies such as IBM, Microsoft etc. continue to invest in research and develop patented assets because they understand that any capability which can be copied easily offers competitive advantage for only a short-term.

Even though large multinational companies have the resources to innovate on their own, small companies with more limited resources can partner with other local companies to develop innovative business practices or products/services. Similarly, they can look at the technologies available for licensing in the market and study them to determine if they may have application that has not been explored by anyone else. In fact, Apple’s iPod is a great example of Apple looking at technologies available for licensing in both local and international markets and figuring out that they can be used to create a revolutionary product.

Innovation sometimes comes from the most unexpected sources. Instead of paying close attention to competition, the companies may study other industries, often quite unrelated to their own, to investigate if there may be production or operation processes that could be imitated to improve quality and/or efficiency. Aravind Eye Hospital is a great example as they studied McDonald’s to improve their operating efficiency and performance standards. The management may encourage its employees to contribute ideas freely, either from experience or through personal observations because many people often have work experiences in multiple industries. A finance professional may have worked in banking, hospitality, or even non-profit sector.

It is clear that innovation rules and processes have changed and it is more important than ever because companies have lost the competitive advantages that came from artificial barriers such as geographical boundaries and government’s protective policies. But fortunately, innovation is not dependent upon huge financial resources anymore but can also be pursued in other ways such as carefully monitoring the external environment for opportunities, understanding customers better than the competition, and even seeking inspiration from totally unrelated industries.