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June 14, 2013

Innovation Abounds in the Emerging Economies

Posted by Rangarajan V. R. (View Profile | View All Posts) at 11:11 AM

Man Of Steel - Official Teaser Trailer [Source: FilmTrailerZone http://www.youtube.com/watch?v=ll39CAovGrg]

An entertainment industry analyst recently said that a decade ago, when Hollywood grasped the prospect of China and Russia becoming the world's biggest movie markets, American producers settled on a global formula for their exports. Both Chinese and Russian audiences favored big, splashy action scenes over long-winded dialogue - and moviegoers in both countries couldn't get enough special effects. Little wonder that every blockbuster released over the last few years is an action thriller. Hollywood learned very quickly to recognize the unique opportunities within the two emerging markets and adapt its products. It's why American movies continue to be so successful around the globe.

Hollywood isn't alone among big American industries as it learns from markets outside its traditional comfort zone. Internet companies in China are riding the wave of mobile innovation that's getting a lot of attention and competing for local talent. Well known internet analyst, Mary Meeker, says the development of Internet-based businesses in China is going to be very different from how things played out in the West. Plus, any company wanting to grow globally over the next decade would do well to focus on these distinctions. Meeker, as many of us remember, was among the very first dot-com analysts back in the 1990s. She's now a partner at Kleiner Perkins, the venture capital firm where she recently gave her annual Internet trends report.

During the first quarter of this year, the number of Apple iOs and Android users in China surpassed those in the United States for the first time. Not exactly big news to anyone aware of China's enormous population and burgeoning middle class. What's interesting, however, is that China's population spends 55 percent of its total media consumption time on their smart phones and Internet. Compare that percentage to just 38 percent in the United States. Americans spend the bulk of their media time in the worlds of print, radio, and television. How 20th century!

Which brings up another point regarding East vs. West in redefining the transportation experience. Chinese think about cars in much different ways. Consider taxi apps in China's metropolitan areas. Riders can hail a cab by broadcasting their current location to available cabs instantly via smartphone. Or this one: During rush hour, you can bid on available taxis by offering extra tips up front, making it more likely that the driver comes and picks you up. Those of us who have ever worked in the Midtown Manhattan offices of Infosys and tried to hail a taxi during rush hour are no doubt envious of this app...

Our experiences have shown that it's better to create products and services for an emerging market based on the aspirations and needs of local consumers. Many Western companies grew accustomed to dictating to emerging markets like China what products and services they would consume instead of tailoring their products appropriately. Companies are quickly learning that when it comes to the Internet, China is a powerful innovator in its own right.

Another key observation of Infosys consultants is that it's important to exploit what we call "institutional voids." Think of these as business and innovation opportunities. In China's case, the lack of strict taxi regulations, enabled entrepreneurs to exploit the legal institutional voids to create the mobile apps described earlier. First mover advantage still holds and the ones that pounce first are usually happy they did.

True, the needs of consumers and institutional voids vary from market to market. But China is a far more complex and challenging place for Western firms because it's a growing innovation hub as well. Its home-grown talent is meeting the needs of its citizens and their appetites for apps that are often very different than those borne of Western firms.

Mary Meeker might have thought that she'd lived through it all when she chronicled the dot-com boom and bust. Today, whether Western Internet companies - savvy innovators in their own right - will be able to take on their Chinese counterparts in their home market is the great story unfolding before us. Perhaps even more exciting than the story of the dot-com era itself.

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