How Emerging Markets are Reshaping the Innovation Architecture of Global Firms

Abstract

In recent years, there has been a fundamental shift in the innovation architecture of global firms. Rapid growth of the middle class in emerging markets, led by China, India, Brazil and Russia, is fueling the need to create affordable innovations in local markets. Such local innovations tend to have a wider global appeal due to commonalities in consumer demand and infrastructure across many developing markets. Additionally, the severity of economic downturns in developed markets is creating increased consumer demand for affordable innovations. Thus, these innovations are reshaping the innovation architecture of many global firms, such as G.E., PepsiCo, and Hyundai. We propose a framework for analyzing: the effects of emerging markets on the innovation architecture; the potential innovation strategies that leverage these effects; and the consequences of these innovation strategies. We discuss the theoretical and managerial implications of our framework.

Keywords: Innovation, Emerging Markets, New Product Development, Reverse Innovation, Affordable Innovation

JEL Classification: F60, F21, F23, L10, M10, M30, O31, O32