I recently participated in a panel discussion hosted by the Economist Corporate Network in Singapore about innovation in Asia.
I started my portion of the discussion by sharing three observations about what I had found unique about innovating in Asia: its unbelievable diversity, both between and within countries (and sometimes even cities); the historical focus of many Asian organizations on replication and cost reduction; and Asia's inconsistent infrastructure (Singapore is amazing, but don't try to schedule more than two meetings a day in Mumbai).
But what I really wanted to discuss were the three biggest trends I see affecting innovation in the region.
The race for the middle. As my colleagues noted in a Harvard Business Review article earlier this year, the extremes in most Asian markets are well served. Wealthy consumers can enjoy luxury brands, world-class restaurants, and high-end automobiles. Cost-conscious consumers can access incredibly affordable, often inventive solutions. But the middle class remains overlooked. And that middle class is surging. A recent OECD study projected that spending by Asian middle class consumers will have grown from $4.9 trillion in 2009 to more than $30 trillion in 2020. That latter figure would constitute about 60% of global middle class spending (compared to 20% in 2009).
Some companies are explicitly targeting this growing opportunity. In 2009, Godrej & Boyce launched ChotuKool, a $70 refrigerator targeting the 85% of Indians who found existing models too bulky, expensive, and power hungry. The portable, battery-powered refrigerator has been a huge hit. Godrej now plans to extend the Chotu brand to washing machines and other household appliances.
The shift to localization. Multinationals are increasingly tasking their Asian outposts with developing regionally appropriate solutions that might "trickle up" to established markets. Tuck Professor Vijay Govindarajan calls this reverse innovation. For example, Kraft struggled for years to bring its Oreo-branded cookies to China. Over the past few years a local team of R&D scientists has re-imagined the product, putting the Oreo brand on products with wafer form factors and using flavors that are more suited to local tastes.
Homegrown companies are also increasingly introducing innovative ideas. For example, the Tata Group's sprawling empire has churned out innovative automobiles and hotel formats, reframed the watch industry, and brought innovative IT services to overlooked small and medium businesses.
A focus on business models. Less willingness to pay and inconsistent infrastructure means that companies looking to reach the emerging middle class from the ground up have to look beyond the core product and service to succeed. For example, when GE introduced a low-cost electrocardiogram machine in India, it also developed innovative ways to finance and distribute the device. Some of the emerging Asian giants also feature innovative business models. Have you heard of Tencent? It's China's biggest Internet company that churns out $1 billion in revenue quarterly. Its core product — an instant messenger service called QQ — is free. The company makes a significant portion of its money when consumers pay a few Renminbi to deck their avatar out with accessories and so forth. Expect to see more inventive business models honed in the unique conditions found in Asia.
As I approach the two-year mark of my time in Asia, nothing has dimmed my optimism about the region's potential. Geopolitical uncertainty remains an issue; infrastructure and cultural barriers might constrain growth. But the overarching trend is a shift in the world's innovation energy. If you are a Western executive making New Year's resolutions, consider adding a visit to Mumbai, Manila, Bangkok, Singapore, Hong Kong, Shanghai, Seoul, or Jakarta to your list.