Trend watching—the growing power of emerging markets

http://www.trendwatching.com/trends/exceptionall/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+trendwatching+(trendwatching.com)&utm_content=Google+Feedfetcherr

Very interesting!!!!

"Now that virtually the entire world has joined the consumer arena, prepare for an avalanche of new brands, entrepreneurs and innovations from ‘emerging’ markets that will have global potential and appeal. From aggressive Chinese brands to Turkish creatives to Brazilian apparel, we're seeing a sharp increase in world-class companies that can and will compete for consumers’ Dollars, Reais, Euros, Pounds, Rupees, Rands, or Liras.

Sure, the expansion of global markets creates new opportunities for existing well-known brands, but the real story of the rise of these new powerhouses is the new brands that are making waves, both within their domestic markets, but increasingly outside these, competing and even beating the established, entrenched incumbents at their own game. One thing's for certain – the range of brands that consumers covet will be even more diverse in twenty, ten or even five years.

Why Now:
• Both consumers and brands in emerging markets are rapidly getting wealthier, more sophisticated, more mobile, and more educated. Side effect: an abundance of confidence, enthusiasm, creativity, and entrepreneurialism.
• Many emerging markets (minus China) have younger populations, and will not be confronted with ageing populations for a long time to come, meaning an endless source of young entrepreneurs as well.
• Brands from emerging markets are well positioned to cater to other booming emerging markets, while they may be perceived around the world as less arrogant, too. On top of that, they are less hindered by too many legacy systems and thinking.
• Emerging markets will soon boast the biggest markets for everything, from cars and beers, to detergents and mobile internet: not a bad environment for innovation to take root

Some obligatory numbers and stats

• Developing economies "have accounted for nearly 70 percent of world growth over the past five years". (Source: Carnegie, 2010.)
• The GDP of Emerging and Developing Economies accounted for 20% of world GDP in 2000, 34% in 2010, and an estimated 39% by 2015. (Source: IMF, 2010.)
• The global emerging middle class now stands at two billion people who spend USD 6.9 trillion a year, a figure which is expected to rise to USD 20 trillion - twice current US consumption - by 2020. (Source: McKinsey, July 2010.)
• Developing countries will account for two thirds of world trade in 2050. (Source: Carnegie, 2010.)
• The GDP of emerging markets will grow to be about 1.3 times the size of advanced economies in 2050. China will be approximately twice the size of the United States in purchasing power parity (PPP) terms. (Source: Carnegie, 2010.)
• India now has more rich households than poor, with 46.7 million high income households as compared to 41 million in the low income category. 62 per cent of Indian households belong to the middle class (Source: National Council of Applied Economic Research, August 2010.)
• 700 million people will start using the Internet in Asia in the next 5 years (Source: McKinsey; September 2010)"

The Global Innovation 1000: How the Top Innovators Keep Winning
Booz & Company’s annual study of the world’s biggest R&D spenders shows why highly innovative companies are able to consistently outperform. Their secret? They’re good at the right things, not at everything.
by Barry Jaruzelski and Kevin Dehoff

http://www.strategy-business.com/article/10408?pg=all

The insights embodied in the complete article is a must read!! The following is intended to wet your appetite to read the full paper

"Why are some companies able to consistently conceive of, create, and bring to market innovative and profitable new products and services while so many others struggle? It isn’t the amount of money they spend on research and development. After all, our annual Global Innovation 1000 study has shown time and again that there is no statistically significant relationship between financial performance and innovation spending, in terms of either total R&D dollars or R&D as a percentage of revenues.

What matters instead is the particular combination of talent, knowledge, team structures, tools, and processes — the capabilities — that successful companies put together to enable their innovation efforts, and thus create products and services they can successfully take to market…..
…… Our goal this year is to examine the capabilities needed to maximize the impact of a company’s innovation efforts in good times and bad, and to highlight the benefits both of focusing on the short list of capabilities that generate differential advantage, and of clearly linking the specific decisions within innovation to the company’s overall capabilities system and strategy.

Strategies and Capabilities
Three years ago, in 2007, we focused our annual innovation study on how companies use distinct innovation strategies to create their products and take them to market. Nearly every company, we found, followed one of three fundamental innovation strategies:

Need Seekers actively and directly engage current and potential customers to shape new products and services based on superior end-user understanding, and strive to be the first to market with those new offerings.

Market Readers watch their customers and competitors carefully, focusing largely on creating value through incremental change and by capitalizing on proven market trends.

Technology Drivers follow the direction suggested by their technological capabilities, leveraging their investment in research and development to drive both breakthrough innovation and incremental change, often seeking to solve the unarticulated needs of their customers via new technology.

It is important to note that we found that none of these three strategies were any better than the others at producing sustained superior financial results, although of course individual companies outperform others within each strategic group. The success of each of the strategies depends on how closely companies, in pursuing innovation, align their innovation strategy with their business strategy and how much effort they devote to directly understanding the needs of end-users.

This year we set out to answer two new questions: Which sets of capabilities are the most critical for the success of each of the three strategies? And do companies that focus on those critical capabilities see improved overall financial results? Our hypothesis: Companies that can craft a tightly focused set of innovation capabilities in line with their particular innovation strategy — and then align them with other enterprise-wide capabilities and their overall business strategy — will get a better return on the resources they invest in innovation".

Innovation: It Isn’t a Matter of Left or Right
By STEVEN JOHNSON

http://www.nytimes.com/2010/10/31/business/31every.html?_r=1&emc=eta1&pagewanted=print

I found this article to be incredibly thought provoking to the degree that I immediately ordered his book (“Where Good Ideas Come From: The Natural History of Innovation”). The title implies implications for politics but it is much broader than that. How companies drive their ideation can be greatly influenced by the learnings of history. The usual model of companies driving innovation for profit is challenged.

A note. Many of you helped in defining the source for the last posting. It is: The Web Is Dead. Long Live the Internet, Wired September, 2010 By Chris Anderson and Michael Wolff

http://www.wired.com/magazine/2010/08/ff_webrip/

"In my research, I analyzed 300 of the most influential innovations in science, commerce and technology — from the discovery of vacuums to the vacuum tube to the vacuum cleaner — and put the innovators of each breakthrough into one of four quadrants.

First, there is the classic solo entrepreneur, protecting innovations in order to benefit from them financially; then the amateur individual, exploring and inventing for the love of it. Then there are the private corporations collaborating on ideas while simultaneously competing with one another. And then there is what I call the “fourth quadrant”: the space of collaborative, nonproprietary innovation, exemplified in recent years by the Internet and the Web, two groundbreaking innovations not owned by anyone.

The conventional wisdom, of course, is that market forces drive innovation, with businesses propelled to new ideas by the promise of financial reward. And yet even in the heyday of industrial and consumer capitalism over the last two centuries, the fourth quadrant turns out to have generated more world-changing ideas than the competitive sphere of the marketplace. Batteries, bifocals, neonatal incubators, birth control pills — all originated either in amateur labs or in academic environments.

Now-ubiquitous technology like GPS was created by public-sector agencies for its original military use. And most of the building-block innovations that make GPS possible — satellites themselves, or the atomic clocks that let them coordinate their signals so precisely — were first conceived in nonmarket environments.

The fourth quadrant, however, is not locked in a zero-sum conflict with markets. As in the case of GPS, this fourth space creates new platforms, which then support commercial ventures"

Always Pushing Beyond the Envelope
By DAMON DARLIN
NYT, 8/8/2010

http://www.nytimes.com/2010/08/08/business/08every.html?_r=1&scp=1&sq=Always%20pushing%20beyond%20the%20envelope&st=cse

This is a great article about two companies, Blockbuster and Netflix. Both pioneered delivery of movie DVD’s to consumers: Blockbuster via mass selling of DVD’s in ubiquitous stores while Netflix via U.S. Mail. The big difference between the two is that Blockbuster never really planned beyond their original business design while Netflix panned for “creative destruction” of their initially innovative business design breakthrough. One just delisted from the S&P 500 while the other is soaring. Guess which is which.

"For Blockbuster, the advent of DVDs in the mail was a disruptive technology. The chain relied initially on bulky videotapes and late fees to generate a fat revenue stream, and its scale was huge; smaller, independent stores gradually left the market. Netflix opened a new battlefront, mailing thin DVDs and letting customers keep a disc as long as they wanted.

Blockbuster saw the change coming. It even took action, setting up its own mail service. But seeds of destruction had been sown, and Blockbuster is now financially troubled. Netflix, meanwhile, is already embracing technology shifts that will make those red envelopes a quaint memory

.
Creative destruction has such a cataclysmic sound. But the term, coined by the Austrian economist Joseph Schumpeter to show how capitalism destroys companies as more innovative ones succeed, describes a process that is more like a slow-motion train wreck.

Established companies’ historical inability to change is what makes Netflix’s maneuvers so fascinating. It foresaw its possible demise at the moment of its own creation.

Netflix was formed in 1997 with the idea of sending movie DVDs, then a new technology, through the mail. But Reed Hastings, the founder and chief executive, and early employees, recognized that delivery of movies over the Internet would replace the mail carrier soon. They named the company Netflix, not Mailflix or DVDs by Mail. ….

……It is happening again, this time to Netflix. It was only last year, more than a decade after its founding, that streaming movies started to take off. But it was Netflix pushing people to do it, even though it meant that the company might rent fewer discs by mail.

Since January 2007, it had been offering a small selection of movies for streaming from the Netflix.com site to a customer’s personal computer. Then it began streaming to TV-connected devices so that the movies could be displayed on a larger screen, the way customers have always watched movies at home.

…. Netflix, meanwhile, keeps cutting deals with movie studios to get more films and television shows online. Now a movie aficionado paying $8.99 a month, for example, gets one DVD in the mail at a time — but can also watch movies online to his heart’s content. At one movie a day, the cost of the habit drops to less than 30 cents a film. Mail-only subscriptions are still available…..

..There is no way that a store with racks of movies can sell its wares for as little. Blockbuster’s same-store sales have declined steadily, even when including sales from its mail service and kiosks. It is closing hundreds of stores. Delisted from the New York Stock Exchange in July, the company’s stock is trading for around 17 cents on the pink sheets, down from $30 in May 2002, which is about when Netflix stock began publicly trading at $7.53."

A Powerful Shift in Digital Business Model


Unfortunately, I lost the quote and site for this posting but the insight is so profound I wanted to share it with you

"You wake up and check your email on your bedside iPad — that’s one app. During breakfast you browse Facebook, Twitter, and The New York Times — three more apps. On the way to the office, you listen to a podcast on your smartphone. Another app. At work, you scroll through RSS feeds in a reader and have Skype and IM conversations. More apps. At the end of the day, you come home, make dinner while listening to Pandora, play some games on Xbox Live, and watch a movie on Netflix’s streaming service.
You’ve spent the day on the Internet — but not on the Web. And you are not alone.
This is not a trivial distinction. Over the past few years, one of the most important shifts in the digital world has been the move from the wide-open Web to semiclosed platforms that use the Internet for transport but not the browser for display. It’s driven primarily by the rise of the iPhone model of mobile computing, and it’s a world Google can’t crawl, one where HTML doesn’t rule. And it’s the world that consumers are increasingly choosing, not because they’re rejecting the idea of the Web but because these dedicated platforms often just work better or fit better into their lives (the screen comes to them, they don’t have to go to the screen). The fact that it’s easier for companies to make money on these platforms only cements the trend. Producers and consumers agree: The Web is not the culmination of the digital revolution.
A decade ago, the ascent of the Web browser as the center of the computing world appeared inevitable. It seemed just a matter of time before the Web replaced PC application software and reduced operating systems to a “poorly debugged set of device drivers,” as Netscape cofounder Marc Andreessen famously said. First Java, then Flash, then Ajax, then HTML5 — increasingly interactive online code — promised to put all apps in the cloud and replace the desktop with the webtop. Open, free, and out of control."