As described above, EMs can be very promising, yet due to their specifi cs, MNCs should fi ne-tune their NPD activities. To succeed, products should be designed to brave poor infrastructure and survive in harsh operating conditions. They should be profi table even with often thin profi t margins per item. In many cases, this will not be possible with minor adjustments to existing products; an adequate price-performance ratio may seem feasible only by designing the product from scratch. The following eight key factors can help companies to maximize the success of NPD for EMs.
6.3.1 Adapt Your Innovation Strategy
For MNCs serving for most of their history customers at the top of the economic pyramid, the design of low-cost middle-tech products marks a major shift in operations. In order to succeed, the companies have to adapt their organizational structure, culture, processes, and human resources (HR) management. These far-reaching changes should be guided by a clear strategy laying down the intended course of action. It ’s inevitable that EMs are assigned a visible place on the company ’s agenda, and top management backs this development.
Siemens, for example, introduced a strategic initiative called SMART in order to be better prepared to compete in EMs. SMART stands for simple, maintenance-friendly, affordable, reliable, and timely-to-market products aiming at customers the company left unnoticed in the past. As the initiative is part of an overarching company program and is further coordinated by headquarters, it enjoys appropriate visibility and serves as a forum for best-practice sharing among the company ’s business units (Siemens, 2010).
6.3.2 Meet Your New Customers
To develop sought-after products for EMs, MNCs should learn about the real needs of their new customers. This has to be done from the bottom up, as familiar Western customer profi les and behaviors hardly ever match those of the new clientele. For this reason, the company has to listen very carefully to its potential customers. This can necessitate the use of totally new market research tools and techniques. Pioneering MNCs confi rm this by going to great lengths to meet the customer in his or her social environment.
Customer orientation was crucial for designing a basic handset for low-end segments of EMs for as little as US$ 25 ( Business Week , 2005).
Before starting the actual product development process, Nokia ’s engi- neers spent considerable time conducting ethnographic research as well as experiencing local living conditions through trips to India and Nepal.
This approach allowed them to design handsets meeting local demands in terms of both price and specifi c features like more legible screens in bright sunlight or “iconic” address books for illiterate users (McGregor, 2006).
6.3.3 Offer a New Price-Performance Ratio
Well-executed market research close to the new customer is an extremely important step in the NPD process. It allows the MNC to fi nd out what customers really want and are willing or able to pay. Affordability in this case means that products must be an order of magnitude cheaper than those in developed markets. Examples of successful companies demon- strate that stripping off features from existing Western products cannot cut their prices considerably, as complexity and costs are built into them.
Rather, designing a product from scratch seems to be the more promising course of action.
The Dacia Logan—a low-cost car designed by the French car manu- facturer Renault in Romania—is an attractive price-performance offer for EMs ’ middle-class customers. The full-fl edged car not only has a price tag starting at US$ 6500 and is spacious enough to transport up to fi ve people with their luggage, but also has an appealing life-cycle cost structure. For instance, it can be serviced at half the cost of a comparably sized Renault car model. Nor does the maintenance have to be done by an authorized Renault workshop; even basic technicians are able to do it without diffi - culty (Kukreja and Dubiel, 2010).
6.3.4 Apply “Gandhian” Engineering
To develop products with an appropriate price-performance ratio, the mindset of MNC headquarters ’ employees has to change, too. EM con- straints necessitate a new attitude toward scarcity and cost consciousness.
Such a willingness to simplify products, make them more economical, and think outside the box may be called a “Gandhian” approach to NPD (Prahalad and Mashelkar, 2012). This is not straightforward, as engi- neers coming from and working in developed markets are often inclined to apply the newest technological solutions to products they design.
To succeed in EMs, developing simpler and more robust products should become an equally acclaimed achievement within a company as develop- ing products packed with the newest bells and whistles.
Consider Bosch, a leading German automotive supplier, which learned that value engineering—the ability and will to design products meeting tough cost constraints—and simplifi cation are very important to EM customers. To help Tata Motors meet its ambitious goals for its Nano car model, Bosch ’s engineers came up with some unconventional solu- tions. They decided to hone the injection technology for two-wheelers and adapted it for use in a car. For the diesel engine, they simplifi ed a tried-and-tested product using an off-the-shelf plug-in pump to gener- ate injection pressure. The team responsible for developing some of the Tata Nano parts gained recognition within Bosch, winning in 2008 the company ’s Innovation Award, which is granted to products of particular business importance to Bosch (Neuhaus and Dubiel, 2012).
6.3.5 Localize R&D Activities
The experience of leading MNCs demonstrates that new products for EMs can be best developed locally in these markets. First, local engineers should best understand local market needs. Second, this practice helps to lower development costs. Third, engineers from developed markets are often less open to apply unconventional solutions and are limited by the not-invented-here syndrome. Fourth, local R&D improves delivery time—
another essential requirement for presence in dynamic markets. However, best-practice examples of MNCs show that in order to profit from the expertise of local R&D units, they should be granted over time “owner- ship” for innovative projects. Local scientist and engineers should there- fore be responsible for certain products or product lines and should not act solely as an “extended workbench” of headquarters ’ operations.
GE has established R&D facilities in India in the last decade and has invested heavily in these subsidiaries (Dubiel, 2009). In particular, the R&D center in Bangalore—the biggest outside of the United States—
grew between 2000 and 2008 alone from 300 to 3,800 employees. For instance, portable and low-priced electrocardiogram (ECG) devices have originated there, as local engineers knew the precise price-performance ratio that physicians serving local rural areas would need. The Bangalore- based R&D team adapted as this ECG ’s printer a device used in Indian portable ticket machines, a product presupposing an open-mindedness toward unusual problem solutions.
6.3.6 Adapt Marketing and Sales
Developing a low-cost, clearly defi ned functional product is not straight- forward, and getting it to the market, especially in faraway locations, poses a comparable challenge. Competitive product prices presume effi cient distribution. So, how does Nokia control its network of an estimated 90,000 points of sale in India? The Finns learned to work with local means and became a local market leader. Their fl eet of sales vans tours rural areas and teaches people about mobile phones (Ewing, 2007). As most of these fi rst-time buyers prefer to talk to sales reps in person instead of calling hot- lines, Nokia ’s shops on wheels are also responsible for after-sales service.
Getting a mobile card for a Nokia phone in Mumbai further unveils local specialties of the product ’s value chain. Network providers like Vodafone sell them through independent vendors distributing prepaid cards to local shops. Airtime for a few cents—as people usually have irregu- lar income—is offered in kiosks along with all other products of daily life.
And if from time to time a wealthy customer comes along asking for an expensive airtime recharge, the kiosk owner calls a mobile hawker who keeps expensive airtime cards ready for a certain city district. The result is a win-win situation for all parties involved. The kiosk owner does not need to tie up his capital and keep expensive cards in store, the customer quickly gets the requested recharge, and the freelance hawker has a job.
6.3.7 Introduce New Business Models
India is the fastest-growing mobile telecommunications market in the world and, moreover, a very competitive one. On average, customers spend humble sums of US$5–6 monthly on phone calls, but through good con- nections to Western markets, they are up-to-date with technological devel- opments and brands. Hence, they are quite demanding. What ’s more, the telecommunications market in urban areas is becoming saturated, push- ing providers to expand in faraway rural areas where people have even less money to spend and telecommunications infrastructure is rare at best.
Nokia Siemens Network (NSN), the Finnish-German mobile infra- structure provider, has come up with a new solution combining smart tech- nology with a business model innovation. The combination minimizes the capital and operational expenditure for operators, allowing them to profi t- ably enter low-end market segments. The cost-effective, easy-to-implement and operate solution, called Village Connection, rests upon a partnership between a mobile network provider and a local entrepreneur supported, when necessary, by a micro-fi nance provider. The entrepreneur, as the franchisee, interacts with subscribers on the operator ’s behalf.
6.3.8 Find a Local Partner
Finding a local partner can considerably speed up learning about local market conditions and overcome the liability of foreignness. Some pioneer- ing companies already demonstrate how to partner and network in EMs to achieve outstanding results. These cooperative ventures tackle all parts of a company ’s value chain. With regard to NPD activities especially, good relationships with local science institutions and industry networks are of great importance. To establish ties with Indian universities and secure a steady stream of top-notch graduates for its R&D sites, GE invites profes- sors from well-known local higher education institutions to spend a sab- batical at GE ’s R&D facility in Bangalore (Dubiel, 2009). Furthermore, GE cooperates with the Indian Institute of Technology (ITT) on joint research projects. Excellent connections to the National Chemical Lab in Pune were particularly helpful for establishing the R&D center on the subcontinent.
The presented factors enhancing NPD for EMs have been identifi ed in a number of fi rms of different industries and sizes, so they can be regarded as universal. Even though this list does not claim to be complete, these fac- tors cover multiple aspects of NPD. It is important to note that they should not be implemented separately but rather as a self-reinforcing package of measures. Table 6.1 once more summarizes the most important success factors of NPD for EMs.
TABLE 6.1 SUCCESS FACTORS OVERVIEW.
Success Factor What Matters?
1. Adapt Your Innova- tion Strategy
Explicit consideration of EMs in the company ’s NPD strategy; top management backing; clear companywide communication of the new strategic approach
2. Meet Your New Customers
Willingness to apply new market research approaches; going where the customer is; involvement of local lead users and opinion leaders 3. Offer a New
Price-Performance Ratio
Focus on pivotal product features only; no overengineering;
considerably lower costs throughout the whole product life cycle; designing products from scratch
4. Apply “Gandhian”
Engineering
Willingness to simplify solutions; scarcity mindset of employees; use of the good-enough approach; outside-the-box thinking 5. Localize R&D
Activities
Place responsibility for local products in the hands of local engineers; establish networks with local partners 6. Adapt Marketing
and Sales
Openness to unconventional sales channels and promotion activities; employment of local brand ambassadors 7. Introduce New
Business Models
Questioning existing business models; working with local partners;
bottom-up thinking
8. Find a Local Partner Excellent network within the local industry, science institutions, and nongovernment organizations; overcoming the liability of foreignness