26 Apr 2021
Sasin’s Research Seminar series recently continued online with a talk by George Abonyi, Ph.D., Sasin’s Senior Research Fellow and Visiting Faculty, on Appropriate Innovation for Asian Emerging Markets in a Digital World. The seminar presented an alternative perspective on how enterprises can approach innovation targeted for Asian emerging markets. Advanced innovation aimed at the technology frontier is essential for strengthening productivity and international competitiveness. However, it is not within reach of most firms, especially small- and medium-scale enterprises (SME). Furthermore, advanced technology products and services are neither essential nor often appropriate to the actual needs and constraints of most Asian emerging market consumers. Dr. Abonyi began his lecture by explaining that Appropriate Innovation is a demand-driven approach for Asian emerging economies and their ‘2nd tier’ markets, supported by digital technology. While conducting his research, he looked at several issues. The first was demand. It is estimated that by 2040, Asia is expected to have a 40% share of global consumption. By analyzing in some detail Asian emerging markets and average disposable income distributions of countries in ASEAN, China and India, it is clear that ‘2nd tier’ markets are growing. In ASEAN, 90% earn under US$25,000; in China, 90% of households are on less than US$43,200; and in India, 90% of disposable household income is under US$40,000. One thing common among these households is that they tend to be in 2nd tier cities, towns and rural locations. Another is that the average income and consumption expenditures of these groups is rising rapidly. The rapid growth of 2nd tier market consumers suggests a need for a different approach to innovation. Usually, innovation takes a supply-side perspective, but Appropriate Innovation focuses on the demand-side. 2nd tier market consumers that have lower but rising disposable incomes, and high aspirations. This provides an opportunity for innovation suited to particular consumers, targeting the conditions and constraints of Asian emerging markets. Firms need to flexibly tailor their products, production processes, and business models for these markets. The appropriate innovation approach is also accessible to more firms, especially SMEs. Dr. Abonyi provided case studies of appropriate and reverse innovation from international markets. The potential role of additive manufacturing and the advantages of 3D printing were looked at next. A study by Jabil on which part of the product life cycle was most positively impacted by 3D printing found that prototyping and design were the segments that benefitted most. Additive manufacturing helps new product development by allowing for rapid prototyping, market testing and design modification. It also accelerates time to market, makes local manufacturing easier, and reduces storage, inventory and distribution costs. 3D printing is ideally suited to low- and mid-volume production and mass customization. Financial constraints on additive manufacturing adoption were then examined, along with some solutions. The primary issues identified as barriers were, in order, the costs of qualifications and certifications, capital expenditure on the machines, a lack of in-house expertise, the price of materials and post-processing. One way to address these problems is the creation of a network of SME resource centers. This would accelerate digital technology adoption and reduce costs by sharing technology while also facilitating collaboration through exchanging ideas and experience. The benefits of partnerships between business and market-oriented social enterprise were then examined. On the supply side, these partnerships help with aspects such as product design, testing, distribution and service. For the demand side, a study by Kadence International investigated how different countries felt about brand responsibility to communities. Respondents in Vietnam, India, China, Indonesia, and the Philippines felt strongly that brands have a responsibility to contribute to the community. Japan and Thailand largely disagreed. More generally, consumers in the region increasingly prefer “local” as compared with “global” brands. Case studies of business and social enterprises were then discussed. The final aspect examined in the lecture was a look at digital challenger financial institutions for underserved and unserved consumers that make up much of the 2nd tier markets. Singapore, Malaysia and Thailand had relatively high population percentages with bank accounts, whereas Indonesia, Vietnam, and the Philippines had relatively low numbers of bank accounts – but were growing rapidly. A study by BCG found a 27% CAGR increase for the Americas, EMEA and APAC. The lecture concluded with a look at the research status and the next steps to be taken. Appropriate innovation in emerging Asian markets is a fascinating topic. It will be interesting to see how things develop and what Dr. Abonyi’s ongoing research will reveal.