Market creating innovations & economic development

Anand Laishram *

In the last article, we got an introduction into what Market Creating Innovations mean.

We learnt that Market Creating Innovations make existing products & services on the market:
- Affordable
- Accessible
- Simpler
- Less Time Consuming

This allows people who couldn’t use these products & services to meet their needs and solve their problems and make the progress they want to make.

These people are termed non-consumers. Due to various barriers (Affordability, Accessibility, Expertise&Time), they can’t avail themselves of the solutions they need. They make do with work arounds, which aren’t as effective and efficient, or they just live with the problems, opting for basically nothing to solve those problems.

Market Creating Innovations break down one or more of the four barriers, thereby allowing non-consumers to consume the solutions they need and make the desired progress in their lives. In short, we could say that Market Creating Innovations democratize solutions make them available to everyone.

We discussed that there are other types of innovation–Sustaining and Efficiency Innovations. Sustaining innovations improve an existing product or a service already available on the market. These are necessary from the point of view of the businesses selling those products or services. By continually improving them, they make those products or services more attractive for the existing market.

An example would be car manufacturers introducing new features or new colour options for their existing product lines.

Efficiency innovations allow producers to produce the same products or services, without requiring as many resources. Efficiency innovations help producers and manufacturers cut costs, which they can pass on to customers or improve their profit margins.

An example would be the famous Toyota Production System, which helped Toyota reduce costs and improve quality. Sustaining and Efficiency Innovations are very important for both businesses as well as customers.

However, they don’t turn non-consumers into consumers and thereby create new markets, which is what Market Creating Innovations do. An example would be that of the Ford Model T, that we have delved into in earlier articles. Market Creating Innovations have a profound impact on the local economy.

In the process of producing the goods and services that people want and need to buy, various resources are pulled into the economy. As those resources are undergirded by the market processes, they remain sustainable.

A road built into a developing economy with the hope that they would help encourage economic development activities may soon be left unrepaired and unusable. A road built in order to move products from the factories to where they are to be sold, will be maintained because it is vital for the market to function.

They also create jobs such as marketing, sales, service etc. which are necessary to serve the newly unlocked customers. These jobs are called local jobs. They are less in danger of being outsourced, as these jobs need to be performed where the customers are.

(Manufacturing jobs and the like are called global jobs. They get moved from location to location, based on the costs involved. Example: All the manufacturing jobs that left North America and went to low-cost regions)

China is the world’s largest manufacturer of microwave ovens. Many microwave manufacturers target the export markets. They take advantage of China’s low production costs and outcompete microwave manufactured in other parts of the globe.

However, if a cheaper manufacturing location emerges, perhaps Vietnam, then manufacturing of those microwaves may shift to the new location.

In contrast, the Chinese microwave manufacturer Galanz decided to serve the local Chinese market itself. Microwave ovens were unaffordable for the vast sections of the Chinese population. At the same time, large numbers of people were migrating from villages to the urban areas in search for better economic opportunities. Most of them lived in tiny cramped apartments and had busy work-lives.

Galanz saw an opportunity for low-cost microwave ovens targeted at the local market. Microwave ovens would help the newly arrived economic migrants cook their food easily and quickly, without heating up their cramped living spaces.

They streamlined their operations to manufacture microwave ovens at lower costs and sell them to this segment of the population which traditionally had not been consumers of microwave ovens. They also invested in activities that other export-oriented manufacturers didn’t have to.

They introduced knowledge marketing, wherein they educated new consumers on how to use microwave ovens, through newspaper adverts.
(Exporters didn’t have to educate the local Chinese public, since their microwave ovens were not targeted at the domestic Chinese market)

They also created lots of local sales, manufacturing, servicing jobs etc. (not just manufacturing jobs). In order to distribute their products, they built distribution centres, factories, showrooms, offices etc. and built a Nationwide sales network.

They have also invested in sophisticated R&D facilities, in order to serve the market better. Galanz today is one of the largest microwave manufacturers in the whole world. Not only do they earn billions of dollars in revenues, they have also created tens of thousands of local jobs.

Thus, Market Creating Innovations, can have enormous positive effects on the economic development of a society.

We will see more examples in the coming weeks.