Innovation in Emerging Economy Pratham Advisors

8/22/2019 Innovation in Emerging Economy Pratham Advisors

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Productivity and Innovation Enablers for Emerging Economy

Introduction

With the opening of borders to trade and foreign investment, globalization brings

Opportunities and pressures for domestic firms in emerging market economies to

innovate and improve their competitive position. Many of these pressures and

opportunities operate through increased competition from and linkages with foreign

firms.

Here comes the challenge to the domestic firms to increase their influence globally

by not merely with same old productivity or cost reduction theories. Emerging

economies need Innovative Productivity. We are going to discuss elaborately inthis paper the importance of Innovative productivity mix to propel economies of

emerging nations.

Emerging economies and their impact on global economy

Emerging markets are countries that have their economies being restructured along

market-oriented lines and they offer various opportunities in the form of FDIs

(Foreign Direct Investments) , technology transfers and trade. As per the world-bank

the biggest emerging markets are namely Brazil, Russia, India, China and Indonesia.

Some more countries categorized as emerging markets are: Mexico, South Africa,

Turkey, Argentina, Poland and South Korea. All of them have made critical shiftsfrom being a developing country to now evolve as emerging economy. The

combination of all of these countries is set to change the economy across the globe.

Why Emerging economies are significant?

Emerging markets have significant position in the globalized world for four major

reasons:

1. They are economic powerhouses in their regions and each one of them

has large populations, resources and markets. Their development will not

just benefit them but also the countries around them and the same willhappen in their economic downfall.

2. All these countries are undergoing economic and political reforms and all

of them have now adopted open door policies.

3. These countries have the fastest growing economies of the world and they

contribute a lot to the growth of trade in world.

4. They are now becoming one of the critical decision making authorities in

decisions related to worlds political, social and economic affairs owing to

their increasing share in the global economic value.

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Propelling & Retarding forces of Emerging economy

The challenge faced by the emerging economies is that in order to create a good

economy and to be sure that sustainable development keeps on happening there is

a dire need to change their traditional economical and political systems. These

economies cannot grow till the time they do not redefine the role that government

will play in the development process and they should also ensure that any kind of

undue intervention is not done by the government. Another major problem that pulls

these economies back is the presence of corruption invariably across all of these

countries. This corruption is distorting the business environment and it is inhibitingthe development. Even in case these economies want to undergo structural reforms

in their core governing systems such as financial, political and legal system they are

facing huge amount of change management difficulties. Once these changes are in

place they can be assured of a stable and politically free economy.

Emerging markets are cited as the major factors funnelling the growth of world trade

and drivers for providing the global financial stability. This makes a good case for

their future growth. They are not yet tapped fully in terms of their economic growth

and they have emerged more determined than ever to make some domestic reforms

in order to support their economic growth. A stable political environment with

structural reforms is the key to their promising future.

Significance of Productivity and Innovation in Emerging Economies

As it is seen from above, Industrial Growth is one of the major propelling force to

make the country emerging in this globalized market.

In a recent report by the economist it is stated that the markets in the emerging

economies are one of the toughest in the world owing to their inefficient distribution

systems, high pollution levels, erratic government behaviour, high piracy and

poverty. On the other hand they are equally lucrative to get into as they have huge

population mostly in the age group of 20-45. These places have high literacy rates



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and are capable of getting good jobs which ultimately translates to higher buying

power.

Owing to the above factors if a business has to progress in an emerging economy it

has to be innovative either in its offerings or in its way to do the business. For e.g.

Unilever came out with shampoos and detergents in sachets as people in theseeconomies find it easier to buy sachets as compare to large packs. Nokia with its

cheap and sturdy handsets was an immediate hit in these countries which had just

started to embrace the telecom industry. There have been innovative technologies

coming up from these places such as rice based water filter to suit the needs of rural

consumers. There have been certain innovations which have failed in these countries

which gives us an insight that not just any innovation will work in such countries. An

understanding of the local conditions, utility of the product/service here and a proper

marketing about the innovation is essential for an innovation to succeed here.

Innovation as a tool for increasing the Productivity

Economic growth results from increased quantity of resources used in production, by

their improved quality and by their more efficient use. When the economic growth is

fuelled by employing increasing quantity of labour, capital (man-made production

equipment) and intermediate goods and services (raw material, fabricated inputs,

energy and services) it is often called extensive development. Extensive

development is constraint by the available human and material resources. In

contrast, intensive development is based on improved efficiency productivity - of

combining the basic production factors and inputs and on quality improvement of

labour and capital. The more advanced an economy, the more its growth depends on

improved productivity and quality of labour and capital.



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Firms innovate to increase their productivity and profitability, which can occur via

reductions in costs, improvements in sales, or a combination of both. The outcome of

product innovations should be observable in increased sales and market shares,process innovations are undertaken mainly to reduce production costs but often also

pursue other objectives. Therefore, innovations are launched with the expectation of

increased profitability and improved productivity. But innovators also pursue other

objectives such as better service to customers, more flexible production, reduced

pollution, satisfy safety norms and other regulations etc.

Hence here comes a new way of thinking called Innovative Productivity.

Mathematically, it can be defined as

Innovative Productivity = Innovation X Productivity.

And Economic Growth can be represented as

Economic Growth = Function of (Innovative Productivity)

Conclusion

A substantial part of economic growth cannot be explained by mere increasedutilisation of capital and labour. This part of growth, commonly labelled multi-factor


INNOVATION

Extensive

Productivit

y

Intensive

Productivit

y

MORE

Labour

Capital

Investment

Services

etc

REDUCED

Labour

Capital

Investment

Services

etc

For same

Productivity

targets

EMERGING ECONOMYPOOR/ NORMAL ECONOMY


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productivity, represents improvements in the efficiency of production. It is usually

seen as the result of innovation by best-practice firms, technological catch-up by

other firms, and reallocation of resources across firms and industries.

The Innovation in Productivity (Innovative Productivity) is also one of such measureswhere in the objective is not merely increasing the productivity but with the mix of

Innovation to reap tangible and in tangible benefits. Innovative Productivity

increases the Industrial Productivity and in turn boosts the growth of emerging

economies. Hence it is concluded that

Propel with Innovative Productivity.. Emerge as Prosperous

Economy.


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Innovation in Emerging Economy Pratham Advisors