Business Model Evolution: Helping Emerging Market Firms Go Global

Enterprises from emerging economies are progressing from contract manufacturing to competing globally via innovation and upgrading resources and capabilities. In an effort to move away from the commodity part of the value chain and focus on long-term value and growth, several contract manufacturers evolve their capabilities in design, R&D, consumer research and marketing to transcend to own-brand manufacturing and selling branded products. Some examples of former contract manufacturers now turned into global enterprises are Acer, BenQ, HTC, Haier, TCL, Flextronics and Lenovo.

Evolution of Contract Manufacturers
Contract manufacturers typically evolve their competence through the following phases:

  • Securing contracts with large and growing brands
  • Gaining manufacturing flexibility to meet client needs (e.g., expanding manufacturing operations to other regions, de-risking labor shortages or supply embargoes, etc.)
  • Offering value-added services (such as product design and development, advanced manufacturing and system integration capabilities)
  • Developing R&D and advanced technology capabilities via alliances or collaboration or in-licensing to deliver more value-added products and services for customers
  • Developing IP and manufacturing own product designs and selling it to B2B customers
  • Building marketing and go-to-market capabilities to launch consumer brands of their own in local or other emerging markets
  • Creating own global consumer brands (via market learning and co-development partnerships)

 

EVOLUTION OF FIRM INNOVATION

 

CASE STUDY: Manufacturing Firm Leverages Open Innovation to Grow Globally
4iNNO worked with a multinational manufacturing firm in South Asia operating in a mature industry with significant economies of scale. Starting as a contract manufacturer, the firm first added product design services and advanced manufacturing capabilities to work on complex, higher margin products. Then, the firm started to build internal R&D and marketing capabilities and experimented with its own brand in a local, emerging market that was not in conflict with its clients.

We helped design and execute an innovation strategy for the enterprise to grow beyond contract design and manufacturing into an influential global firm with a well-known brand. While the firm had the advantage of lower-cost labor and manufacturing facilities, it did not have the deep pockets, well-developed managerial systems or knowledge bases of its clients or more advanced competitors. Given these constraints, we describe how the firm fully embraced Open Innovation to gain advanced R&D capabilities, develop proprietary products and technologies and enter new, unfamiliar markets in advanced economies.

1. Strategies for Competitive Advantage
The firm worked with us to identify transformative growth opportunities adjacent to their core business. This ensured that their core competency and knowledge could be adapted and customized to new related products without conflict with existing customers. After identifying where to play, we developed strategies for how to win, such as reorganizing for innovation, identifying critical capabilities to leverage and build and becoming more customer-centric. 4iNNO helped set up an innovation structure, processes and metrics tailored to help execute a mix of close to core, adjacent and new market creation initiatives.

An Open Innovation hub was put in place to tap into external resources for technology and manufacturing innovation. Open Innovation tools were used to identify novel and emerging technologies to develop expertise in and/or acquire, and partners to help build competitive advantage. An internal corporate venture division was formed to discover and grow new businesses. We built and facilitated training programs to enable and empower employees to drive innovation.

2. Strategies for New Product Creation and New Market Expansion
Here we describe some interesting growth strategies employed by our client in expanding to a new market.

A. Ideation: 
In collaboration with 4iNNO, a small internal venture team identified business ideas in high potential, but nascent market segments via trendscaping, competitive analysis, market sizing and consumer discovery.

B. Product Conceptualization:
To develop differentiated solutions with a deep understanding of the end user, consumer co-creators were identified and selected to contribute to the project. Team members spent time interacting with and observing the co-creators leading to consumer insights. The team rapidly generated and tested product concepts with co-creators. Using a Lean approach, product prototypes (ranging from virtual to low functional to proof of concept) were built, tested, validated and refined based on co-creator feedback and with inputs from business modeling.

C. Product Development:
To progress the idea from proof of concept prototype to validated product, the corporate venture assembled an ecosystem of co-development partners including university research labs, design & tech companies and an external start-up. Product development was moved external to the firm with the venture being given access to certain internal resources and capabilities. This strategy enabled the venture to stay flexible and speed up development and testing of a new-to-the-world product. Consumer co-creation continued to help refine product features and validate product-market fit and the business model.

D. Market Launch:
It is a challenge for an emerging market manufacturing firm trying to enter a nascent market in an advanced economy with a novel B2C product. The firm was willing to experiment with Open business models to enable greater value capture and derive quick learning on the consumer, market and branding. It adopted our recommendations and purchased equity in the external start-up (located in the advanced economy). This partnership has given the firm access to a thought leader and a strong B2C brand to facilitate a fast product launch in a nascent yet influential marketplace and test waters with reduced risk. On the other hand, the start-up has gained access to firm’s technical capabilities and resources to expand into a synergistic niche space.

Many emerging economy firms, especially contract manufacturers, climbing the value chain and expanding into advanced economies and new markets encounter these challenges. Few engage in the breadth of experimentation that our client firm has done in its search for & execution of a growth strategy. It takes courage and vision to try out new ideas and these Open Innovation strategies are worth considering by challenger businesses everywhere. 4iNNO partners with companies to take on such innovation challenges and stimulate growth.

TAKEAWAYS

  • Emerging market companies, especially contract manufacturers, can and should commit to growth through innovation
  • Set innovation strategy to diversify core business model while not competing with existing customers and to build new businesses in emerging and mature markets
  • Build needed infrastructure, innovation capabilities and consumer-centric culture
  • Experiment with different approaches to product ideation, development & market launch for new businesses
    • Use a startup approach to conceptualize offerings via small teams
    • Co-create with end consumers and test, validate and refine product concepts using prototypes
    • Employ Open Innovation partnerships for product co-development and getting to market faster with less risk in new or mature markets
    • Don’t forget to innovate on the core business

Mekhala Raghavan, PhD

Senior Associate

Ricardo dos Santos

Director

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