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«RESEARCH Open Access Research and development from the bottom up - introduction of terminologies for new product development in emerging markets ...»

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Catalytic innovation A comparison of Gandhian innovation and other traditional approaches reveals the former’s stronger focus on the relevance of both external and internal sources (technology, capabilities) of the developer (particularly companies). Prahalad and Mashelkar (2010) extend the Ghandian innovation approaches - focusing either on technology (products) or on processes - by pointing out the different ways of using the source’s technology and capability. Further, the authors emphasize the social claim behind the phenomenon: ‘Learning to do more with less for more people, we believe, should be the innovator’s dream’ (Prahalad and Mashelkar 2010). This is done by switching from premium pricing and abundance to affordability and sustainability to make products and services accessible to the world’s populace. Christensen et al. (2006) call these novel practices ‘catalytic innovations,’ which are based primarily on social change rather than on maintaining the status quo through the development of new products by existing players and partners (see also Munshi 2010). The social entrepreneurs engaging in catalytic innovation aspire to increase the social wealth of poor customers by creating ‘scalable, sustainable, system-changing solutions’ (p. 96). Five qualities are assigned to catalytic innovators: First, they push social change in a systematic way by using economies of scale and replication. Second, they fulfill needs that are served badly or not at all. Third, they offer low-cost solutions with performance that is reduced but still sufficient for customer satisfaction. Fourth, they explore unusual resources such as volunteer manpower, donations, and intellectual capital that were not considered attractive by the competition. Fifth, they are underestimated or ignored by present competitors (Christensen et al. 2006 p. 96 ff.). Considering these qualities, the analogy between catalytic innovation and frugal innovation is recognizable, but for catalytic innovations emphasis on small, unnoticed competitors and social change is added. The Grameen Bank of Bangladesh, which offers microfinance in India, is an example of catalytic innovation.

The bank’s microfinance business loans help small entrepreneurs at the BoP to start up their own businesses. No one intended to ‘invest’ in people or businesses at the BoP.

Surprisingly, the default rate is below 3%, which, compared to the 5% default rate of credit card issuers in the USA, turns out to be very good (Mohan and Potnis 2010).

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considered inventors. The inventions are primarily designed to reduce or eliminate drudgery and are created by local people with the available resources (Gupta 2008, p. 58).

Thus, grassroots innovation is similar to jugaad. However, the additional aspects of networking and ecological comprehension, as being an important factor in grassroots innovation, are missing in the concept of jugaad. Networking is important because advancing innovations at the ‘grassroots level’ - particularly in rural areas where science, policy, and demand hardly meet - requires intensive communication between local persons, which plays an important role in encouraging ‘little science’ (Gupta 1999, p. 1 ff.). In the 1990s, a social network called the Honey Bee Network was established to advance small inventions by farmers who had creatively solved local problems by creating a platform to reward their creativity and spread their knowledge through a database (Fukuda and Watanabe 2011; Gupta 1997). Furthermore, the database provides information on the availability of solutions and inventive sources across borders, including an overview of great inventors and their locations (Kastelle and Steen 2010).

Seyfang and Smith (2007) extend this concept by adding a ‘green’ component: ‘[it] describe[s] networks of activists and organizations generating novel bottom-up solutions for sustainable development and sustainable consumption; solutions that respond to the local situation and the interests and values of the communities involved. In contrast to mainstream business greening, grassroots initiatives operate in civil society arenas and involve committed activists experimenting with social innovations as well as using greener technologies’ (p. 585).

As in jugaad, Seyfang and Smith’s approach is driven by individuals and groups of people and is organized locally. Therefore, the coordination level is low, collaborations are based on ‘social capital rather than formal organizations,’ research competence is application-oriented, and specialization is weak (Cooke and Memedovic 2006, p. 8). In contrast, the Honey Bee Network at least resolves the organizational gap by expanding the number of participants and improving organization using modern communication channels to transfer knowledge among local, national, and even international individuals and groups. For emerging markets, the transfer of knowledge or technology between groups/ companies/economies is the crucial point of the term discussed in the following section.

Indigenous innovation The little research that has been undertaken on indigenous innovation focuses on the macro-economic level and addresses the inherent difficulty of increasing benefits from international trade for developing countries. In the context of international R&D activities, indigenous innovation research considers technology transfer between enterprises in advanced and developing countries as well as the resulting effects for the domestic economies in developing countries, or spillover effects (Fu and Gong 2011; Schwaag Serger and Breidne 2007). Fu and Pietrobelli (2011) identify a congruent level of indigenous knowledge (absorptive capacity) based on local R&D in the developing country as necessary for gaining economical benefits from foreign technology transfer.

Indeed, shared R&D activities among indigenous companies (e.g., EMFs in China) support technological advancement without serious problems; contrary to popular belief, the benefits of R&D activities by foreign-invested enterprises are debatable. Considering indigenous innovation, R&D activities by foreign companies within emerging markets have a negative effect on technological change because of inadequate technology in the Brem and Wolfram Journal of Innovation and Entrepreneurship 2014, 3:9 Page 9 of 22 http://www.innovation-entrepreneurship.com/content/3/1/9 domestic industry and/or increased competition for limited domestic experts. However, in the second step, these foreign R&D activities positively affect the domestic economy by increasing the inflow and diffusion of superior knowledge and technology (Fu and Gong 2011). Nonetheless, Fu and Pietrobelli (2011) consider foreign technology inflows as a complement, and not as a substitute for indigenous technology, because of its strengthening of the absorptive capacity for human capital, including the additional R&D expenditures in the emerging market. The technology transfer (or spillover effect) is only effective if there is human capital which is able to absorb the new knowledge. An investigation of the technological capabilities of developing countries revealed that indigenous EMFs are often creators of technology in several sectors. They export to middle-income countries, especially to economies with similar factor endowment and technological levels (Fu and Gong 2011). To operate in the developed world, emerging economies must change their present factor endowment by pushing their technological knowledge and capabilities. Accordingly, China’s gross domestic expenditures on R&D increased by 855% between 1995 and 2008, whereas the R&D expenditures in Europe increased by only 50% (European Commission 2011, p. 45).

From the opposite perspective, DMFs are encouraged to analyze and discuss the absorptive capacity of the chosen market and the innovation capability of the local company as a partner before pushing forward to internationalize their R&D. However, considering the increasing competition in emerging markets, DMFs also need to grow economically, culturally, and socially in these emerging markets to protect their positions in their home markets. Otherwise, ambitious competitors like Tatas and Mahindras will disturb their market positions in the developed world (Govindarajan 2012). Finally, indigenous innovation is the scientific reference point for discussions about different understanding of the term innovation as well (Brem 2009).

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Gaps between NPD in DMF’s and the frugal approach Therefore, the whole product development process needs to be reconsidered from scratch, especially for DMFs (The Economist 2010a; Seghal et al. 2010). As mentioned above, the simple approach of abolishing the surplus functions of highly engineered products is insufficient - the existent capabilities of emerging market ecosystems are crucial. Trimble (2012, p. 19 ff.) identified five gaps that differentiate the conditions of the developing world from those of the developed world. First, the performance gap mentioned above is a result of the ‘good-better-best’ approach by DMFs. While providing the best products to solvent customers in the developed world, companies try to cut their products from best to good, or even fair, to offer them in emerging markets.

The infrastructure gap is the second pitfall: there are insufficient products and services (communication, transportation, banking, education, etc.) for the offerings that depend on this infrastructure. Accordingly, the offerings have to meet emerging market infrastructure needs through an adjustment of the innovation strategy to create appropriate products, e.g., General Electric’s low-cost electrocardiogram with long battery life.

The sustainability gap deals with the opposing forces of economical success and environmental sustainability. In emerging markets in particular, the consequences of this gap are drastic and sustainable technology, such as electric mobility, is required.

The next obstacle is the regulatory gap - regulation can be helpful or obstructive. On the one hand, incomplete regulations in emerging markets do not foster innovation efforts, but overregulated markets can increase prices needlessly.

The final gap is preferences. Differences in nature, climate, aliments, environment, etc.

lead to divergent behaviors, habits, and preferences that have to be kept in mind. In reconsidering the gaps, the aim of Western R&D has to be the treatment of emerging markets as unique customers with unique needs and unique full-product solutions.

These brief insights provide an overview of interesting aspects about the creation and development of new products and services for and in both emerging and developed markets. In the following chapter, we propose a conceptual framework based on the

discussion in this chapter.

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Methods The approach of MacInnis (2011, p. 137 ff.) is used to build the theory’s conception and articulation. This approach includes four steps: (1) identification - exploring characters, (2) delineation - describing characters, (3) differentiation - discovering analogies and distinctions between the terms, and (4) advocating - implications for theory and practice.

In order to identify and explore essential attributes of each concept, all abovementioned academic articles (119) as well as a selection of 43 articles in press are investigated which contained detailed information of the terms supporting our delineation process of attributes.

Brem and Wolfram Journal of Innovation and Entrepreneurship 2014, 3:9 Page 11 of 22 http://www.innovation-entrepreneurship.com/content/3/1/9 In this delineation process, Holsapple and Moskowitz (1980, p. 84) propose the ‘identification of generalizations.’ It involves the derivation of general categories that can be identified within specific explanations where attributes can be clearly aligned to. Subsequently, comprehensive understanding of the terms is supported by their differentiation. The differentiation is realized by establishing scales within the established categories in order to identify analogies and distinctions by classifying single terms.

Finally, results are summarized and practical implications are presented.

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Differentiation: analogies and distinctions between the terms The terms are classified according to the abovementioned categories to depict the analogies and distinctions between them. To classify a term as belonging to one category, the categories are graded in a qualitative scaling. Based on the scale and the included evaluation of the terms, specific tendencies and attributes of the terms are revealed.

Sophistication In order to facilitate the evaluation, the classification for sophistication is scaled as low/ medium/high (see Figure 3). Low indicates that almost no coordination or systematic communication is accomplished for the actions involved in the terms (for example, from the description of jugaad, which is an improvised approach that lacks in taxonomy and discipline → low level). Medium demands at least a minimum level of communication between people of the same group to coordinate them and to fulfill the requirements of an action. Stated processes of the terms within literature are involved in achieving a sufficient level of taxonomy. High refers to a sophisticated level of coordination, communication, and process complexity - without the coordination of high complexity, the concept cannot be applied.

Jugaad and grassroots innovation are accomplished intuitively (or, at least, without structured processes and approaches) by giving preferential consideration to problem solutions in the direct environment (Gupta 2008; Kingsnorth et al. 2011). Because of this intuitive approach, jugaad relies on improvisation and imaginative problem solving and no stated (documented) reproducible process can be evaluated. The functional reliability of a technical solution cannot be verified because of missing processes and the lack of communication involved in the first step. Hence, jugaad is assigned a very low level of sophistication.

Grassroots innovation is similar to jugaad but involves systematized communication through networks and communities through coordinated interaction between national

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