Innovations In Emerging Markets

Talk about Innovation:from Brazil, the Waterless Car Wash

The emerging markets 'innovation du jour' post comes from our friends at the World Resources Institute. To be frank, the post in question on their nextbillion.net blog is a year old. However, it is still attracting requests for franchise information and entrepreneurs from as diverse a range of places as Mozambique, India, and California.

The post may be dated but it says a lot about the lead taken by some emerging markets as sources of innovation and incubators of environmentally-friendly enterprises. Just as importantly for our purposes, it says even more about the global market for innovation and clean technologies. It's alive and well and taking full advantage of the consumer-led blogosphere's promise.

Creating the Conditions for Innovation by Enterprises

The financing of small and medium enterprises (SMEs) and equity markets can play a critical role in fostering economic productivity by financing innovation. That's the central premise of a new World Bank Group paper, which discusses the components of an SME-friendly market architecture and links to policies that foster a new class of investable equities.

More than 24 countries in emerging markets operate separate boards and exchanges aimed at SMEs, the paper says. But only a few SME exchanges function properly, providing coveted fresh capital and liquidity. The key steps to building an efficient exchange to provide risk capital for SMEs are addressed in detail.

An Emerging Market Firm's Successful Tactics for Innovation

India's Tata Group presents a most striking case study of how an emerging market company can both do well and do good. IFC's blog has carried several stories highlighting its track record as a socially responsible investor. In the latest issue of McKinsey Quarterly, we learn how Tata's car manufacturing arm, Tata Motors, fostered innovation within its ranks as it engineered a successful comeback from a severe sales slump a little over five years ago.

So what tactics did Tata Motors employ?

Speaking about staff, Tata Motors Managing Director Ravi Kant told McKinsey Quarterly, "The trick was how to expose people to the outside world to allow them to see what is happening there rather than drilling change into them through speeches and letters." He went on to say:

We had our people listen to customers talk about the problems they were facing and the suggestions they had for product improvement. We exposed our people to products of competitors by tearing those products apart and analyzing the good and bad and comparing them with our own, thereby making people see why customers buy someone else’s products rather than ours.

Innovative leadership and perhaps a "higher objective" may also have been at play. The interview with Kant closes with a revealing comment on the motivations behind an emerging market company's drive to succeed and innovate.

"We want to achieve [success]," Kant says, "the Tata way -- transparently, ethically, and meeting our corporate social responsibility. We want to make India proud."

Innovators In Emerging Markets Get Startup Help

In Brazil, a group of mothers were unable to work regular hours because their children had cancer and required special care. They decided to turn their culinary skills into a catering venture, but struggled to turn a profit. In Vietnam, a group of young programmers were frustrated at past failures to commercialize their hospital administration software. And in Ghana, four university graduates with a passion for children’s education and animation started a business, but immediately encountered roadblocks ranging from finding affordable office space to weekly power outages.

All are first-time entrepreneurs. They are also clients of business incubators––centers providing a range of services to fledgling businesses––supported by the Information for Development Program (infoDev), a partnership of international development agencies promoting the effective use of information and communication technologies. For more on the World Bank Group-based infoDev and its support for innovators in emerging markets, click here.

Philanthropreneurs and Companies Doing Good while Doing Well

The line between philanthropy and business is blurring, says a New York Times supplement on Giving this week. A new generation of philanthropists has stepped forward, for the most part young billionaires who have reaped the benefits of capitalism and believe that it can be applied in the service of charity. They are “philanthropreneurs,” driven to do good and have their profit, too.

Meanwhile, in emerging markets, companies are also applying the "part philanthropy/part corporate strategy" business model. The result: they are developing markets AND contributing to bettering the lives of millions of people. Intel's World Ahead program in China is one example. The tech company has announced plans to spend $1 billion over five years to improve Internet access in developing countries and train teachers on how to use technology.

The long-term pay-off for companies such as Intel is pretty clear. For the governments of countries like India and China, where programs by Microsoft, Intel, and other hi-tech companies are underway, "the technology projects offer ways to close gaps with wealthier cities -- providing more-remote and less-educated residents access to information they wouldn't have otherwise to improve their own and their children's fortunes. Both countries have ambitious plans to use technology to maintain their rapid economic development."

For those of us at IFC -- an international financial institution with a development mission-- the convergence of emerging market development goals with 'philanthropreneurshipism' means at least a triple pay-off, where everyone can win.

East Asia's Firms: Starved for Financing and Nowhere to Go

Local investment in East Asia’s financial markets is being stunted – by the region’s own inadequate banking sectors and uneven growth of its securities markets, Oxford Analytica argues in a recent analysis (restricted access). As long as that remains the operative characteristic in East Asia, cross-border investments will remain weak and capital flows will go to bolster reserves instead of funding development projects.

Starved for financing, East Asian firms should look to equity and bond markets, says OA, rather than banks. In turn, the region's banks must focus on private sector financing, particularly small and medium companies, which are responsible for most of the production and jobs in regional economies.

Globally Successful AND Socially Responsible -- India's Tata Group

India's Tata Group has again grabbed global attention with the recent announcement that a subsidiary, Tata Steel, has acquired the U.K.’s Corus Group for $7.7 billion. This makes it the largest foreign deal by an Indian company ever. Newsweek ran a full spread on the Tata Group this week, in effect sealing its global stature.

Tata's expansion plans are not limited to the industrialized countries. They foresee forays into emerging markets, including Argentina, Indonesia, South, Africa, Brazil, and Uruguay. Commenting on his strategy for expansion in emerging markets, Tata's CEO says his firm invests in nations where there is a need for company’s existing products or the market is too small to interest other multinationals.

Our Innovations in Emerging Markets blog regularly posts on the Tata Group and their global reach. The company's track record of south-south investments is impressive. In African countries in particular, the striking characteristic of this successful company's presence is not only that it is long-standing but that it emphasizes social responsibility just as much as growth.

Entrepreneur Central To India's Economic Success

The entrepreneur is at the center of the Indian economy's phenomenal success, says Foreign Affairs Magazine. Despite the burden of indirect taxes, stringent labor laws, and a massive bureaucracy, Indian companies continue to thrive, with a booming stock market and modern financial sector. Over 100 Indian companies have a capitalization of more than a billion dollars, and some of these, such as Bharat Forge and Wipro Technologies, will probably be successful brands. Foreigners have jumped into India's stock market, investing in over 1,000 companies.

But there are still obstacles to continuing development: high public debt, a deterrent to infrastructure investment, an unwieldy, inefficient public sector, and lack of a broad-based industrial revolution that can generate the employment that goes along with growth.

China's Entrepreneurs -- this Century's Most Intriguing Stories in Development

It must feel like the 'China-entrepreneurs-24-hour-news-channel' on this blog lately. The truth is, the increasingly central role of the entrepreneur in China is a phenomena, which is captivating the attention of many of us in the business of international private sector development -- not to mention a whole host of social scientists, economists, and lawyers ... to name a few.

One case in point is the China Law Blog. It recently carried our posting on Chinese firms driving investment expansion to illustrate how facts on the ground, combined with government planning and strategy, are putting Chinese entrepreneurs squarely in the middle of China's economic development trajectory.

The China Law Blog posting flagged a new China Daily article, entitled "Professionals, entrepreneurs: new pillar of China," which describes how China's 150 million entrepreneurs and "freelance professionals" are a "new pillar" of Chinese society and economic development.

It's no accident then that it feels like the 'China-entrepreneurs-24/7'  channel on this blog and other business news platforms sometimes. For international business and development trend watchers anywhere, that's easily among the most intriguing stories unfolding in the 21st century.

Chinese Banks -- Still Not A Run-of-The-Mill Investment Decision

In 2005 foreign banks took stakes worth $18 billion in China's biggest banks, a McKinsey Quarterly article notes. Certainly an indication of international investor confidence in the improvements made by Chinese banks over the last few years in the area of performance and governance.

Despite the progress, the authors caution that Chinese banks still lack crucial commercial skills. Those are particularly visible in the area of loans pricing, leading to a tendency to lend too much money to underproductive state-owned enterprises. Just as importantly, few banks have the systems to guard against accruing bad loans.

The impact of those shortcomings on economic development warrants attention, since they suggest the likelihood of a skewed investment picture. The authors say "Chinese companies get loans at abnormally low rates, which encourages overcapacity and inefficient investments in many sectors."