Less is more: Emerging economies as innovators

©Dave Amit/Reuters

Bus tickets save lives. Here’s why. 

Heart attacks are the number one killer in India. Many of these deaths could be prevented if people with heart disease underwent electrocardiograms (ECGs). But ECG machines are expensive (around US$10,000) and big, so they are usually found only in hospitals. The trouble is, some 70% of Indians live in rural areas where hospitals are scarce. General Electric has solved the problem by designing a handheld ECG machine that can be carried around. It is also cheaper to use than regular ECG machines, partly because the expensive paper they use has been replaced by the paper used by bus conductors to print tickets.

Innovators in India use the traditional term jugaad to describe this approach. Roughly speaking, it means “making do with what you have”. The approach is also known as “constraint-based”, “frugal” or “reverse” innovation. Rather than pouring cash into high-tech research and development (R&D), because cash is lacking, innovators draw inspiration from the very constraints that supposedly hinder research. Part of this comes from looking closely at the immediate environment for solutions. Not surprisingly, “constraint-based” innovation originated in an emerging economy. It is a prime example of how these economies are innovating the very idea of innovation.

One indicator of innovation in a country is the number of trademark applications. These innovations are rarely the heralds of a revolution, but are incremental adjustments to existing technologies or marketing methods. The OECD Science, Technology and Industry Scoreboard 2013, which provides a battery of indicators to measure innovation, found that while trademark applications have increased overall, the share, especially in service related trademarks, has dipped in OECD countries, whereas in emerging markets, especially China, it has climbed. According to the World Intellectual Property Organization (WIPO), emerging economies have nearly tripled their number of trademark applications over the last three decades.

Although emerging markets aim to break into the US and European markets with their trademarks, nearly all, with the exception of China, concentrate on home markets. This in itself is an incentive to innovation. Many emerging economies, such as those in China, India, Indonesia and Bangladesh, have large populations, a significant portion of which is poor. For this reason, Tata Motors in India manufactured the Nano car, priced at $2,500, which because of its affordability allows the company to reach a wider domestic market rather than focus on wealthier consumers. This is a dressed-down style of marketing.

Constraint-based innovation is not the only reason emerging economies are gaining a surer foothold on the ladder. There is also a greater tendency among them to collaborate, at both national and international levels. In 2011, China became the second largest R&D performer in the world, surpassed only by the US. It also collaborated in 74,000 scientific projects, compared with 9,000 in 1998. Over that same period, Chinese scientists co-authored some 22,000 scientific publications with US-based institutions, up from 2,000.

At home, innovators in emerging economies seek out more opportunities to collaborate at every level and with various institutions. Bangladesh, despite spending less on health care than most of its neighbours, boasts the longest life expectancy, lowest fertility rates and lowest infant mortality rate for children under 5 than any other country in South Asia. This success is credited to mobilising local communities, empowering women, and working with NGOs and the private sector. When Bangladesh sent out community health workers to treat tuberculosis, the cure rate rose to 90%. South Africa has adopted this model in its treatment of tuberculosis and HIV.

International collaboration has opened borders to researchers. A large number of researchers and students in emerging countries leave home to study in OECD countries. The difference today is that researchers who start by publishing in the US now tend to move to affiliations in China or Korea. This has proved to be an advantage. The OECD found that scientists who crossed national boundaries rather than stayed at home had a 20% higher impact in their field of research. And though it remains true that university hotspots (where a good deal of R&D is conducted) are concentrated in OECD countries, two universities–in Chinese Taipei–have for the first time made it into the world’s top 50. The hegemony of OECD countries in terms of R&D is often blamed for the “brain drain” from emerging and developing economies. Today, the increasing mobility of researchers and students is transforming this “brain drain” into “brain circulation”.

Yet location does matter. Knowledgeintensive industries, such as information and communication technologies, biotechnology, and nanotechnology, are concentrated in just a handful of countries, notably the US and Japan. But more emerging countries are joining the ranks of middle-income economies. In the last 10 years, IT applications in China’s Guangdong region have increased 90-fold. As emerging economies grow, so do their ambitions to become higher links in the production chain.

With 75% of the human race using cell phones, the role played by mobile technology in innovation cannot be underestimated. In 2000, about 1 billion people had access to mobile phones. Today, they number 6 billion, with 5 billion in developing countries. Mobile phones have become indispensable in emerging and developing economies, especially those with large rural populations. Mobile Internet access is set to expand, while clever new applications are coming on stream. For example, Anurag Gupta (again in India) has made life easier for bank customers in rural areas by designing a smartphone with a fingerprint scanner and a portable cash machine (or ATM).

Mobile technology and the commercialisation of the Internet have engendered novel innovations, such as open-source research, crowdsourcing and Internet platforms where firms set challenges to innovators, often with a financial reward. However, this has come at a pace that is straining the network. Global Internet Protocol (IP) traffic has soared. The Internet Protocol IPv4, which assigns addresses, was exhausted by 2011. The subsequent IPv6 was meant to offset the burden, but take-up has been slow. Less than 1% of wired-up Internet users connect to a service with IPv6, with only France, Luxembourg, Japan and the US above that mark. Unless this situation improves, the antiquated IPv4 could hinder further innovation.

In sum, while the flow of innovation is still the strongest from OECD countries, the tide pools and eddies of innovation in emerging countries are modifying their course.

Lower costs are a key draw. The World Heart Foundation, based in Geneva, has been closely following the work of Devi Shetty, the Indian heart specialist who has applied economies of scale in surgery by stripping away the dross. Gone are the air conditioning in the operating theatre, unnecessary pre-op tests and the disposable surgical gowns sold by European firms, which Dr Shetty was able to buy for 60% less from young entrepreneurs in Bangalore who designed cheaper ones. By drastically cutting costs without sacrificing quality, Dr Shetty has brought down the cost of a coronary bypass to $1,583, half of what it was a decade ago. At Ohio’s Cleveland Clinic in the US, the same operation costs $106,385. Lyndon Thompson

References

OECD (2013), OECD Science, Technology and Industry Scoreboard 2013: Innovation for Growth, OECD Publishing.

See: www.oecd.org/innovation/

© OECD Observer No 297, Q4 2013




Economic data

GDP : +0.5%, Q4 2014
Employment rate: 65.9%, Q4 2014
Annual inflation : 0.57% Feb 2015
Trade : -3.0% exp, -3.7 imp, Q4 2014
Unemployment : 7.022% Feb 2015
More moderate expansion ahead? Composite leading indicators
Updated: 23 Apr 2015

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