This brief is part of the Insights @ Center for Emerging Markets, a publication focused on cutting-edge ideas and advice for global leaders about emerging markets.

By Shad Morris (Brigham Young University), James Oldroyd (Brigham Young University), Ryan T. Allen (University of Washington), Daniel Han Ming Chng (China Europe International Business School), and Jian Han (China Europe International Business School)

In Short: For decades, the innovation pipeline for multinational corporations (MNCs) largely flowed in one direction, from global R&D centers in developed economies to emerging market subsidiaries. The role of local R&D units in emerging markets were typically limited to adapting existing products for local tastes or finding ways to reduce costs. The assumption was that sophisticated “lead customers” and cutting-edge external experts resided primarily in developed markets, making them the natural epicenters of innovation. However, recent research challenges this paradigm, revealing how emerging market R&D units can become powerful engines for global innovation.

Shad Morris and his colleagues conducted in-depth case studies of six multinational corporations from the US and Europe, seeking to identify the distinct behaviors driving either global innovation or merely local adaptation. They found a key difference in how R&D teams interacted with customer information.

The traditional approach, which typically resulted in local adaptation, involved R&D teams receiving customer needs indirectly because the information was filtered through marketing and sales departments. This second-hand information limited the R&D team's understanding and usually led to incremental upgrades rather than entirely new products. In contrast, teams that engaged directly with customers used observations in the customers' own environments to uncover deeper, often unarticulated needs and problems. By questioning basic assumptions and witnessing challenges firsthand, these teams uncovered unmet needs and opportunities for significant design changes.

Moreover, the research showed that, for these emerging market R&D teams, directly observing customers was more vital for global innovation than concentrating only on sophisticated users. Advanced users typically push product limits, whereas less demanding users, common in emerging markets, might use products without complaint and focus on practicality. Despite this, the study found that closely watching these less demanding users in action could uncover basic usability problems or overlooked needs relevant to the global market.

Equally important was how these teams sought knowledge to solve the problems they identified. Emerging market R&D units often lack easy access to local external experts or advanced technology found in developed economies. Instead of merely requesting solutions or applying existing templates provided by headquarters or internal partners in developed countries, innovative teams focused on fundamental, generalizable knowledge behind existing solutions. By focusing on these core principles, emerging market R&D teams gained the flexibility to apply knowledge in novel ways. This principle-based learning empowered them to overcome local constraints and develop innovative and more efficient solutions.

Managerial Implications

Innovation capability in large and digitally savvy emerging economies can become an important driver for future growth, and foreign R&D units in these markets often possess untapped potential to be sources of global innovation. Managers can unlock this potential by restructuring processes and incentives and by encouraging and empowering R&D personnel to engage in direct, contextual observation of customers. They should also seek to foster a culture of learning that prioritizes uncovering underlying principles from internal and external experts, rather than relying on ready-made answers from headquarters. By shifting the focus from who holds the knowledge to how knowledge is accessed and applied, MNCs can transform their emerging market R&D units from centers of incremental adaptation into drivers of global competitive advantage.

Original Work

Morris, S., Oldroyd, J., Allen, R. T., Chng, D. H. M., & Han, J. (2023). From local modification to global innovation: How research units in emerging economies innovate for the world. Journal of International Business Studies, 54(3): 418-440.

Contact

If you are interested in learning more about this work, contact Professor Shad Morris at [email protected]