Frugal Innovation in Emerging Markets

Abstract

OVERVIEW:The quality and number of innovations developed by multinational companies from emerging countries is increasing dramatically. In particular, frugal innovations—“good-enough,” affordable products that meet the needs of resource-constrained consumers—have created tremendous demand in emerging markets. While the development of such products has largely been the domain of local corporations in emerging countries, Western corporations have recently started to engage in frugal innovation as well. This is a difficult task for Western firms, however, because their business models and organizational structures are traditionally designed for the development of advanced products for the affluent few at the top of the economic pyramid. Using Swiss weighing-instrument manufacturer Mettler Toledo as a case example, this article suggests that frugal innovations are largely developed by local R&D subsidiaries of Western firms in emerging countries. A substantial degree of autonomy for those local R&D subsidiaries, including product-portfolio responsibilities, can facilitate the development of frugal innovation.

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