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INNOVATE

OR ADAPT?
The Challenge: Should new products be developed
in-market or adapted to market? What can companies do
to ensure that innovation equates to better business?

In collaboration with Harvard Business Review Analytic Services


INNOVATE OR ADAPT?
Whether it’s the economy or the environment, one thing is certain: The future of the world
is inextricably linked to the future of business. More than ever we need to find innovative
solutions that can turn future business challenges into opportunities.

Harvard Business Review and the Singapore Economic Development Board recently brought together four experts for a
roundtable discussion focused on the opportunities and challenges in bringing new products and services to the emerging
economies around the world. More and more companies are drawn to the huge growth potential of countries like China and
India, but too often focus on leveraging lower labor costs and raw resources. Lacking knowledge and experience in the
new market areas, these companies can overlook the need to adapt and innovate products for a new group of consumers
and discount the region’s innovation potential. To understand how organizations should frame their business strategies in
these new markets, the roundtable framed up this challenge:

Should new products be developed in-market or adapted to market? What


can companies do to ensure that innovation equates to better business?

Participants in the roundtable were drawn from experts from academic, consulting, and major multinational corporations.
The members included:

n Dr. Jagdish Sheth, Charles H. Kellstadt Chair of Marketing, Goizueta Business School at Emory University
n Bruce Brown, Chief Technology Officer, Procter & Gamble
n Inder Sidhu, Senior Vice President, Strategy and Planning, Worldwide Operations, Cisco
n Scott Anthony, Managing Director, Innosight Ventures

What emerged from this session, detailed in the following pages, was a fascinating discussion about how companies
should be thinking about adapting and innovating in new markets—and how to use frameworks to understand the
opportunities. Companies like Cisco and Procter & Gamble provide real-time case studies that show how companies can
locate multifunctional teams in markets to better understand customers and constraints, to experiment, and to devise the
most effective solutions.
The group agreed that a new paradigm of “think local, act global” is emerging, where companies will not only have localized
resources that focus on local markets, but also develop ideas, products, and practices that can be leveraged globally.

Singapore Sessions is a trademark of the Singapore Economic Development Board.


To join the conversation, visit SingaporeSessions.com/ProductInnovation.
“Innovation is shifting from adaptation to
in-market development with a focus on
opportunity, affordability, and sustainability.”
ACT GLOBAL

Fundamental
Shift in Global
Innovation
new
paradigm

THINK GLOBAL THINK LOCAL

old
ACT LOCAL

paradigm

New Measures of World Economies


The new measure is Purchasing Power Parity,
based on GDP.

1 U.S. $ 18.0 trillion


2 China $ 17.0 trillion
3 India $ 6.0 trillion
4 Japan $ 5.0 trillion
5 Germany $ 3.4 trillion
6 Russia $ 2.9 trillion
7 Brazil $ 2.8 trillion
8 U.K. $ 2.7 trillion
9 France $ 2.6 trillion
10 Italy $ 2.0 trillion

Source: International Monetary Fund (IMF)


DR. JAGDISH SHETH
Charles H. Kellstadt Chair of Marketing,
Goizueta Business School at Emory University
Jag Sheth has worked with companies around the world to understand the unique
opportunities and challenges in bringing new products to emerging markets. He is the
author of Chindia Rising: How China and India Will Benefit Your Business.

///// HISTORICALLY, companies have relied on local Clearly, these large emerging markets such as China,
adaptation strategy to deliver their products in a way that India, Brazil, Russia, Turkey, and Indonesia will necessitate
deals with differences in culture, geopolitical distance, and more in-market, low-cost innovations that make emerging
regulation. Some replicated the business model that worked products more affordable and accessible.
in their native nations, and later had to make adjustments
But companies also are moving to in-market innovation
for new purchasing power and general economic
because of the low-cost innovation in emerging markets.
development in the new markets.
Since the cost of innovation there is at least ten to fifty times
For instance, the unit price is often prohibitive in emerging cheaper than in advanced countries, it is much cheaper to
markets if the innovation was primarily developed for fail. Another factor behind in-market product development
advanced economies. When Warner Lambert initially failed is the emergence of a global mindset. Increasingly,
to market Chiclets in India, they found that the unit price of many emerging economies are demonstrating significant
Chiclets (with eight pieces in a pack) was too prohibitive. They capability to innovate with scarce resources and poor
successfully reintroduced Chiclets by repackaging them in a infrastructure. Brazil has led the world in ethanol; China
smaller pack of two pieces of gum and reducing the unit price. leads the world in solar energy.
This has also been the case for many other companies.
The innovation fever in emerging markets is prevalent
But all of this is changing with the rise of emerging markets, in such basic industries as education, health care, and
especially China and India. Innovation is shifting from defense. The scientific community in advanced economies
adaptation to in-market development with a focus on now recognizes the capabilities of scientists in emerging
opportunity, affordability, and sustainability. Both of these markets. This is one reason why the chairman of GE, Jeffrey
countries are destined to become the largest consumer Immelt, is investing in what he calls “reverse innovation.”
markets in the world with the rise of brand-conscious In order to compete against emerging multinationals from
middle class consumers. Most of these customers are emerging economies, General Electric has decided to
first-time buyers of automobiles, appliances, credit cards, innovate in China and India and develop products there
and prepared foods. The largest markets for cell phones, that may be suitable for neglected markets in America.
for example, are China and India. China has more than
What we are talking about, then, is a paradigm shift,
700 million cell phone users and India has just surpassed
from merely taking global products and making a few
500 million users and is adding more than 15 million new
adaptations for local markets to actually starting with local
subscribers each month, most of them in rural India.
innovation to create new global products.
Similarly, the largest and most profitable market for Avon
Products is Brazil, where nearly one million agents sell In-market development also helps further the fusion of
cosmetics to both metro and remote rural populations. different disciplines, cultures, and processes of innovation.
This means fusion of biological and physical sciences, as
Converting unbranded and unorganized markets into
well as fusion of electronics into everything to make them
branded organized markets is key to future innovation
smart. It also means blending global talent to work together
and business success. In many ways, this is exactly what
in virtual teams. This fusion will make the debate whether to
Walmart did in rural America and what Ford Motor Company
innovate in-market or adapt to local needs moot.
did with the Model T. America has been a pioneer nation in
converting non-users into users.
BRUCE BROWN
Chief Technology Officer, Procter & Gamble
Bruce Brown oversees the company’s innovation program, its 8,700-person global
R&D organization, and its nearly $2 billion annual investment in R&D. He also oversees
P&G’s Corporate Innovation Fund and FutureWorks organization for the creation of new
business opportunities and capabilities.

With its Asia-Pacific headquarters located in Singapore (also by King C. Gillette more than 100 years ago—double-
global business headquarters for the SK-II brand), P&G edge razors—because there was no better, affordable
has recently broken ground on a research and development alternative. So we looked at every element of our innovation
Innovation Center for Beauty, Grooming and Corporate process, from consumer understanding to design to
R&D which will be completed in 2013. On the innovation manufacturing, to create a product for these men while
front, P&G has also entered into a master collaboration managing costs to meet their affordability criteria in a
research agreement with Singapore’s Agency for Science, sustainable business model.
Technology and Research. These strategic plans support
We designed for this consumer by spending thousands of
P&G’s manufacturing activities in Singapore—its first and
hours with men in India to better understand their shaving
only perfume plant in Asia, and a plant that manufactures
needs. They participated in interviews, in-home visits,
PUR water purifier sachets for disaster relief.
“shopalongs,” and test shaves to shape and fine-tune the
our growth strategy is to “touch
///// AT PROCTER & GAMBLE, razor’s performance. We learned they value safety, ease
and improve more consumers’ lives, in more parts of the of use, and affordability above all else. We discovered
world…more completely.” they need a razor to help manage longer hair because
they don’t shave every day. They place high importance
The business strategy centers on the idea of improving
on easy-rinsing technology, as many do not have running
more consumers’ lives by innovating and expanding
water in their homes. We also saw unique gripping patterns
vertically, up and down value tiers. We improve lives in
by Indian men when shaving that needed to be addressed,
more parts of the world by innovating and expanding
because many men are holding mirrors as they shave.
geographically into new white spaces where we have
not been competing. We improve lives more completely We designed the new razor by leveraging these insights to
by innovating to improve existing products, creating or develop Gillette Guard from scratch, filtering every design
entering adjacent categories, and driving regimen use that and technology element through the eyes of the consumers
broadens our product portfolios. and what they valued most. The result is what we believe is
a breakthrough shaving system designed to provide a safe,
Innovation is the way we fulfill our company’s purpose
high-quality shave at an affordable price. The dramatically
and meet our growth goals. It starts with a thorough
simplified product design uses 80 percent fewer parts
understanding of the consumer. With products reaching
than the two-blade razor, which led to a streamlined and
over four billion consumers in about 180 countries, we must
lower-cost manufacturing process. We launched the
be laser-focused on the consumer’s articulation of needs
product through print, digital, broadcast, store, and public
and definition of value.
relations—including live demos with Indian celebrities.
To support this focus—and to decide whether to develop
Gillette Guard is off to a great start and we’re confident that
new products for a market or adapt existing products—
this consumer-inspired innovation will improve even more
we consider three principles: 1) Define the target consumer;
lives in India and beyond. This is why P&G strategically
2) Design for this consumer; and 3) Execute for this
disperses R&D resources across regions and close to—if
consumer.
not in—the markets we serve. This is critical to understand
This approach is well illustrated with the recent launch specific consumers and markets, have partnerships with
of the Gillette Guard shaving system in India. As the first and access to local innovation partners, and leverage the
Gillette product designed specifically for men in markets local talent base. Recent innovation center expansions
like India, Gillette Guard is one of the most significant completed in Beijing and now being built in Singapore
product launches in Gillette’s history. are evidence of this commitment—as are our refined and
When defining the target consumer, we learned that nearly focused innovation centers in India, Japan, and over twenty
one billion men were shaving using technology invented other sites around the world.
INDER SIDHU
Senior Vice President, Strategy and Planning,
Worldwide Operations, Cisco
Inder Sidhu is a member of the company’s operating committee and has co-led Cisco’s
Emerging Countries Council and its Enterprise Business Council. He is also the author
of Doing Both: How Cisco Captures Today’s Profits and Drives Tomorrow’s Growth.

In 2008, Cisco launched the inaugural Enabling Platform in the countryside for the first time in history. In five
Innovation Center (EPIC@SG) in Singapore with the years, the population of cities is expected to swell by an
support of the Infocomm Development Authority of additional 500 million people. The need to sustainably
Singapore (IDA). EPIC@SG is a significant milestone in manage social, economic, and environmental resources
Cisco’s global strategy to bring innovation centers closer has never been greater.
to where it sees new business models and new world
To help in this effort, Cisco developed a family of video,
services emerging. Equipped with state-of-the-art facilities,
collaboration, and communications solutions that make city
this technology center is designed to help retail service
life more manageable. Need to visit a doctor? In a Cisco
providers build and deliver.
Smart+Connected Community (S+CC) you will be able to
///// IMAGINE A WORLD in which a child can attend school for see a doctor online at your convenience for just $1. You will
just $1 per month and where a visit to a doctor costs less also be able to send your child to school for pennies a day
than a candy bar from a vending machine. Fantasy, right? and renew your driver’s license without leaving your home,
Not to Cisco. We are working to make accessible education all because of local and global data networks that virtually
and affordable health care a reality for literally billions of eliminate the barriers of time and space.
people.
Cisco S+CC solutions also provide tools for increasing
So how did Cisco, the world leader in techie communica- services and improving public safety. With video cameras
tions gear, position itself to make such a contribution on a installed all along roadways, transportation officials can
global stage? The answer has a lot to do with how we see monitor not just crime but also traffic congestion, and
the world—where we develop innovation, in particular. even remotely update digital signs to redirect traffic in
emergencies.
For much of our 25-year history, Cisco developed products
in Silicon Valley and then adapted them to local markets Like a growing number of Cisco innovations, our S+CC
worldwide. The model provided a significant return on our solutions are a blend of adapted-to and developed-in
engineering investments and made us one of the most market solutions. While the underlying architecture is
valuable companies in the world. As Cisco expanded into being designed in Silicon Valley, the vertical applications
new customer segments and geographies, however, the are being developed in India, home to our Globalization
model started to show its limits. It did not always produce Center. Cisco chose India for this work because our 6,000
the best solutions for given challenges. In the consumer engineers there have a unique appreciation of how serious
market, our innovations were overly complicated; in global urbanization has become. Their country is home to
emerging markets, they were too expensive. eleven of the world’s fastest-growing cities. In Bangalore,
1,000 new cars are put on the street every year. Clearly
We’ve done many things to reduce the gap between our
these engineers have a passion for technology that can
capabilities and our customers’ needs, but one of the most
transform lives in a single generation.
beneficial was to adjust our product development model.
While we continue to develop platform products at our When they are done, our Indian engineers take the best
headquarters in California, we now leverage the insights of what they produce and then apply it to the work of their
and ingenuity of local talent in China, India, Norway, Israel, Cisco colleagues around the world. What starts as an
the U.K., and elsewhere. in-market idea in one place often becomes an adapted-to
market innovation in another. Doing both creates a multiplier
When it comes to adapting innovations to a market or
effect for our company and is the platform for taking on
developing them in a market, we no longer make a false
some of life’s biggest challenges. Great ideas can come
trade-off. Instead, we have committed to doing both. This
from anywhere. If you can apply them everywhere, you can
decision is helping Cisco create technologies that tackle
change the world.
some of the world’s most pressing challenges.
Take our effort to combat problems caused by global
urbanization. Today more people live in urban areas than
SCOTT ANTHONY
Managing Director, Innosight Ventures
Scott Anthony leads the Asian operations of Innosight, a strategic innovation consulting
and investment company with offices in Boston, Singapore, and India. He is the author
of the forthcoming book Cracking Innovation’s Black Box.

///// IT HAS NEVERbeen more important to target new It won’t always be clear where you sit on the adapt vs. de
markets. Continued economic pressure means today’s novo development spectrum from day one. That places a
markets are unlikely to be the source of blockbuster big premium on structured experimentation—thoughtfully
growth. Competitive advantage in established markets is running experiments to address critical unknowns before
increasingly looking like a transitory notion. making big investments. Getting this question right isn’t
easy. But sustaining real competitive advantage means
And companies increasingly recognize that reaching new
thinking differently and acting differently.
markets requires developing products and services that are
attuned to local needs. Despite this understanding, many All companies will need to think about their processes,
companies still struggle to get traction in new markets. their locations, and the wide set of global challenges
What explains the disconnect? facing them. During a recent ceremony celebrating the
groundbreaking of Procter & Gamble’s new Innovation
At least one explanation is that companies are limiting
Center in Singapore, Bruce Brown, the CTO of P&G, and
in-market development to the features and functions of the
other executives began to describe the future. Brown noted
products they sell and the services they offer. That’s a great
three specific challenges:
start, but companies need to go further. They have to adapt
their very business models. First, the general challenge of growth. P&G is about an $80
billion company. It typically shoots for 4 to 6 percent organic
Never forget that “innovation” goes well beyond the features
growth every year. Historically, 80 percent of its growth
and functions of your offering. Look, for example, at the
comes from innovation. Run the numbers and you’re looking
four most successful technology companies of the past
at close to $4 billion in growth, every year. As a point of
decade—Apple, Google, Netflix, and Amazon.com. What
comparison, Hasbro—an 87-year-old company—has
made all these companies successful was a business
annual revenues of $4 billion. So P&G has to create a new
model that disrupted their respective markets.
Hasbro, every year. This is a challenge when realizing some
That’s not to say that companies always need to follow of that potential requires smartly rethinking core systems
different business models to win in new markets. and structures.
Sometimes, in fact, leveraging your current business model
Second, Brown highlighted how P&G has to deal with the
is the exact way to win in a new market.
fact that 50 percent of its R&D scientists will reach retirement
But if you are wondering how to determine whether age in the next few years. While that presents a clear
substantial rewiring is required for a product, ask a simple challenge—retaining the awesome accumulated knowledge
question. “Am I targeting the same type of customer in the of these scientists—it also creates an opportunity to make
new market as I serve in my existing market?” sure that R&D talent is balanced with global opportunities.
If you sell to businesses and you hope to target consumers, Third, P&G has to deal with sustainability issues around
if you sell to upper-income consumers and you hope the globe. It has publicly announced goals to reduce
to target the middle of the economic pyramid, or if you its dependence on petroleum and to increase its use
sell to specialist doctors and you need to sell to general of recycled and renewable materials. He noted how
practitioners, the odds that you need to innovate from the Singapore’s Agency for Science, Technology and Research
ground up are high. (A*STAR) has told P&G that sustainability is “no longer a
program, it is part of how we do our work.”
“Never forget that innovation goes
well beyond the features and functions
of your offering.”

Brown’s remarks set off a fascinating back-and-forth tanned skin to many U.S. consumers. But using scale where
among the panel about some of the general challenges appropriate can help companies like P&G realize its full
facing companies in Asia and globally. The wide-ranging global potential.
discussion included these ideas for thinking about the
Nonobvious disruptions. Marchesini described how
future development of products and services in emerging
P&G sells a product under the Downy brand that provides
nations like China and India:
long-lasting scent benefits to clothes, using microcapsules.
For and amongst consumers. Bruce Brown used this In markets like the Philippines, this technology allows P&G
phrase to describe how P&G will achieve its stated goal of to bring scent benefits to consumers who can’t afford
serving five billion consumers by the year 2015 (an increase higher-end perfumes.
of 800 million from today). Brown described how localizing
Reframe. Henretta noted how important reframing was
research activities is a key component of that strategy.
to manage many of the challenges inherent in mastering
The Red Dot. A*STAR Managing Director Low Teck Seng innovation in today’s economy. She emphasized the
used that phrase to describe how Singapore appears on a importance of having on-the-ground research and deep
map. He described how the country’s small size allowed it cultural understanding. To be successful, she said, “You
to be more nimble, reminding the audience that sometimes have to make sure your workforce reflects the consumers
constraints can foster innovation. you are going to serve.”
Florence. P&G R&D VP for Asia Maurizio Marchesini noted
similarities between Singapore and Florence during the
Italian Renaissance, with free-flowing ideas and disciplines
colliding. He noted that solving tough problems requires
this kind of interdisciplinary co-location where people work How to
together in new ways. determine
the fit
Simplifying technology and new business models.
Those are the two ingredients Shamik Dasgupta, the
new
regional head of Medtronic’s Cardiac Rhythm Management market
business unit, described as vital for driving disruptive
growth in markets like India and China.
Nonconsumption. National University of Singapore
Professor C.C. Hang used that term to answer the question jobs-to-be business
of where there are the greatest opportunities for disruptive done model
growth in Asia. He noted how there were more than 20
million electric bikes sold in China in 2010, many of them to
women or other nontraditional vehicle purchasers.
As common as possible, as different as needed. current
That’s how Deb Henretta, the head of P&G’s Asia business, market
described how she thought about approaching Asian
markets. She pointed out some of the real differences
between consumers in different markets. For example,
“beauty” means fair skin to many Asian consumers and
Singapore: The Innovation Gateway
In a recent survey, the World Bank ranked Singapore This emphasis on innovation and capital-intensive activi-
as the world’s easiest place to do business. This ranking ties and a globalised workforce has made Singapore the
reflects Singapore’s ongoing commitment to create the best place where Chinese and Indian companies can interna-
environment to help companies leverage talent and innova- tionalize, where American and European companies make
tion to bring new products and services to the global market. their entries into Asia, and where views on the future of this
dynamic and fast-evolving region can be forged.
Singapore is a leading provider of services such as interna-
tional banking, trade finance, maritime finance, insurance, Companies with international headquarters in Singapore
treasury operations, and asset and wealth management benefit from an international network of over 50 compre-
within the region. It is the fourth-largest foreign exchange hensive Double Taxation Avoidance Agreements. And
trading centre in the world. companies can always rely on protection of their ideas and
innovations through Singapore’s rigorous enforcement of its
Companies based in Singapore can tap the diverse capital
strong intellectual property laws.
markets and cutting-edge financial services from more than
500 local and foreign financial institutions. In addition, there The global trends of urbanization, aging, and rising afflu-
are over 8,000 companies offering professional services, ence are creating demand for new products and services—
including audit, accounting, and management consulting; solutions that Singapore itself needs. Working together
market research, advertising, and public relations; human with partners from both the private and public sectors,
capital services; and legal services. companies can tap into Singapore as a “living laboratory”
to collaboratively conceptualize, co-create, and test new
Singapore is fast emerging as an optimal destination for the
solutions in Asia and globally.
centralization of services, or “shared services.” Centralizing
activities such as IT, finance, and logistics offers benefits For example, the collaboration between PUB—Singapore’s
such as lower operating costs, consistent service levels, national water agency—and Toray Industries, Inc., is one
and enhanced productivity. of the first fruits of this initiative. The collaboration will see
the two parties working to develop water-treatment-related
Rapid business innovation requires world-class R&D facili-
technologies and products that will help in coping with
ties and expertise. The Agency for Science, Technology and
the anticipated global water shortage. In addition, Changi
Research (A*STAR) has created 12 research centers dedi-
General Hospital has partnered with Intel to test-bed the
cated to a multitude of technological disciplines; Singapore
Mobile Clinical Assistant, a lightweight mobile device that
attracts a world-class community of researchers and spe-
provides information on patients’ conditions and test results
cialists from the U.S., Europe, and the Asia-Pacific region.
to caregivers who are on the move.
In the past decade, Singapore has successfully grown its
The Singapore Economic Development Board is shaping its
R&D base, drawn top scientific and creative talent, and
economic development strategies to distinguish Singapore
nurtured R&D collaborations between the public sector and
by attracting high-value-added investments in manufac-
private enterprise.
turing, services, and R&D. The SEDB will build on these
Today, Singapore holds global leadership positions in areas strengths, adding new capabilities as a home for business,
of manufacturing such as electronics and petrochemicals. innovation, and talent.
Thus Singapore has become an attractive base for complex
manufacturing activities, in tandem with its move toward a
more knowledge-centric and research-based economy.

This report was created from a roundtable that is part of an ongoing series of “Singapore Sessions” created in collaboration with
the Singapore Economic Development Board. By bringing experts in diverse fields to the table, the Singapore Sessions explore
the diverse solutions possible for any given challenge and offer unique insights into how we might answer some of tomorrow’s
challenges today.
Singapore Sessions is a trademark of the Singapore Economic Development Board. To join the conversation, visit
SingaporeSessions.com/ProductInnovation.
To explore other sessions, visit SingaporeSessions.com.
INNOVATE OR ADAPT?
To join this conversation,
visit SingaporeSessions.com/ProductInnovation.

To join the conversation or to explore other sessions,


visit SingaporeSessions.com.

in collaboration with Harvard Business Review Analytic Services