Although economic uncertainties continue in many pockets of the world, the next billion consumers are expected to drive ~$10 trillion towards global GDP by 2020. By the end of this decade, global GDP is expected to grow 40% to $90 T. A very large part of the source of this growth will be driven by the emerging economies. In absolute terms, of the incremental $26 T growth in global GDP over this decade, $16 T will come from emerging economies while advanced economies will add $10 T.
By 2020, 5 billion people are expected to be in the global middle class: an addition of 1.3 billion people and of whom, two-thirds will come from China and India. The median household income is expected to more than double, which will drive a higher amount of discretionary spend towards consuming new products and services. It is a huge market from a global development perspective.
The market for innovation is shifting and the pace is likely to accelerate even more. In 2011, China invested $175 billion in R&D and ranked 2nd globally in R&D spend. Although the gap between China and Europe ($327 B) or US ($427 B) is high, China’s consistent double-digit increases in R&D investment over the past decade has certainly put them at an accelerated pace. Innovation and development is now a global phenomenon. As per WIPO, International Patent filing increased by 8.6% over the 5 year period of 2006 – 2010. Advanced economies contributed 3.6% but China contributed a staggering 315% growth and the other emerging economies (e.g. India, Brazil, Russia, South Africa, Poland, etc.) grew 30%. In absolute numbers, US still leads in International Patent filing (44,800 in 2010), but the rate of growth pales substantially compared to emerging nations.
Emerging economies are also contributing significantly to the global business. In the past 5 years, the number of G500 companies headquartered in emerging economies has grown 4-fold from 25 to 103. Outside of China, other emerging nations have 40+ G500 companies. The top 30 global R&D companies have seen a 33% increase in their business from these regions in the same 5 years. They represent a cross-section of industries like Automotive, Pharmaceutical, Hi-Tech, Industrial, Consumer Electronics, etc. For most of the product and technology companies, emerging economies represent the biggest growth driver for incremental businesses this decade.
The presence of global development has resulted in breakthrough products from these emerging economies. Fiat developed Palio, its first ‘world car’, in 1996 in Brazil. It has since sold more than 2.5 million vehicles there and won numerous awards. The world car is now manufactured in countries such as Argentina, Turkey, China, India, South Africa, etc. The Palio began as a small family-car and now boasts its own range, e.g. the Palio Weekend station wagon, the Palio Adventure crossover and the Palio Strada pickup.
On Nov 1, 2011 China launched the Long March 2F/H rocket, which carried the unmanned spacecraft Shenzhou 8 to join its Tiangong module already in space (launched Sept 29, 2011). It was the first docking exercise between the two unmanned spacecrafts and is key towards China’s goal of a manned space station by 2020.
India launched the common man’s tablet late last year. The $35 Aakash is the first tablet at this price point globally. The 7 inch, Android 2.2, ARM processor tablet is designed to bring students and also people at large on the internet bandwagon, and hence a potential not only for increased awareness but also to drive growth. The Aakash is already a hit product with 1.4 million pre-ordered. In fact, on the day of its launch, the website received so much traffic that the Indian Cyber Regulation Agency called the company to inform them they were under cyber-attack!
Global development presence is not only about breakthrough products to create new categories, new price points or new home-grown cutting-edge products. It is also about the local consumption of these products, services and technologies, and this balance is important for long-term sustainable growth. Rovio, the Finnish company and creator of Angry Birds, boasts 500 million downloads with 300 million minutes played daily, and has noticed a huge spike in adoption from emerging economies with ~100 million downloads. China and India account for ~60% of these downloads, and it is still early days for smart phones and tablets in those markets!
There are 6 key focus areas from the Global Development Presence perspective:
Faster Product Launch and Market Acceleration – With the profit-pool shifting east and incremental market growth substantially higher in emerging economies, the product battlefields in these markets will become more intense. It is imperative for product and technology companies to rev up product launch with a view to gain market-share and mind-share. This is also true for advanced economies with a 58% share of global GDP in 2020. Clear market segmentation and sharp product definitions are key for success. Proven, mature and qualified processes/methodologies which increase product launch and market acceleration in a global development environment is essential.
Build Platforms and Ecosystem – It is not only about products, but also about innovation in building platforms and creating ecosystems. Smart phones have become the center of our lives in a relatively short time because it is a platform and not simply a phone. The application ecosystems from stores provide connection to a far bigger world of opportunities than just voice or SMS. Even cars today are becoming a platform wherein multiple technologies and applications such as infotainment, telematics, diagnostics, etc. are converging on the dashboard for users to seamlessly manage and connect inside and outside the car. From a global development presence perspective, I strongly believe in expanding market reach through products and also through the multiplier effect which drives globally successful products by creating value through enhancing productized solutions ecosystems and differentiated user experiences.
Disruptive Technologies – There are some fascinating and disruptive technologies which will significantly impact the global development presence. 3D printers will play a major role in shortening the product development cycle from prototyping to production. Analytics will be embedded in products, services and businesses at large, and will drive faster decision-making. The price point for genomics – personalized genome sequence mapping – is touching the $1,000-range. Being 100 times cheaper than a couple of years ago, genomics will create an impact in the practice of personalized medicine. Mobility is already mainstream and Cloud will drive new service delivery methods at very low price points, leveling the ability for big and small companies to launch their products and services.
New Business Models – R&D intensity has hovered around 1.9% of global GDP for almost an entire decade and it is unlikely to change. Match this with demands generated by emerging and advanced economies, and there is a clear need for companies to drive new and innovative business models. These will revolve around co-creation, co-investment and delivering everything as a service. Revenue-share models in the services business is on the rise, and these allow customers and service providers to align business goals.
Local is key for being Global – There is a huge market in advanced economies (~58% of 2020 Global GDP) and a huge need for creating local jobs. It is absolutely imperative for companies to be part of the local social fabric and create local opportunities and jobs. Socially responsible business conduct and becoming an integral part of the local community is the only long-term and sustainable method of global development presence.
Leverage Partners – Opening new markets, new competitive landscapes, faster product launches and different price point products are clear drivers for leveraging partners more than ever before. Partnership ecosystems are maturing rapidly and companies need to leverage them; not just in executing plans or developing products, but also in new ideas, thoughts and innovation. Opportunities and challenges alike will drive companies to foster new approaches towards partnership in both defining and reaching common objectives.
(This blog features my speech at NPD World Tour Scandinavia in Copenhagen, Denmark on Feb 1st, 2012)