Capabilities for Mass Market Innovations in Emerging Economies

Abstract

This study examines what capabilities are required by firms to create appropriate innovations for mass markets in emerging economies (EEs) focusing on the Indian automotive industry. Although prior research emphasizes the critical role of capabilities for innovation, the focus of these studies are on the needs of customers from developed country markets. However, EEs are often characterised by multilevel pyramid structures reflecting large income disparities and highly discerning price–performance conscious customers demanding affordable and functional products. The meagre purchasing power of mass customers implies firms attempting to serve these markets need to be driven by a frugal approach and deliberate restraint on resources. Hence, it is important to determine what should be the approach to orchestrate resources to cater to the underserved masses. The research has utilised a mixed method approach combining qualitative and quantitative methodology. The qualitative part used comprehensive empirical case studies of two emerging market firms (EMFs) and two auto MNCs coupled with a cross case analysis and validated the detailed processes of capability development for mass market innovations. The quantitative part entailed a multivariate analysis using 12 years of panel data from the Indian automotive industry to statistically validate the qualitative findings across industry population. The findings revealed the salience of linkage formation capabilities to leverage existing blocks of local resources, sharing costs and risks associated with developing products/technologies for untested mass markets with very thin profit margins. The study also observed the significance of combinative capabilities to reconfigure an established system in new ways and frugally recombine existing core technologies rather reinventing the wheel to achieve an altered price-performance package. Lastly, the study identified the significance of capability to modularize to achieve low cost level, flexibility in product development and also to serve multi-tiered market segments in EEs. The scientific and evidence – based findings from systematic case studies, cross case validation combined with statistical analysis makes a new contribution to knowledge on the capabilities required to create innovations for the masses. The results challenge the traditional view of innovation based on the assumptions of affluence and abundance of resources.