Knowledge Center: Learning From Asian Innovation

Tuesday, September 27, 2011

Learning From Asian Innovation

Asian companies are different from Western companies in their approach to innovation. A recent study has identified four generic elements of the Asian approach that might help any Western company think differently and to be more effective in their business creation. In this article Peter Hesseldahl gives a brief overview of the conclusions.

In brief and very generally, there are 4 main characteristics of Asian style innovation:

Suitable: Products fit customers budgets and needs precisely
Letting go: Asian companies are willing to change style, image even line of business, if they sense a market opportunity
Fluidity: The business environment expects and supports change and it is tolerant of uncertainty
Catching up: Asian companies are young, their organizational structures are flexible, and there's an urgency in their efforts to grow.

These are the conclusions from the Asia New Business Creation project, conducted by the Danish Universe Foundation. Over the past two years, the Universe Foundation has done extensive research in Asian companies, and produced case studies and workshops to exchange methods among five large Danish companies, and three Asian companies. The Chinese participant has been Haier, the giant white goods manufacturer. STe, a producer of control system for infrastructure participated from Singapore, and from Korea, Woonjin/Coway, a producer of advanced home appliances, participated .

Pushing solutions – or responding to needs?

That there is a distinct Asian style of innovation becomes clearer when it is contrasted with the typical approach of Western companies.

A western company that enters an emerging market will typically start by trying to export its existing products. It will seek the upper segment of the market in order to address customers that have needs and budgets similar to its customers back in its home market.

It's a push approach. The company takes pride in creating offerings that are a bit ahead of the market. It strives to create breakthroughs that can make its brand stand out among the competitors – and justify its relatively high price.

An Asian company will more likely start by listening closely to market needs and identifying an opportunity. The Asian company will typically work from the products and technologies that are already available, and adjust them with a keen understanding of what price, quality and features its customers want. Thanks to a focus on reducing costs – rather than adding new functionality and features – Asian companies can lower prices and thereby reach the very large mid-market segments that Western companies often ignore.

Creating products that are suitable for low-end and mid-markets is not just a matter of lowering specifications and removing features. It's also about adding particular local features based on a keen understanding of the customers' context. Haier is a brilliant example. It offers a bewildering range of washing machines, each with variations that suit a very specific segment – for instance by taking into account that people in Chinese rural areas often place their white goods outdoors.

A strong brand – a blessing or a burden?

Generally, Western companies cannot compete on price alone. They need to be different, somehow – through advanced technology, better design or a strong brand. But to lead development is costly and it takes time. A breakthrough product requires extensive research and analysis.

Furthermore, for a company with a strong brand, it's important that its new offerings are perfect when they are launched. A strong brand is a promise of reliability and predictability, and customers are loyal because they can trust that your product works right.

When you are young and trying to catch up, it's easier to be flexible. Typically, An Asian company is still owned by the CEO who founded it, so the strong boss can make quick decisions and take chances without having to consult shareholders and layers of lower level management.

Also, a young company with a less "sacred" brand can better afford to experiment. It can launch products that have the latest features at a competitive price, and customers will be willing to accept that the product may not be absolutely right and free of bugs.

To be a leader – or a fast follower?

Asian companies are often fast followers – and very consciously so. Once they see a smart and successful new feature they are set up to rapidly develop similar and cheaper versions. This strategy removes the risk of spending heavily on research for products that may fail. It also allows companies to make lots of small bets by launching frequent adjustments.

The difference is clearly illustrated by comparing Apple computer and Samsung. Apple offers one basic type of phone, and new versions have been launched once a year. Samsung launches more than a hundred new handsets every year, and they offer versions for every conceivable market segment.

A Western company is typically organized to deliver a big new product overhaul once a year. Western companies will spend a long time planning and analyzing before they start developing their next big bet. This can create great leaps in quality, functionality and experience, but it also makes the company more rigid and slow to react.

What could you do differently?

The purpose of the Asia New Business Creation project is to find methods and approaches, which can be transferred to inspire and help companies in their innovation process. It's an important point that there is not one right or wrong method. There are differences – and for a company that is moving into new markets or facing new competitors it may be worthwhile to consider if there is something to be learned by studying the methods of one's counterpart.

Asian and Western are increasingly competing in the same, global market place – but often using very different approaches. The fundamental questions for any company to ask are: