Traditionally innovation has been reserved for firms in industrialized nations, because these firms had access to the resources needed for innovation. However, in the age of globalization, communication is cheap, information is a commodity, and global trade increases technological diffusion. As a result, firms and users in emerging markets get early exposure to the latest technologies and information that, in combination with access to tools such as mobile phones, enables them to customize products to solve local needs. Large latent demand in emerging markets, which results from high need and a sparse offering of products and services, is a reason to expect increasing invention originating from less developed countries in the global South.
This project studies emerging markets as new sources of innovation and discusses implications of the diffusion of these innovations for policy. In particular, it looks at characteristics of emerging markets that enable specific forms of innovation, such as user innovation and frugal innovation, and also analyzes how this encourages technology flows from emerging markets to industrialized nations. This research is structured around three research objectives. First, it explores whether users in emerging markets innovate. A unique hand-collected dataset on innovations in the mobile banking industry is used to understand whether users (as opposed to firms) play a role in service innovation in emerging markets, and whether those innovations are globally meaningful. Second, the project analyzes how new types of innovation such as user innovation and frugal innovation are leading to flows of technology in a reverse direction. In particular it focuses on South-North diffusion of emerging market innovations as well as different typologies of the diffusion of user innovations. Despite evidence that a growing number of new products and services originate in emerging markets, there is a dearth of innovation research on this topic. Third, a model is proposed ? based on empirical patterns? that explains how increased access to technology in combination with latent demand can drive innovation and entry in the South and how, subsequently, South-North technology diffusion can occur.
Broader Impacts. The project will provide insight on the mechanisms that govern discovery, adoption and diffusion of technology in emerging markets, a largely understudied area. Because the locus of innovation is no longer unique to firms in Western countries and is shifting to users and firms in emerging markets, this is an important topic for both the academic community and policy makers. This study will contribute significantly because, while there has been significant research on user innovation in products, there exists virtually no research on user innovation in services or their diffusion, yet services often constitute the vast majority of economic activity. Furthermore, this project develops a data-collection and analysis methodology that can be applied to follow-on research, especially empirical studies looking at sources of innovation in services.
This project looked at innovation and diffusion in developing countries and the role that users play in innovation. The first study concluded that users play an important role in financial service innovation in developing countries: Half of all mobile financial service innovations were pioneered by users. When an increasing number of firms subsequently imitated and commercialized mobile financial service innovations, those that were developed by users diffused more than twice as widely and more than three times as quickly compared to producer innovations. While it has been argued that user innovations are more commercially attractive because they better meet market needs, this is the first study that demonstrates this at an industry level. We argue that users in developing countries are increasingly able to contribute globally valuable innovations because of the following reasons. First, the lack of formal financial services and the high fraction of unbanked population result in a great need for faster, cheaper, and more reliable financial services. Additionally, increased technological diffusion leads to greater access to general purpose technologies, such as the mobile phone, in developing countries. Users leveraged these technologies by engaging in behavioral innovations that resulted in radical new financial services. There is no standard method used in the literature to establish the sources of service innovations, and, as far as we are aware, this is the first study that does this systematically. The methods proposed in this dissertation can be used for further user innovation studies, particularly those in services. In the second study, we explored what factors enable firms to be successful innovators and entrants in the South. We used an extensive hand-collected dataset to show that indeed Southern firms in the mobile banking industry were able to enter early and become global market leaders. De-novo entrants can gain country-specific and industry-specific knowledge through entry; firms that have entered previously may share this through intra-firm knowledge diffusion or, alternatively, knowledge can be acquired externally through mergers or acquisitions. Previous entrants are more likely to be successful in subsequent entry in new markets because industry-specific knowledge accumulates over time. Furthermore, founders’ professional heredity is important because founders tend to bring different types of knowledge with them when they start new firms or pioneer new ideas. Often founders in the South bring knowledge with them when they move from Northern firms to the South, or often they were educated at world-class universities in the North that they leveraged when entering in the South. Furthermore, we found that MNOs are more likely to be successful mobile financial service providers than banks or third-party providers. MNOs often have more international links that precipitate intra-firm knowledge diffusion than other entrants into the mobile banking industry. The early pioneers, such as Smart in the Philippines, Safaricom in Kenya, and Celpay in Zambia, all had important ties to the North. Mobile network operators also have the advantage of having a large market base through their voice and data subscribers to which they can market new mobile financial services. We also analyzed the origin of the technology that powers mobile banking platforms and found that a substantial proportion of technology vendors, which are providers of the technology for mobile banking, are founded in the South. Similar patterns were observed for those firms as for the entrants in mobile banking. Southern technology vendors that have links to Northern firms are more likely to enter and be successful. The most successful technology vendors had founders that had been educated in the North and had partnered with Northern firms. The third study used data from a Portuguese national survey on user innovation to study various patterns of market and non-market diffusion. The survey was distributed among highly-educated individuals and those employed in medical research facilities. We devised a systematic process for validating the user innovations and removing false positives in our sample. After validation of the responses, it was established that 12.1% of the respondents were user innovators, which included 298 individual innovations. This fraction is higher than the results of previous large-scale surveys of consumer innovators, which fell in the range of 3.7% (Japan) and 6.2% (The Netherlands). The difference can be attributed to two reasons: first, the fact that the survey in Portugal targeted highly-educated individuals, which are known to engage more in innovation and second, because respondents were also allowed to select innovations they had carried out at work (this was not the case in previous surveys). Analysis of the diffusion of these innovations shows that the majority of innovations did not diffuse at all. We argue that the reason for this is that the innovators did not actively inform others, who therefore were not aware of and thus could not adopt the innovations.
