Enterprises should influence local innovation

Enterprises need to plan for change in a world where innovation will increasingly come from around the globe, including some non-intuitive locations. The concept of ‘country of origin’ for IT will become irrelevant by 2015. In many cases emerging mega-vendors will challenge the dominant vendors in many sectors of IT, just as we are already seeing this happen in IT Services (TCS, Infosys, Wipro) and the telecom equipment sector (Huawei, ZTE).

The ‘destiny of demography’ driven by the rapid ageing of populations in the developed world, coupled with the large young populations in the emerging countries will strongly influence resource supply and dynamics globally. There will be an increased focus on ICT (information communication and technology) investments in emerging markets even to drive innovation for local and global enterprises. Enterprises of most sizes and scales must prepare for a world beyond globalisation in how they think about, plan for, acquire and deploy ICT resources, and acquire innovation. Indian enterprises specifically, that have historically looked overseas for innovation, should now prepare to leverage local innovation.

Globalisation is not new. Globalisation has been around for a significant part of recorded history, except that its form, intensity, visibility and impact have changed. Even if we look at the comparatively recent past, we can identify the current phase of globalisation — defined primarily by increasing globalisation of the knowledge economy and increasing ‘knowledge arbitrage’ as the fourth phase of globalisation:

Phase 1 — Movement of the semiconductor industry to South Korea and Taiwan

Phase 2 — Movement of automobile and electronics industries to Japan

Phase 3 — Movement of low-cost manufacturing to China

Phase 4 — Movement of knowledge work and services, primarily to India

If we go further back into earlier centuries, even more phases of globalisation can be identified, such as the industrial revolution and the rise of the US as a global power.

A number of forces have reinforced borders, both physical and logical, between countries. These forces include the social forces of immigration, demographic mix and educational power, as well as political and economic factors.

Strong controls by most countries on the immigration front and favorable demographics, coupled with strong local educational systems, have provided most developed countries (with the US being a stark exception) with a comparatively insular social profile. In the past, the best educational institutions, which were magnets for students from around the world, were located in developed countries. This enabled developed nations to control their workforce needs by controlling foreign-student intake and immigration levels.

The well-established trade dynamics of the past 20 years between developed and developing countries, along with well-defined geopolitical equations, have reinforced a historical ‘order of nations’. Typically, developed countries tend toward a dominant position in trade balance equations.

Economic forces, including the sources of innovation, the foreign direct investment (FDI) power of the developed world and strong resource development, have fuelled this continued dominance throughout the years. In addition, cross-border merger and acquisition (M&A) activity tended to be unidirectional. This was coupled with emerging market resources that aspired to work in developed markets and with innovation and R&D centers predominantly being based in developed markets. These factors acted to reinforce the old world order of developed country control driven societies. However, this reality and the overall global order are changing, and there is strengthening hype that emerging markets in general, and India and China in particular, will ‘take over the world’.

In reality, there is still a huge gap in the absolute sizes of emerging and mature markets. Mature markets have over twice the levels of emerging markets in absolute IT spend and over seventeen times in per capita IT spending. Therefore, mature markets should not be discounted prematurely or de-emphasised immediately because of their sheer size and importance.

However, despite these differences, the impact of these markets is not a mirage. Admittedly, it has become something of a platitude to point to the difference between the growth rates in India and China, as compared with the US, Western Europe and Japan. However, the differential exists and is expected to persist during the next five years. This means that supply-side companies must begin or maintain a focus on growth in ‘new economies’. Buyers increasingly will look to servicing the needs in these regions. Organisation drives projects in the region and the traditional assumptions of a head office, is no longer be valid.

The other implication of established growth patterns in China and India is that increasingly, the next Phase of discontinuous growth will come from other countries beyond Brazil, Russia, India and China (BRIC) and is likely to be found in countries such as Argentina, the Philippines, Indonesia, Vietnam and South Africa. This will signify great potential for Indian enterprises (IT & non-IT) as well.