{"id":162,"date":"2015-07-30T00:15:41","date_gmt":"2015-07-30T00:15:41","guid":{"rendered":"https:\/\/courses.candelalearning.com\/intlbusx1xmaster\/?post_type=chapter&p=162"},"modified":"2017-01-09T19:14:13","modified_gmt":"2017-01-09T19:14:13","slug":"chapter-13-harnessing-the-engine-of-global-innovation","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/cerritos-internationalbusiness\/chapter\/chapter-13-harnessing-the-engine-of-global-innovation\/","title":{"raw":"Reading: Chapter 13 Harnessing the Engine of Global Innovation","rendered":"Reading: Chapter 13 Harnessing the Engine of Global Innovation"},"content":{"raw":"
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\"map<\/a><\/div>\r\n
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What\u2019s in It for Me?<\/h3>\r\n
    \r\n\t
  1. What is the role of research and development (R&D) in innovation?<\/li>\r\n\t
  2. How are intellectual property rights treated around the globe?<\/li>\r\n\t
  3. Where in the world should R&D be located?<\/li>\r\n\t
  4. How are businesses accelerating their innovation efforts?<\/li>\r\n\t
  5. What is innovation for the bottom of the pyramid?<\/li>\r\n<\/ol>\r\n<\/div>\r\nThis chapter introduces you to the R&D function and innovation in international business. First, you\u2019ll look at R&D and its importance to corporations (\"An Introduction to Research and Development (R&D)\") and then move on to consider intellectual property rights around the world (\"Intellectual Property Rights around the Globe\"). The section \"How to Organize and Where to Locate Research and Development Activities\" examines how to organize the international R&D function and where to locate R&D activities. Communications and other technologies are flattening the world in regard to innovation, enabling innovation activities to be located anywhere, while the absence of legal property-rights protections in some areas work against this flattener. The section\u00a0\"Increasing Speed and Effectiveness of International Innovation\" discusses the activities associated with managing innovation and running international R&D to increase the speed and effectiveness with which a firm can innovate. You\u2019ll learn how the developments enabled by the Internet, such as open innovation, are bringing new innovation opportunities while at the same time making innovation imperative. The section\u00a0\"Innovation for the Bottom of the Pyramid\" describes innovating for the needs of all the world\u2019s consumers, not just the wealthiest ones. Innovation in emerging markets is also depicted in the opening case study on Unilever.\r\n
    \r\n

    Opening Case: A Tale of Emerging Market-Based Innovation<\/h2>\r\nFor most companies, the traditional route to global business is through the export of the products they have developed and manufactured for their home markets. But most of the products sold in developed countries are much too expensive for emerging markets, where most of the people make less than $1,500 per year.[footnote]\u201cSachet Marketing,\u201d Trend Watching<\/em>, accessed May 16, 2010, http:\/\/trendwatching.com\/trends\/sachet_marketing.htm<\/a>.[\/footnote]<\/span> Simply exporting products designed for the United States, Western Europe, or Japan doesn\u2019t work well. Nor does simply lowering the price of products, because lower prices mean both lower margins and increased risks of cannibalizing the profits of higher-priced brands.\r\n\r\nMoreover, emerging markets, such as Brazil, Russia, India, and China (also collectively known as the BRIC countries), don\u2019t have the same needs or capabilities as those found in developed economies. For instance, disposable income levels are relatively low, the availability of basic utilities like water or electricity can be varied, and transportation and transportation infrastructure can be nonexistent. While these emerging economies are attractive by virtue of their massive size, their different needs and capabilities pose unique challenges that are often overcome only through corporate innovation. Let\u2019s look at a case in point\u2014Unilever in Brazil.\r\n

    Unilever in Brazil<\/h2>\r\n
    \r\n\r\n[caption id=\"\" align=\"aligncenter\" width=\"500\"]\"Omo<\/a> Source: \u201cOmo,\u201d Unilever, accessed June 3, 2011, http:\/\/www.unilever.com\/brands\/homecarebrands\/omo\/index.aspx<\/a>.[\/caption]\r\n\r\n<\/div>\r\nAmong consumer packaged-goods (CPG) companies, Unilever and Procter & Gamble (P&G) often trade punches for customers in the world\u2019s emerging markets. Take their efforts in trying to market powdered laundry detergent (sometimes referred to as \u201cwashing powders\u201d) to the tens of millions of poorer consumers in Brazil. A decade ago, Unilever and P&G held significantly different market shares than they do today. Unilever held an 81 percent market share in the powered detergent sector while P&G was a late entrant in the market and was a distant second behind Unilever. P&G, however, was known for its strong R&D unit and extensive marketing experience worldwide; thus it posed a potential threat to Unilever.[footnote]Pierre Chandon, \u201cUnilever in Brazil: Marketing Strategies for Low-Income Countries,\u201d November 28, 2006, accessed December 19, 2010, http:\/\/estrategiasynegocios.wordpress.com\/2006\/11\/28\/case-study-unilever-in-brazil-marketing-strategies-for-low-income-countries<\/a>.[\/footnote]<\/span>\r\n\r\nLaercio Cardoso, head of Unilever\u2019s Home Care division in Brazil, knew he had to take action to respond to P&G\u2019s imminent threat. The solution, as he saw it, was to develop a product targeting the lower end of the market. But Cardoso faced opposition from his own colleagues at Unilever, because they ascribed Unilever\u2019s prior success to its premium-quality products. They also argued that any successful move into the low-end market would have to draw demand from Brazil\u2019s low-income consumers living in its vast favelas<\/em> (slums). Over the years, both in Brazil and elsewhere, Unilever had learned that the attitudes and behaviors of this segment of consumers were very different from what Unilever was used to in the more high-end markets.\r\n\r\nFor example, Unilever knew that low-end consumers in Brazil didn\u2019t own washing machines. Instead, mothers washed the family\u2019s clothing by hand in the river. Regardless of whether the family lived in a city or rural area, the river was the place where mothers gathered to wash the clothes. What\u2019s more, the women shopped at local mom-and-pop stores, not big central shopping centers. To succeed in this new market, therefore, Unilever would have to design a soap that was effective for washing clothes by hand and that could be easily transported to the local mom-and-pop shops.\r\n\r\nDrawing on its experience in India, Unilever launched Ala, a brand of detergent created specifically to meet the needs of low-income consumers.[footnote]\u201cSachet Marketing,\u201d Trend Watching<\/em>, accessed May 16, 2010, http:\/\/trendwatching.com\/trends\/SACHET_MARKETING.htm<\/a>.[\/footnote]<\/span> The product is designed to work well for laundry washed by hand in river water. It\u2019s affordable and effective\u2014and it is sold in small sizes to make it easy to transport and stock in a local store. The technique of small-portion packaging is called \u201csachet marketing,\u201d originating from powered soaps and shampoos sold in sachets in India for two to four cents each.\r\n\r\n<\/div>\r\n
    \r\n

    Opening Case Exercises[footnote](AACSB: Ethical Reasoning, Multiculturalism, Reflective Thinking, Analytical Skills)[\/footnote]<\/h3>\r\n
      \r\n\t
    1. View the YouTube video on Unilever\u2019s Ala in Brazil (http:\/\/www.youtube.com\/watch?v=WhmYtfL6s_8<\/a>). Given that Unilever is viewed as being highly innovative in Brazil, does the video confirm this reputation? Why or why not?<\/li>\r\n\t
    2. Do you think that small, entrepreneurial ventures could be as effectively innovative as an enormous firm like P&G in emerging markets?<\/li>\r\n\t
    3. Visit Trendwatching.com\u2019s web page on \u201cSachet Marketing\u201d at http:\/\/trendwatching.com\/trends\/sachet_marketing.htm<\/a>. Why might the concept of a sachet be relevant in international business beyond soap or laundry detergent?<\/li>\r\n<\/ol>\r\n<\/div>\r\n<\/div>","rendered":"
      \n
      \"map<\/a><\/div>\n
      \n

      What\u2019s in It for Me?<\/h3>\n
        \n
      1. What is the role of research and development (R&D) in innovation?<\/li>\n
      2. How are intellectual property rights treated around the globe?<\/li>\n
      3. Where in the world should R&D be located?<\/li>\n
      4. How are businesses accelerating their innovation efforts?<\/li>\n
      5. What is innovation for the bottom of the pyramid?<\/li>\n<\/ol>\n<\/div>\n

        This chapter introduces you to the R&D function and innovation in international business. First, you\u2019ll look at R&D and its importance to corporations (“An Introduction to Research and Development (R&D)”) and then move on to consider intellectual property rights around the world (“Intellectual Property Rights around the Globe”). The section “How to Organize and Where to Locate Research and Development Activities” examines how to organize the international R&D function and where to locate R&D activities. Communications and other technologies are flattening the world in regard to innovation, enabling innovation activities to be located anywhere, while the absence of legal property-rights protections in some areas work against this flattener. The section\u00a0“Increasing Speed and Effectiveness of International Innovation” discusses the activities associated with managing innovation and running international R&D to increase the speed and effectiveness with which a firm can innovate. You\u2019ll learn how the developments enabled by the Internet, such as open innovation, are bringing new innovation opportunities while at the same time making innovation imperative. The section\u00a0“Innovation for the Bottom of the Pyramid” describes innovating for the needs of all the world\u2019s consumers, not just the wealthiest ones. Innovation in emerging markets is also depicted in the opening case study on Unilever.<\/p>\n

        \n

        Opening Case: A Tale of Emerging Market-Based Innovation<\/h2>\n

        For most companies, the traditional route to global business is through the export of the products they have developed and manufactured for their home markets. But most of the products sold in developed countries are much too expensive for emerging markets, where most of the people make less than $1,500 per year.[1]<\/sup><\/a><\/span> Simply exporting products designed for the United States, Western Europe, or Japan doesn\u2019t work well. Nor does simply lowering the price of products, because lower prices mean both lower margins and increased risks of cannibalizing the profits of higher-priced brands.<\/p>\n

        Moreover, emerging markets, such as Brazil, Russia, India, and China (also collectively known as the BRIC countries), don\u2019t have the same needs or capabilities as those found in developed economies. For instance, disposable income levels are relatively low, the availability of basic utilities like water or electricity can be varied, and transportation and transportation infrastructure can be nonexistent. While these emerging economies are attractive by virtue of their massive size, their different needs and capabilities pose unique challenges that are often overcome only through corporate innovation. Let\u2019s look at a case in point\u2014Unilever in Brazil.<\/p>\n

        Unilever in Brazil<\/h2>\n
        \n
        \"Omo<\/a><\/p>\n

        Source: \u201cOmo,\u201d Unilever, accessed June 3, 2011, http:\/\/www.unilever.com\/brands\/homecarebrands\/omo\/index.aspx<\/a>.<\/p>\n<\/div>\n<\/div>\n

        Among consumer packaged-goods (CPG) companies, Unilever and Procter & Gamble (P&G) often trade punches for customers in the world\u2019s emerging markets. Take their efforts in trying to market powdered laundry detergent (sometimes referred to as \u201cwashing powders\u201d) to the tens of millions of poorer consumers in Brazil. A decade ago, Unilever and P&G held significantly different market shares than they do today. Unilever held an 81 percent market share in the powered detergent sector while P&G was a late entrant in the market and was a distant second behind Unilever. P&G, however, was known for its strong R&D unit and extensive marketing experience worldwide; thus it posed a potential threat to Unilever.[2]<\/sup><\/a><\/span><\/p>\n

        Laercio Cardoso, head of Unilever\u2019s Home Care division in Brazil, knew he had to take action to respond to P&G\u2019s imminent threat. The solution, as he saw it, was to develop a product targeting the lower end of the market. But Cardoso faced opposition from his own colleagues at Unilever, because they ascribed Unilever\u2019s prior success to its premium-quality products. They also argued that any successful move into the low-end market would have to draw demand from Brazil\u2019s low-income consumers living in its vast favelas<\/em> (slums). Over the years, both in Brazil and elsewhere, Unilever had learned that the attitudes and behaviors of this segment of consumers were very different from what Unilever was used to in the more high-end markets.<\/p>\n

        For example, Unilever knew that low-end consumers in Brazil didn\u2019t own washing machines. Instead, mothers washed the family\u2019s clothing by hand in the river. Regardless of whether the family lived in a city or rural area, the river was the place where mothers gathered to wash the clothes. What\u2019s more, the women shopped at local mom-and-pop stores, not big central shopping centers. To succeed in this new market, therefore, Unilever would have to design a soap that was effective for washing clothes by hand and that could be easily transported to the local mom-and-pop shops.<\/p>\n

        Drawing on its experience in India, Unilever launched Ala, a brand of detergent created specifically to meet the needs of low-income consumers.[3]<\/sup><\/a><\/span> The product is designed to work well for laundry washed by hand in river water. It\u2019s affordable and effective\u2014and it is sold in small sizes to make it easy to transport and stock in a local store. The technique of small-portion packaging is called \u201csachet marketing,\u201d originating from powered soaps and shampoos sold in sachets in India for two to four cents each.<\/p>\n<\/div>\n

        \n

        Opening Case Exercises[4]<\/sup><\/a><\/h3>\n
          \n
        1. View the YouTube video on Unilever\u2019s Ala in Brazil (http:\/\/www.youtube.com\/watch?v=WhmYtfL6s_8<\/a>). Given that Unilever is viewed as being highly innovative in Brazil, does the video confirm this reputation? Why or why not?<\/li>\n
        2. Do you think that small, entrepreneurial ventures could be as effectively innovative as an enormous firm like P&G in emerging markets?<\/li>\n
        3. Visit Trendwatching.com\u2019s web page on \u201cSachet Marketing\u201d at http:\/\/trendwatching.com\/trends\/sachet_marketing.htm<\/a>. Why might the concept of a sachet be relevant in international business beyond soap or laundry detergent?<\/li>\n<\/ol>\n<\/div>\n<\/div>\n
          1. \u201cSachet Marketing,\u201d Trend Watching<\/em>, accessed May 16, 2010, http:\/\/trendwatching.com\/trends\/sachet_marketing.htm<\/a>. ↵<\/a><\/li>
          2. Pierre Chandon, \u201cUnilever in Brazil: Marketing Strategies for Low-Income Countries,\u201d November 28, 2006, accessed December 19, 2010, http:\/\/estrategiasynegocios.wordpress.com\/2006\/11\/28\/case-study-unilever-in-brazil-marketing-strategies-for-low-income-countries<\/a>. ↵<\/a><\/li>
          3. \u201cSachet Marketing,\u201d Trend Watching<\/em>, accessed May 16, 2010, http:\/\/trendwatching.com\/trends\/SACHET_MARKETING.htm<\/a>. ↵<\/a><\/li>
          4. (AACSB: Ethical Reasoning, Multiculturalism, Reflective Thinking, Analytical Skills) ↵<\/a><\/li><\/ol><\/div>","protected":false},"author":9,"menu_order":1,"template":"","meta":{"_candela_citation":"[]","CANDELA_OUTCOMES_GUID":"","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-162","chapter","type-chapter","status-publish","hentry"],"part":159,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/cerritos-internationalbusiness\/wp-json\/pressbooks\/v2\/chapters\/162","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/cerritos-internationalbusiness\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/cerritos-internationalbusiness\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/cerritos-internationalbusiness\/wp-json\/wp\/v2\/users\/9"}],"version-history":[{"count":3,"href":"https:\/\/courses.lumenlearning.com\/cerritos-internationalbusiness\/wp-json\/pressbooks\/v2\/chapters\/162\/revisions"}],"predecessor-version":[{"id":483,"href":"https:\/\/courses.lumenlearning.com\/cerritos-internationalbusiness\/wp-json\/pressbooks\/v2\/chapters\/162\/revisions\/483"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/cerritos-internationalbusiness\/wp-json\/pressbooks\/v2\/parts\/159"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/cerritos-internationalbusiness\/wp-json\/pressbooks\/v2\/chapters\/162\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/cerritos-internationalbusiness\/wp-json\/wp\/v2\/media?parent=162"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/cerritos-internationalbusiness\/wp-json\/pressbooks\/v2\/chapter-type?post=162"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/cerritos-internationalbusiness\/wp-json\/wp\/v2\/contributor?post=162"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/cerritos-internationalbusiness\/wp-json\/wp\/v2\/license?post=162"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}