Why You Should Pay Attention to Innovation in Developing Economies
By Jeffrey Baumgartner
Question: which city leads the world in mobile payment technologies and services? You might think it is San Francisco on the edge of Silicon Valley where new technologies breed like rabbits. But, you'd be wrong. You might think it is the global financial centre of London. But, you'd be wrong. Probably it is in some other American or European city, right? Wrong! It is in Nairobi, Kenya, where it is easier to pay for a taxi with your phone than it is in high tech San Francisco or London.
M-PESA was launched by Kenyan mobile operator, Safaricom as a simple tool for making cash transfers from one telephone to another. It does not use cutting edge technology but it works very well. In 2013, 25% of Kenya's gross national product flows the M-PESA. Today it is used by over 20 million people in 10 countries, and those numbers are growing fast. It is so effective, that a handful of other companies in the region have built and offer competing platforms, upping the innovation stakes.
Necessity Is the Mother of Invention
Why has the world's most advanced mobile transaction system been developed in Kenya, a country not known for technical innovation? The answer is to be found in Kenya's circumstances which are similar in many developing countries.
A large portion of the population lives in villages far from big cities where banks are few and far between. So, most Kenyans do not even have bank accounts. However, many young people born in the villages head to the big cities, such as Nairobi, to work not only for themselves, but to help support their families by sending a portion of their wages back home. In the past, this was time consuming and risky. The son or daughter would either have to spend days travelling home − thus missing out on the wages she would have received had she been working − or she would have to entrust a friend with her family's money. Neither option was ideal.
Now, money can be sent instantly, securely and inexpensively to mum's mobile phone. That's why mobile payment technology thrives in Africa and especially Nairobe: there is a need for it there. In San Fransisco and London, credit cards, Internet banking and even the painfully outdated cheque makes it easy to make payments and move money around. Sure, mobile payment systems would be nice to have, but far from necessary.
Freedom from Necessity Can Be Good Too
Now, can you guess where some of the most innovative development of the Android (mobile phone and tablet) operating system is? Not necessarily at Google headquarters. Instead, it is in China for what initially seems like an odd reason: Google is not in China.
Google used to be in China. However, the Chinese government's demands that Google censor search results were deemed unacceptable by Google and the company pulled out of China. Android is, of course, the most popular mobile phone and tablet operating system in the worlds and most makers of mobile phones − with the notable exception of Apple − install Android on their products. To do so with Google's blessing and approval to use popular apps, those manufacturers need to install prominently certain Google services.
But with no Google in China, phone manufacturers are using open source versions of Android and developing it to incorporate services popular in China, such as WeChat, Weibo and QQ. Moreover, the Chinese manufacturers have become so good with their versions of Android, they are beginning to sell Google-less Android in other developing countries.
In this case, neither being obliged or supported by Google has freed Chinese mobile phone manufacturers to be innovative with the Android operating system in ways that other manufacturers would not dare to do for fear of losing their right to install Google-friendly Android. Nevertheless, Chinese mobile phone users expect useful and fun apps in the way mobile phone users everywhere do. To sell their phones, manufacturers had to innovate.
Healthcare innovation is often perceived as the development of expensive new treatments, medications and machinery which is fine for richer countries but not so useful for developing countries where a single piece of gear may cost more than an entire hospital. As a result, Indian companies have gone in the other direction and specialise in frugal innovation: developing equipment that may not have all the latest features of recent American innovations, but which is good enough to meet local needs and which costs a fraction of similar products from big name manufacturers in America and elsewhere. At the same time, Indian doctors are developing efficient treatment processes that allow them to provide world class health care at developing country prices. The result, many people in wealthy countries find it cheaper to fly to India, stay in luxury accommodation and be treated, than it would cost to get the same kind of treatment in a local hospital. Indeed, some insurance and health care providers now offer the option of treatment in India. When I flew into Mumbai last year to speak at a conference, I noticed that there were separate immigration queues for Indians, foreigners and medical tourists − and there were a lot of medical tourists.
Innovation Is Not the Prerogative of the Wealthy World
In spite of what those of us living in developed countries might like to think, innovation is not the prerogative of wealthy countries. It does not require the latest technology or even modern technology. It is a matter of finding solutions in resource-restricted situations or exploiting situations in which there are rare freedoms. Likewise, we should not dismiss developing economy innovation as only suitable for the developing world. Mobile payment systems are interesting everywhere and even in developed countries you will find people without bank accounts. It is not just India where low cost medical technology is desirable.
For readers living in developing economies such as India (I know there are at least several hundred Indian readers of Report 103), this should be a point of pride. The opportunities to innovate in your countries are as unlimited as elsewhere and there is absolutely no reason why you and your team cannot be behind innovative new products and services that change the world. And, having met some incredibly bright young people at the Indian Institute of Technology in Mumbai, I am confident the world will be seeing ever more innovations from the country.
Lessons for the Developed World
For those of us in the developed world, there are lessons to be learned here, not least how to manage offices in developing countries. When I lived and worked in Bangkok, I met a number of youngish American managers sent in for a couple of years to manage the Southeast Asian office of their companies before returning home to be put on the fast track to senior management. These guys (and sadly, they were inevitably guys) burst in to the Bangkok office, insisted on doing everything in the American way, largely ignored local culture and then went out at night with other American managers. They would not have recognised local innovation if it hit them in the face because they neither bothered to learn about local culture nor were they expected to do so. Their jobs were to instill the American way in the Bangkok office.
Fortunately, that attitude is changing as more aware CEOs realise that there is as much, if not more, to be learned in developing countries' offices as there is to be taught. Managers sent to Bangkok or Beijing or Nairobi should go there to learn how things are done in those cities and pay particular attention to how locals improvise and innovate to make things work. The aim should not be to instill the American (or German or Japanese, etc) way nor should it be to ignore the American way. Rather it should be to combine the best of both cultures, adapting positive aspects of American processes while respecting local culture and implementing local innovation both locally and in other locations where it is relevant.
Certainly, if your company has global offices see them as opportunities for young managers to learn. Likewise, don't just send the American to Bangkok or Nairobi. Send the Thai or Kenyan managers to the US headquarters to learn and to share their ways of thinking, ways of doing things and local innovations that work.
Such an international exchange of thinking and comparison of problem solving techniques can only boost the creative thinking capabilities of everyone.
A lesson for you and I to learn, wherever we might live and work, is the value of exploiting limitations. Mobile payment innovation took off in Nairobi rather than Silicon Valley because banking limitations made it necessary. The platform on which the system is based uses well established rather than cutting edge technologies because the latter are not available and many people use older telephones that could not exploit smartphone technology.
When your organisation has limited resources, that need not hinder innovation. It should inspire it. If your customers do not have the resources to do certain things, innovate to enable them to do those things at a price they can afford.
And when someone in a distant country innovates to meet her country's particular situation, don't smirk with mistaken notions of cultural superiority. Instead, look closely at that innovation and ask how it might be relevant in your country.
What are your experiences of innovation in developing economies? Please share them with me. I'd love to know about them.
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