Open and nonmarket strategies for innovation capability building in emerging markets

The rise and decline of well-known emerging market multinationals (EMNEs) is a phenomenon which has garnered interest from the business community the world over, not least in how these firms build and destroy innovation capabilities. Even though investments in research and development, manufacturing, and the acquisition of global innovation capabilities played a crucial role in the rise of global EMNEs (e.g., Huawei, Wipro, Cemex), some emerging markets prematurely promote a process of deindustrialisation toward sectors not regarded as knowledge intensive or technology dynamic. Hence, the situation for EMNEs can be somewhat paradoxical - they need to build and accumulate innovation capabilities to remain or become globally competitive, but the knowledge and robust national institutional setting (e.g., research infrastructure, supply chain networks, patent protection) they need to support technology creation may be absent or in decline.

The recently published study (‘Tapping into emerging markets: EMNEs' strategies for innovation capability building’, Global Strategy Journal) identifies the complementarity conferred by collaborative market and nonmarket strategies, linking the local emerging market and global market context that help EMNEs build innovation capabilities. Using the Brazilian EMNE Natura & Co as a case in point, the research formulates both local and global open innovation strategies and processes, highlighting how and why collaborative nonmarket strategies help EMNEs build innovation capabilities.

The benefits of global open innovation processes prevail only when EMNEs also implement local open innovation processes that identify mutually beneficial forms of collaboration with local actors, continuously developing new ‘home-country’ partnerships. Moreover, EMNEs’ innovation capability building requires difficult-to-imitate open innovation process that cannot be copied by foreign multinational enterprises (MNEs) interested in the opportunities present in the emerging market. As the case of Natura & Co demonstrates, implementing nonmarket strategies to overcome disadvantages (in this instance the Brazilian institutional setting), creating opportunities to benefit from local natural resources for innovation and developing local relationships, while addressing societal concerns, provides a robust response to challenges and fosters innovation-driven change.

Findings from the research recommend innovation leaders devise processes to allow for continuous evaluation of open innovation strategies in the vicinity of their existing portfolio and potential local and global market resources and develop nonmarket strategies to respond to local institutions and global system changes and challenges (e.g., sustainability).

For EMNEs to thrive they must mobilise their local institutional setting by involving local actors (e.g., customers, universities, suppliers) to address the needs of both the emerging market and those at the supranational level. Over time, EMNEs will need to use different strategies to do this, and create an ‘ecosystem’ of both formal and informal nonmarket strategies to establish structural initiatives and influence the local innovation environment as a whole.

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