For the last decade companies in emerging markets (EMs) have started to develop products, which are can compete with those produced by firms in advanced countries (ACs). This ability to compete did not come and many overnight and the new companies emerging have followed a way of advancing that led them from producing for a developed company to designing their own product and then finally creating their own brand.
This essay will discuss the implications of the different stages in development of firms in emerging markets and will show on the example of Wipro, that while there is a standard way, but not the only way. The strategy used by Wipro involved skipping the first step of being an original equipment manufacturer (OEM) for others and starting their innovation from the get-go, being an original design manufacturer (ODM), progressing to being an own brand manufacturer (OBM) in the late 1990s early 2000s. After going through these phases, the company is now a recognised, global player and leads the industry in integrated business and business process solutions, as a strong consultancy and production partner.
Further the paper will discuss how the company was influenced by the macro and meso environment in India and Bangalore. On the macro level, it will provide evidence how Wipro has benefitted from the higher spending on education by the Indian government in the last 30 years, how AC companies’ outsourcing activities helped Wipro to catch up quickly and how the improvement of Intellectual Property Rights (IPRs) helps the innovation process of the firm further. Around the meso level influences on Wipro, the discussion will focus on the vacuum left by IBM leaving Bangalore and the clustering of tech companies and institutions that followed, as well as the entrepreneurship ecosystem, which is nurtured by the government’s policies and support.
The Standard development of emerging market companies
Hobday (2000) suggests that many companies in EMs tend to commence as manufacturers of products for firms in ACs (OEM mode). Doing this, they often start at the end of the production cycle, engaging in the assembly of the final product, or are part of the supply chain manufacturing parts for the whole. In this stage Hobday (2000) and Kim and Lee (2002) agree that learning is the most essential part for EM companies. The researchers list the following points to feed into learning the skills necessary for the next stages: production according to precise specifications; specific guidance and training by buyer firms; teaching of staff on-site by contractors.
The following stage is the development of product designs and sales under the own name (ODM mode). Lee, Song and Kwak (2015) argue that if this stage is not reached after a buyer moves its production to another site, often for cheaper wages, the company is potentially caught in the struggles of the low-value-added segments. Here many firms engage in catch-up strategies, which help to overcome the perils of such traps (Lee et al. 2015). Many of the successful transitions involved setting up in-house R&D, co-operations with universities or the joining of forces with foreign knowledge-partners through joint-ventures, alliances or shared R&D/production.
After acquiring the knowledge and skills necessary to produce and develop products on their own, EM companies can engage with the thought of becoming a recognised brand (OBM mode). Here Hobday (2000) suggests that firms that manage to catch up to the AC companies, created their own distinct path, to differentiate from the competition. Often existing methods led to R&D, which in turn sparked new product development.
Different ways to innovate as an EM company
This section will discuss frugal and catch-up innovation, which are two typical types of approaches for EM companies to develop new products/processes. Zeschky, Widenmayer and Gassmann (2011), describe frugal innovation as the process of stripping certain features from existing products, to drive down the costs and price for the product. This makes it more affordable for low-income countries, such as India and other Ems, where frugal products have their main markets. Zeschky et al. (2011) further argue that mostly local companies or subsidiaries of multinational enterprises (MNEs) innovate frugally to serve the emerging markets with cheaper products.
The other way businesses in EMs can innovate is by looking at existing products in other markets and adapt and commercialise those existing products to fit the market of operation (Dutz 2016). Phuc (2015) brings in the argument of calling this type of innovation, imitation rather than innovation. Although these two forms seem different, Phuc (2015) and Dutz (2016) both agree that companies need to adapt the existing product to the market, therefore innovating their business processes. This results in an innovation of the business, product or the production, which is why this paper will combine catch-up and imitation as a one form of innovation in the case of India and Wipro.
Wipro development and innovation
Wipro is a special case in the theory. Looking at its development over time, one cannot classify the tech side of the company as a pure OEM at any point. Moving into Bangalore the company started off with building mini-computers and selling them through a sales network. These mini-computers were produced using a method known as surface mounted (NDTV 2018). This method has been around in ACs for a while, for India however, a computer with this kind of production was completely new. Therefore, it can be argued that the company used the catch-up innovation strategy, imitating developed companies to quickly close the gap between the international competition and itself. Furthermore, this method enabled Wipro to skip the stage of being a pure OEM, becoming a company in the ODM stage straight away, with the production of said mini-computers.
While innovation has been done alone and leveraging in-house know-how, the company then started to innovate in a different way. After establishing its name, launching global R&D and software services, the firm then had the chance to learn and innovate side-by-side with some of the large global IT players, such as Acer, Cisco and BT (NDTV 2018). Wipro, starting as a company needing to catch up, now has the respect and the strength, to innovate alongside MNEs who were established far longer than Wipro itself. How Wipro caught up and what influenced the company to become this international player, will be explained in the following, by analysing macro and meso environmental factors, affecting the firm’s innovation process.
Macro environmental factors supporting the development of Wipro
There are three main factors in the macro environment, which played a role in Wipro’s fast development into a global IT giant. The first one is the increased spending of the Indian government into developing the education further in the country in the 1980s. This improved spending led to a rapid increase in schools and teachers around the country (Tamang 2011). This in turn caused the number of children enrolled in primary education rose from 72 million to more than 160 million within the next decade (US library of Congress 2018). Similarly, the number of students matriculated at universities in 1990 rose to 4 million from previous numbers lying under one million. This emphasis on improving the local talent, was the reason the tech sector started evolving in India. This is when Wipro started its IT work in Bangalore, attracting more and more young, local and highly skilled talent to the area. This increased labour helped Wipro with the development and the improvement of its processes and products. This beginning of a tech centre leads into the second point of the macro environmental element that helped the firm.
The second factor consists of western companies acting upon the opportunity of outsourcing IT into India, as it became known for skilled IT labour. The surge in education attracted companies from ACs to invest into facilities and partnerships in India. This way, know-how from overseas entered the country and local companies got the chance to build a network and grow rapidly in the new competitive environment. Especially through partnerships, many indigenous companies, including Wipro, learnt from and alongside with MNEs, innovating products and the companies as a whole (Damanpour, Devece, Chen and Pothukuchi 2010).
The third factor to do with innovation for Wipro are the improving Intellectual Property Rights (IPR), which are becoming stronger in India, making it harder for companies to imitate existing products. Even though imitating products was part of many companies’ development in emerging markets, IPRs have to get stronger in order to create or more stable and sustainable environment of entrepreneurship (Gargate and Jane 2013). While catching up was important for Wipro as a young company in tech, now it has other needs. IP protection is highly important, as the market becomes reliant on innovation to separate from other companies and stand out to customers. The Indian government is developing new laws for the last decades to improve the IPRs (export.gov 2018). Wipro is benefitting from this, as it has applied for, and got granted a large number of new patents. This way innovation is protected, and new ideas can be formed and translated into action without the fear of being copied and taken away (Gargate and Jane 2013). After analysing the macro environment and how that related to the innovation process in Wipro now the environment closer to the company will be discussed in the following.
Meso environmental factors affecting Wipro’s development
On meso level company majorly benefitted from Bangalore as a centre of technology in India. There are three ways in which Wipro has benefitted and still benefits from the area. The first one is back in the 1980s, when IBM left India/Bangalore due to conflicts with the government (Basant 2006). This created a tech-vacuum in the area, with infrastructure for tech businesses already existing. Wipro moved its headquarter from Mumbai to Bangalore subsequent to the entrance of the IT market in Bangalore to attract talent to the area.
The vacuum and the increasing demand for tech outsourcing by AC companies in Bangalore, led to a clustering of IT companies in the city, as well as institutes sponsored by the government (Basant 2006). After attracting many new tech companies to the area, the cluster in Bangalore started to become more densely packed. Knowledge was transferred in between companies that were just starting up and others that were already international players, such as Cisco or Epson (NDTV 2018). Development of the was then not only coming from other companies, but after the government realised the potential of Bangalore as a tech centre of the country, investments into infrastructure and education were made. This is linking back to the point earlier on how macro-economic factors played a major role in the development of the firm. From the investments, many colleges and universities were either opened or improved, so that talent that was created within the area, stayed in the area.
Wipro used the universities around by including them into the business process. The firm used collaborations with the universities to share R&D facilities as well as hiring students as interns or straight after graduation. Sharing R&D facilities with students, made it possible for Wipro to engage with them early on and making them feel invested in the firm’s future. As a student, going through the process of working with and alongside a company, to then working for this company, gives the feeling of empowerment and builds trust between company, employees and universities. This way the company ensures a steady inflow of new talent, bringing in new knowledge and skills, improving the innovation process constantly.
The third way, Wipro benefitted from Bangalore is through the entrepreneurship culture in the area. There was a lot of talent attracted to the area, which was coming from universities, established companies or just seekers of opportunity in a growing market. Rajeev (2015) suggests that the tech hub in Bangalore was developed on the basis of two main factors. Firstly, there are many research and educational institutions in Bangalore, which help develop young talent into professionals, who then potentially generate ideas for new start-ups. Wipro has leveraged those young talents, by including them into the company. This is done through providing a place to do R&D for them, as well as funding for promising projects (Wipro 2018). These talents and their new ways of thinking improve the innovative capabilities of the company over and over again.
The second point Rajeev (2018) made, was that the entrepreneurship culture in the tech cluster only develop through the support of the government. He calls it the ecosystem of entrepreneurship. The government in India, and Bangalore in specific, supports the entrepreneurs in a couple of ways. The first way is that Bangalore has policies supporting entrepreneurship from early on. These policies, including subsidies and earlier mentioned IPRs, promoting innovation in education and the use of industry bodies to improve the ideas that entrepreneurs have, to make viable products. Similar to the investment into education, Wipro has the advantage here to involve people with a vision from early on and help them create ideas that can survive in the real world and at the same time use them to innovate the company piece by piece. The second way the government helps entrepreneurship in Bangalore is by investing into incubation spaces to move into and provide funding for start-ups in the area (Government of Karnataka 2015). Funding and a place to work is what many start-ups lack and providing this for them, gives the new company/idea a higher chance to make it to the production phase. Wipro (2018) has used some of these start-ups, by buying them in the early stages and creating new products under its own name. Combining the entrepreneurship ecosystem with the strong company, makes the company agile in reacting to changes in the market and keeps innovation on the top of the business’s agenda.
With IBM leaving the area, the cluster starting and the new innovative thinking of entrepreneurs entering the area, Wipro had a strong stance in the market. Leveraging its close environment in Bangalore effectively, made it possible for Wipro to innovate back then and be a leader in innovation now. The new thinking of the young employees coming into the company always keeps Wipro on its toes, developing new ways to do business day in and day out.