How CEO’s drive saved car giant Ford from the scrapyard
Companies desperately in need of a turnaround in fortunes should take inspiration from the successful 2008 rescue mission by the then-new Ford boss Alan Mulally....
- Audio available
by Mark J. Greeven Published 18 August 2023 in Innovation • 8 min read
Multinationals wanting to maintain their position as market leaders in Asia simply must innovate. The era of winning market share with products designed for Western markets is over. A non-negotiable part of doing so is having a strong innovation presence in Asia; the continent’s immense economic transformation over the past two decades has lent it irrefutable global relevance.
Asia has improved its technological capabilities and infrastructure at breakneck speed. In June this year, Global Data updated its 2023 global economic growth projections showing the Asia-Pacific region to be an outlier, with GDP growth projections of 3.8%, an upward adjustment of 0.10 percentage points from March 2023. By comparison, the Americas anticipates growth of 1.2%, and Europe 0.6%. This growth will continue to finance investment in innovation capacity.
Our study Innovating in Asia in 2023, based on a research survey we conducted in May-June of this year with 83 individuals responsible for innovation at their companies together with in-depth interviews with these same executives. We found that 82% of multinationals operating in Asia have reported growth in innovation investment.
But those firms seeking to grow in Asian markets – and, in parallel, to integrate Asian talent into their global innovation engine – do not always get the results they hope for. Although 84% of executives in the survey agree that innovation is critical for business growth in Asia, only 10% said outcomes exceeded their expectations.
In the last few years – during COVID – more than 100 US and European companies have established significant innovation initiatives in Asia, ranging from R&D to product and business model innovation. Yet 80% of respondents said they viewed their business model in Asia as at risk and in need of reinvention.
The investment landscape is diverse: while China is often viewed as a “test bed” because implementing a proof of concept tends to be faster there, investments are also significant in India, Singapore, Malaysia, Japan, Korea, and Australia. This trend will continue, as the percentage of respondents investing in breakthrough “horizon 3” innovation is expected to increase threefold from 2023 to 2026.
What are the challenges to innovation in the region? Very few headquarters-based executives are able to make a clear plan to improve performance due to their distance from the market. We discovered three major challenges:
1. Innovating for Asia from Europe or America is proving to be a losing strategy as Asian markets mature and develop their own, local-customer requirements. Yet despite the localization imperative, “decision power is not in Asia,” to paraphrase multiple respondents.
One firm had an aggressive target of 700% revenue growth from 2022 to 2030 in China but had not provided meaningful investment in local innovation to support it. The global management team had the unreasonable expectation that the sale of products designed for the European market would win in China.
This is highly discouraging for the China team, which is well aware of the need to bring localized products to market. Their China innovation put the issue bluntly: “The most crucial success factor is the identification of customer application scenarios… Our challenge is that decision power is not in Asia. Aligning with HQ on a project takes months because it has to go through all decision levels. Most people at HQ lack the necessary understanding of the market and customer needs. And there is no urgency in Germany because they are far away.”
The good news is that the percentage of companies surveyed that rely on a “global for Asia” strategy will decline from 43% today to 29% in 2026, according to respondents. Yet over half of the organizations identified a “lack of alignment between global and regional leadership” as their first or second-most pressing challenge. This dissonance raises serious doubts about the ability of companies to effectively shift innovation decision-making from “global for Asia” to “Asia for Asia”
2. Across all innovation sources, respondents said that innovation results fall below expectations in 33% of cases, while they meet expectations in 57% of cases, and only exceed expectations in 10% of cases. There are a few bright spots, however. Innovation led by business units meets or exceeds expectations in 83% of cases. Co-innovation with suppliers and external vendors also performs well. However, the survey found that most innovation initiatives are driven by dedicated cross-functional teams with little engagement by business units. These teams are often competent, but they generally lack the financial and ‘political’ resources needed to bring solutions from idea to market.
Once alignment between business units and innovation teams is firmly established, multiple organizational structures can be successful. For example, Siemens and SAP achieved success in Asia with radically different strategies. Siemens dispersed its innovation footprint in Asia across 48 R&D centers to meet the needs of its diverse product lines and markets. SAP, by contrast, consolidated its innovation footprint into five SAP Labs across India, Singapore, China, Korea, and Japan. These labs contribute to the global platform while supporting localization and business development.
3. Headquarters has a limited understanding of local market trends, emerging competition, and new opportunities. Local teams also often have limited visibility into these topics because they lack the resources to look beyond their current focus. Visibility into emerging opportunities and threats is increasingly important due to rapid market transformation. As one pharmaceutical innovation head put it, “Competition is increasing as the space between business and consumer markets shrinks. The interaction of these domains creates disruption and opportunity. Quick movers win the opportunities, slow companies will be disrupted.”
“Siemens dispersed its innovation footprint in Asia across 48 R&D centers to meet the needs of its diverse product lines and markets.”
Benchmarking competitors was identified as one of the strategies with the highest ‘above average’ performance at 29% of respondents. Local competitors often move first when new opportunities emerge, so frequent benchmarking them can provide an opportunity to become a fast follower. Meanwhile, benchmarking multinational peers can help to influence headquarters to undertake strategic investments or to make necessary structural changes.
Competing in Asia demands an entirely different approach to the one that is dominant in most other places in the world. To create successful innovation initiatives, CEOs of organizations can start with these five priorities, explained below in their broadest sense:
1. Invest in the time needed to establish a localized innovation program. Be mindful that there is a prevailing skepticism about innovation among executives, which doesn’t help the fact that not enough initiatives reach scale. Ensure you have a good understanding of market trends and opportunities by investing in business intelligence and expanding the scope of your competitive benchmarking, including outside of your own industry.
2. Unshackle the innovation team from the constraints that come with being a large business, establishing a “play-to-win culture” that is not afraid to take risks or fail fast. Then empower the team with decision autonomy over a reasonable budget so they can act without administrative delays at every decision point.
3. Bring company headquarters into your conversations, both strategic and organizational. Headquartered employees will improve their limited understanding of regional market trends and opportunities, and it will prepare them for the expected increase in local-for-local strategies, which is coming about in response to decoupling (but not deglobalizing) business.
4. While business units are often the source of innovation, successful innovation initiatives are frequently driven by cross-functional teams positioned outside the business unit. Pinpoint the hurdles your organization faces in better leveraging these external innovation sources? How can you increase the frontline autonomy of these teams?
Ensure you have a good understanding of market trends and opportunities by investing in business intelligence and expanding the scope of your competitive benchmarking, including outside of your own industry.
5. Multinationals are less and less attractive to local top talent. In fact, the turnover of leadership and talent, in general, is high at a regional level in Asia, and difficulties in recruitment in the first place are the same. Almost one in five (19%) respondents to the survey in China said that it reduced their organization’s ability to innovate. So be strategic: adjust your firm’s standard incentive structure or invent new career paths to attract and retain talent that would otherwise join a tech company.
The role of Asia is expected to increase across the board for multiple types of innovation.
Between now and 2026, the percentage of organizations with over 20% of their global resources in Asia is expected to increase from 12% to 30% for research and science and from 28% to 40% for product development.
Organizations in Asia may find that the full results and analysis of the pan-Asia survey from which the data in this article came – and as explained in this detailed study – act as a helpful launching pad for changing their approach to innovation on the continent. Further areas explored include the rationales behind investing in business intelligence, expanding the scope of competitive benchmarking, and constantly circling back to the customer.
Remember: an effective Asian innovation footprint will help your firm sustain its core business while also feeding efforts to explore new markets. As a business leader, it’s so important to keep this “dual transformation” challenge at the forefront of your mind; you need to put a lot of focus on growing your existing revenue, yes, but you also need to widen your focus on discovering new ones.
Professor of Innovation and Strategy at IMD and Chief Executive of IMD China
Mark Greeven is Professor of Management Innovation and Strategy, and Dean of Asia. At IMD he co-directs the Building Digital Ecosystems program and is responsible for the school’s activities and outreach across China. Greeven is a founding member of the Business Ecosystem Alliance. Drawing on two decades of experience in research, teaching, and consulting in China, Greeven explores how to organize innovation in a turbulent world. He is ranked on the 2023 Thinkers50 list of global management thinkers.
2 October 2024 • by Howard H. Yu in Competitiveness
Companies desperately in need of a turnaround in fortunes should take inspiration from the successful 2008 rescue mission by the then-new Ford boss Alan Mulally....
17 September 2024 • by Richard Baldwin in Competitiveness
Mario Draghi was chosen by Europe to revive its flagging economy. Ursula von der Leyen appointed Draghi as a special advisor, with the objective of addressing matters related to competitiveness....
2 September 2024 • by Ana Elena Sancho Calvino in Competitiveness
As governments continue down the path of protectionism, here are five questions executives should ask to better understand the impact such policies have on their businesses. ...
28 August 2024 • by Laura Maria Giurge in Competitiveness
Practical advice and clever tactics to keep your inbox manageable and your stress levels low after time away. ...
Explore first person business intelligence from top minds curated for a global executive audience