Vaight says the shift stems from a realisation by emerging market companies that they can no longer rely on low wages, cheap currencies or protectionist measures. As a result, R&D in developing nations has risen substantially, and is growing at a faster rate than in the developed world.
China and India doubled their spending on R&D between 2007 and 2012, Vaight notes, while the former has overtaken the US in terms of patent applications. He points to Mindray Medical and Hollysys Automation Technologies as examples of successful emerging market innovators.
Mindray Medical has evolved from a distributor of basic medical devices to a “cutting edge” company which has expanded beyond China and is making inroads in the West, while Hollysys Automation Technologies has won contracts related to China’s high-speed rail network.
‘Moving up the value chain’
“The common perception of emerging markets is that they are dominated by producers of natural resources and low-cost manufacturers. However, this view overlooks an important trend in the emerging markets universe: the growing number of firms that are moving up the value chain by investing in areas such as R&D and brand,” Vaight wrote.
“We like to see companies channel their R&D efforts into creating a higher returning, sustainable business model rather than identifying ways to cut costs. The recent success of Samsung’s smartphones shows how potent the combination of exciting products and a desirable brand can be.”