Serbia has potential for Frugal innovation

Strawberry-team_Serbia

Hello,
In previous post I tried to bring you closer to Frugal innovation and its examples and showed you what impact they have on world most influential markets.

(http://www.innovation-post.com/?p=43)

In this post, I`ll try to connect the core of Frugal innovation with Serbia and its market.
To recollect most crucial elements of Frugal innovation I`ll quote my previous post:

Key elements of Frugal innovation:

  1. Outsource all non-core activities
  2. Use technology in imaginative way
  3. Apply mass production techniques in unexpected areas

Serbia in these days is little known by its outsourcing potential, but in fact respected number of Europe`s and North America`s companies choose to outsource their business to Serbia.

Why is that you wonder?
It`s pretty simple: High quality work force for low wages.

Serbia`s standpoint by elements:

1.Outsource all non-core activities

Serbia is ideal ground for Frugal innovations because of large number of capable experts that can solve high level system problems by developing solutions that are cheap, practical, efficient and accessible. There is no longer need for Asia, there is great outsourcing potential with far better infrastructure in the heart of the Balkans and in the Europe itself.

Serbia had one of the toughest educations systems in the Europe that mustered legions of bright and resourceful work force. As Serbia passed through some of the toughest times in its history with recent wars and economical transition, many of those bright people fled all over world to become best and most respected workers in their companies. Many of them stayed behind to try to rebuild what was left.
Serbian intellectual elite is represented with 11% of Serbia`s population overall.  Downside is 22% of overall unemployment (but great for outsourcing). Currently there is 22 000 young students that are seeking job, waiting for the chance to put to use their hard earned knowledge and bring prosper to their employers. In various sectors: banking, ICT, Production and Engineering, smart companies are investing with the support of Serbian government. That fact was recognized by some of most influential companies in the world, that chose to invest in this untapped source of profit. Boy, they were right!

Belgrade, the capital, has been awarded as the City of the Future for Southern Europe 2007 by the fDi Magazine.

  • Selection criteria – economic potential, cost effectiveness, human resources, IT and telecommunications, transport, quality of life, and FDI promotion.

In 2008 the municipality of Indjija was ranked among the Top 25 Most Attractive locations for foreign direct investment in Europe by the fDi Magazine.

“Serbia is forecast to make the largest improvement in the business environment in the region of Eastern Europe between 2009 and 2013. Out of 16 countries included in the research, Serbia will be leading the region in terms of business reforms by a wide margin”.

PricewaterhouseCoopers ranked Serbia as the 3rd most attractive manufacturing and 7th most attractive services FDI destination among emerging economies.

Ernst & Young recorded nearly 150 inward investment projects in Serbia in 2007, 2008 and 2009 – the 2nd best performance in the South East Europe region.
So as fertile ground to super quality outsourcing, Serbia gets + for good foundation for Frugal innovation. Low cost, high quality workforce is perfect ground for Frugal enterprise.

Source: http://www.siepa.gov.rs/site/en/home/1/about_siepa/

2.Use technology in imaginative ways

Precisely that potential of bright and resourceful citizens, gives Serbia unique ability to generate low cost, but brilliant products and services.

Confronting limited resources, bad economic state, and tough legal restrictions Serbian experts are largely used to work with limited resources, bad conditions and to seek direct and cost-efficient ways to indulge market needs. Interesting fact is that universities and institutes apply the least patent applications, especially business related. So, one of the recent great initiatives is combining technology potential of the academic research and their spin-offs to industry leaders investors and business intelligence. Using DataStation platform as an infrastructure in future will allow more intimate connection between university and industry, and hopefully spawning large amount of useful and efficient ideas, products and services for start-ups. This way technology that is developed, can be really used and commercialized.

Downside is definitively embarrassing outcome of IP protection rights for the patents and inventions. Serbia has 299 patented products and services this year from several thousand of registered inventors. That is compared to 14.435 patents from Germany just a fragment. Luckily, there are ongoing initiatives in strong innovation entities within Serbia that are constantly working on spreading the knowledge and help with IP rights protection and constant encouragement of creativity and innovation overall. Innovation landscape is changing for sure.

Serbia`s innovators are well known winners of many worldwide competitions. For example, they collected and won 6 gold medals and 3 silver ones on the worlds most prestigious fair of science and innovations based in Moscow, called “Archimedes” . There is quality on the work here.

Examples:

Best results are in medicine, pharmacy and industrial machines, construction projects.

Hazelnut chopper – Former workers in construction of aircraft parts from Utva in cooperation with Milan Grubanov from Pančevo, constructed unique chopper that can chop and classify over 100 kilograms of hazelnuts per hour. This automated machine could make major difference in in region as one of the best competency advantage from the rest of the competition. (source: http://www.b92.net/biz/vesti/srbija.php?yyyy=2011&mm=12&dd=11&nav_id=564828)

Strawberry Tree – Several students of Serbia led by Miloš Milisavljević won the European Commission competition of renewable sources of energy with their project in the category of “Cuts in Public spending”.  From 309 projects, as youngest participants their work on Public solar light mobile recharger took the throne by right. They call it “Strawberry Tree”.  (source: http://www.blic.rs/Vesti/Drustvo/247679/Studenti-iz-Srbije-pobedili-na-takmicenju-Evropske-unije )


Fuel-efficient engines for cars – Professor dr Vujo Gordić, graduated engineer from Užice, won the International festival of innovation, knowledge and creativity “Tesla Fest 2008”. Gordić invented engine that for same amount of energy spent creates 12,68 times greater torque than traditional internal combustion engines. That means that for the same amount of fuel, car that is using his engine can travel 10 times greater distance than standard SUS engine car.

3. Apply mass production techniques in unexpected areas

Strong IT companies and software engineers lead the way for this section. Major productivity, efficiency and quality of developed solutions in ICT sector is prime jewel in the crown of Serbia`s market. Combining best practice techniques from industry and PM methodologies with local mentality and resourcefulness leads IT companies to thrive.

Example:

 

DataStation – Cloud based innovation management software platform.

Using Cloud and SaaS model from its birth 2005, and applying custom techniques and methodologies in combination with world best practices to uncover one of the unique and best software solutions for innovation management in the world. Young, unique and diverse IT company with special mission – to push the boundaries of software engineering beyond to excellence with the touch of peculiarity.

DataStation Logo

Engage outsourcing potential, low cost high quality work force and strong ICT.

Scratch the surface, there may be a diamond underneath. 

What Everybody Ought to Know About Frugal Innovation

nano_car_Frugal_innovation

Frugal innovation has already occupied attention of many innovation experts who gave it more or less identical definitions (which is frankly rarely encountered in innovation field).

The Definition: Frugal innovation or “reverse innovation”, “constraint-based” innovation as others call it is innovation designed to be inexpensive, robust and easy to use. It also means being sparse in the use of raw materials and their impact on the environment.

 

Indians are natural leaders in frugal innovations, with their ‘jugaad system’ (jugaad—meaning, do the best with what you got) , vast population and tremendous differences in social and economic status of its people. They are masters of developing make-shift but workable solutions from limited resources.

Key elements of Frugal innovation :

  1. Outsource all non-core activities
  2. Use technology in imaginative ways
  3. Apply mass production techniques in unexpected areas

 

Frugal innovation is not just about redesigning products; it involves rethinking entire production processes and business models. Companies have to drastically minify  their costs so they can reach more customers, and accept thin profit margins to gain volume. So the emerging world’s reverse innovation and frugal production are part of a new approach to management.

This new management model pushes two common thoughts beyond their prior limits:

1.The customer is king,

2.That economies of scale can produce essential reductions in unit costs.

 

Companies are starting with the necessities of some of the world’s poorest people and redesigning not just products but entire production processes to meet those needs. This can involve changing the definition of a customer to take in all sorts of people who were formerly expelled from the market economy. It means cutting costs to the bone and eliminating all but the most essential features of a product or service.

 

Known EXAMPLES:

The number of frugal products on the market is growing rapidly.

>Tata Motors has produced a $2,200 car, the Nano.

>Godrej & Boyce Manufacturing, one of India’s oldest industrial groups, has developed a $70 fridge that runs on batteries, known as “the little cool”.

> First Energy, a start-up, has invented a wood-burning stove that consumes less energy and produces less smoke than regular stoves.

> Anurag Gupta, a telecoms entrepreneur, has reduced a bank branch to a smart-phone and a fingerprint scanner that allow ATM machines to be taken to rural customers.

>Aravind Eye Hospitals from Madurai in India have reduced eye surgery costs by over 80% by applying standardization principles from McDonalds.

>Narayana Hrudayalaya from Bangalore have made open heart surgery so reliable & affordable (one tenth the cost in western countries!) that patients are flocking in from across the world.

> Solar Bottle Bulb is a sustainable lighting project which aims to bring the eco-friendly Solar Bottle Bulb to poor communities nationwide. This product was originally designed and developed by students from the Massachusetts Institute of Technology (MIT).

So then, whats really changed to give Frugal innovations such exploding start?

First of the possible reasons is definitely ever expanding India and China gigantic markets with their massive purchasing power dealt through sheer numbers and specific sensitiveness when it comes to pricing of the products.

Second reason is culture inability of Western countries to adapt to changing markets. Its hard to even imagine that Germans, Americans and British would develop such low cost products with their expensive work force. This is one of main reasons why western countries have to outsource large part of their industry just to keep their competitiveness in line with Asia expansion.

It is a race already lost.

“As the developing world grows its purchasing power, western organisations are globalising operations in order to meet the demand. In the last 10 years GE’s revenue in developing markets experienced compound annual growth of sixteen percent. IBM employs more people in developing countries than it does in the US. Eight of the world’s ten biggest investors in R&D have plants in China.”

 

Third reason is Wants vs Needs.

Third reason was born from fundamental need of Western people to spend money on something they really don’t need. Never Ending pursuit of more functionalities, features and options became cancer wound that ate right through peoples pockets. Gadgets, as I call them, became status symbols, not really tools to finish the job. Manufacturers and their Marketing and Sales armies dug right into the trap by listening to peoples wants, rather than focus on their true needs. That’s why Western countries failed to provide for Asia market overall.

 

“Perceived benefit sells. Customers want those 25 apps that they’ll never use because they like to think they are the kind of person who will.”

On other hand, India and China manufacturers filled emerging gap with ease and efficiency with simple battle cry on their lips: “completely devoid of luxury features, product does what it is supposed to, and that’s it. It ain’t pretty, but it works.”

 

Back to the future:

it’s hard to predict exactly how countries change as they grow richer. What will happen when that massive purchasing power of Asia gigants starts to cluster around specific power centres and fast emerging millionaires?

I think they are already becoming more western then the West itself. Tycoons are buying luxury products from western companies, again to achieve certain status. So it’s a snake eating its own tail again and again.

Where is Frugal innovation then among this lightning changes? I would say right in the middle…as a transition period it makes sense.

In the Conclusion:

Simply put, simple design and a minimal investment of time and resources has the same growth ambition potential as any other new product introduction.

New term for today:

“Innovation blowback —where you have something coming out of a country that has nothing except clever people.”

Frugal isn’t just for large companies. It’s a design principle that can help small firms make a big impact in developing nations.

Frugal is transitional period.

 

Questions:

 

1. Is Frugal transitional?

2. Are Western nations doomed by its unarticulated wants?

3. Is this space for another emerging market?

 

Announcement:

“Scratch the surface, there may be a diamond underneath” – are there clear possibilities for Frugal innovation in Serbia?

Fandango – Bajofondo Tango Club