Innovation is not just about high technology
Innovation is central to the competitiveness of firms and the growth of economies. Thailand 4.0 is a comprehensive and ambitious strategy for improving the economy's performance through innovation-driven growth, supported by the National Science, Technology, and Innovation Policy and Plan (2012–2021).
The innovation strategy in Thailand 4.0 aims at developing advanced technology and skills, through leading edge research and development (R&D), targeting high-value products and services. This is essential for strengthening productivity and international competitiveness. However, it has proven to be a challenge for Thai firms, despite considerable efforts of successive governments.
Whereas South Korea and Taiwan spend close to 4–5% of GDP on R&D, Thailand stalled at about 1%. In a recent World Bank study on innovation in East Asia, less than 15% of Thai firms report having a product or service innovation, as compared with 60% of Chinese firms. The relatively few Thai firms that do innovate cite a lack of related managerial and leadership skills as a critical constraint.
The concept of innovation should go beyond preoccupation with novel new-to-the-world technologies and related start-ups. To yield tangible results, it should build on Thai firms' roles in global industries and address underserved opportunities in Asian emerging markets.
Supplier innovation in value chains
Many Thai firms are well positioned as suppliers in global value chains such as automotive, electronics, IT and apparel. These firms can innovate within existing industries to develop competitive capabilities through specialisation in particular stages or components of a value chain.
A company can focus on design, prototype development and production engineering, as Italy's Brenta. It is a global leader in translating designs provided by luxury shoe brands into products that can be produced efficiently and in large numbers.
Component innovation allowed two companies from humble places to completely transform the global bicycle industry. Shimano, a Japanese company from Sakai city in Osaka, is the dominant supplier of high-end gears; while Giant Manufacturing, a Taiwanese company from Taichung, is the leading supplier of strong and light bicycle frames.
New ways to profitably produce complex products from diverse components and materials can be a key if unglamorous basis for innovation. For example, Foxconn, the largest global contract manufacturer and leading supplier to brands such as Apple, has implemented process innovations to produce flexibly an array of products in the same place and on the same production lines, accommodating rapidly changing demand.
Innovation for Asian markets
Asia, in particular Asean, China and India, will provide more than half the expansion in global consumption by 2030. Growth in spending in these markets will be driven by lower-middle income (160,000–796,000 baht per year) and lower-income households (under 160,000 baht).
This constitutes a huge "second tier" market, much of it in secondary cities and towns and rural areas, whose populations have high aspirations, but cannot afford nor need leading edge products. Substantial opportunities await Thai firms that can tailor products and business models to these consumers.
The concept of appropriate innovation is aimed at this market. It starts from a deep understanding of specific market segments, and knowledge of existing technologies. It focuses innovation on particular consumer needs, conditions and constraints.
India's Vortex Engineering designed an automated teller machine (ATM) to meet constraints in semi-urban and rural areas, such as unreliable power and high illiteracy levels. It is solar-powered, using only 10% of the energy of a conventional ATM; generates much less heat, eliminating the need for continuous air conditioning; and uses a fingerprint identification system. Costing less than half of conventional ATMs, it is now used in Asia and Africa.
Embrace Innovations, started by Stanford students from field work in Nepal, produces baby incubators that are small, light, inexpensive to transport and can be sanitised in boiling water. They cost around US$25 (795 baht), compared with as much as US$25,000 for traditional incubators, and are now distributed globally, along with related products.
Appropriate innovation is also for big firms. GE developed in India and China market-responsive, user-friendly electrocardiogram machines to meet local income, infrastructure, financing and service constraints. Other related products have found niche markets in US and Europe, leading to creation of GE Healthymagination for under-served marginal communities globally.
Managing innovation for results
Innovation-related management skills are a critical constraint for Thai firms.
However, the ISO56000 standards for innovation management presents a practical framework for addressing this need. It is supported by more than 50 countries, including Thailand as observer. It details key steps for innovation management; for measuring innovation performance; for strategic intelligence for innovation; for intellectual property management; and for building innovation partnerships.
For example, ISO56002 presents a results-oriented management system relevant for a wide range of innovation strategies including products, services processes, ranging from new-to-the-world, to incremental innovations, and for all types of organisations. It has been applied by globally leading enterprises such as Bosch, IKEA, Siemens and Sony, as well as governments. This is now the most popular management standard for innovation in Japan. Implementing the ISO56000 series of standards can greatly strengthen the innovation performance of Thai enterprises, including small- and medium-scale enterprises.
A demand-side approach to innovation highlights the key role of "breakthrough customer insights" alongside a focus on breakthrough technology. Taiwan and Germany are examples of its success. They do not aim primarily at creating new industries, but innovation in established industries to achieve sustained competitive advantage and globally leading exports. A wider perspective on innovation can complement the strategy of Thailand 4.0 to strengthen the competitive performance of Thai firms on world markets.
George Abonyi is Visiting Professor, Sasin School of Management and Senior Adviser, Fiscal Policy Research Institute (FPRI) affiliated with the Ministry of Finance. The ideas presented here are developed in more detail in a forthcoming publication of Singapore's Nanyang Centre for Emerging Markets, Nanyang Technological University.