Industrial Marketing Management 35 (2006) 373 – 382

Innovation and new product introductions in emerging markets: Strategic

recommendations for the Indian market☆
Gopalkrishnan R. Iyer a,1 , Peter J. LaPlaca b,2 , Arun Sharma c,⁎
a
Center for Services Marketing, Florida Atlantic University, 777 Glades Road Boca Raton, FL 33431, United States
b
University of Connecticut, 24 Quarry Drive, Vernon, CT 06066-4917, United States
c
Department of Marketing, University of Miami P.O. Box 248147 Coral Gables, FL 33124, United States
Received 15 September 2004; received in revised form 15 January 2005; accepted 18 February 2005
Available online 17 February 2006

Abstract

While radical innovations and growth strategies supporting such innovations may provide the firm with very high returns, there are also
considerable risks in devising and implementing such innovations. Apart from the business risks of venturing into new territories and new
markets, radical innovations also carry with them the burden of accounting for market and environmental factors that are often not under the
control of the firm. The opportunities presented by the emergence of several Asian markets, such as India and China, are particularly appealing for
Western countries willing to expand into these markets. However, market characteristics, institutional development, and customer behaviors bring
into sharp focus the choice of a specific innovation and new product development strategy for such markets. This paper examines these various
strategic issues in the context of India. The paper concludes with strategic recommendations for managers and some propositions for future
academic research.
© 2006 Elsevier Inc. All rights reserved.

Keywords: Radical innovation; Comparative innovation strategies; Innovation in India

1. Introduction 2003). The stress on innovation and new product development

There has been considerable debate and angst about product
innovation in both the academic as well as the trade press in
recent times. The primary reason for this focus is the evidence
that innovation improves performance of firms (e.g., Daman-
pour, 1991; Hult, Hurley, & Knight, 2004; Porter, 1990). Se-
veral firms have taken a more aggressive posture on innovation,
especially given the prospects of increased shareholder value
through profitable growth (Bhide, 2000; Christensen & Raynor,
☆
Order of authorship is alphabetical. Since one of the authors is the editor of
this journal, the review process for this manuscript was handled by the Special
issue editor Muammer Ozer.
⁎ Corresponding author. Tel.: +1 305 284 1770; fax: +1 305 284 5326.
E-mail addresses: giyer@fau.edu (G.R. Iyer), pjlaplaca@snet.net
(P.J. LaPlaca), asharma@exchange.sba.miami.edu (A. Sharma).
1
Tel.: +1 561 362 6535.
2
Tel.: +1 860 875 8017; fax: +1 860 875 2318.
0019-8501/$ - see front matter © 2006 Elsevier Inc. All rights reserved.
doi:10.1016/j.indmarman.2005.02.007
is, however, moderated by sobering statistics regarding new
product failures that raise concerns about the true value of firms'
new product efforts. Studies have shown that a majority of new
products fail (e.g. Booz Allen & Hamilton, Inc., 1989). Ame-
rican Demographics estimated that 17,000 new products were
introduced in the U.S. in 1993, and 85% of them failed. A 1995
study by Information Resources, Inc. found that 70–80% of
new product introductions fail, with each failure resulting in a
net loss of up to $25 million. While this data is from the US and
accurate failure rate data is not available for India, similar
failure rates are likely in India albeit at lower costs.
Given this dismal scenario on new product success, firms
attempting to introduce new products in international markets
are faced with several issues. The first is the type of innovation
that should be sought by firms. While the issue of how to foster
innovation in firms has been an area of extensive research and
strong prescriptions, (Hargadon, 1998; Hult et al., 2004), the
specific type of innovation that firms should seek has been only
a nascent field of research and particularly under-researched in
374 G.R. Iyer et al. / Industrial Marketing Management 35 (2006) 373–382
international contexts with few notable exceptions (e.g.,
Govindarajan & Kopalle, 2004).
The second issue that firms face is the type of strategies that
should be appropriate for ensuring new product success in
international markets. Again, while factors contributing to new
product success are extensively researched (e.g., Cooper &
Kleinschmidt, 1995, 1996; Henard & Szymanksi, 2001), there
is sparse literature on the cross-national success of new product
introductions.
In addition, the debate on the utility and appropriateness of
different types of innovation is growing in academic literature.
There appears to be a conflict between the proponents of incre-
mental or continuous product innovations (hereafter labeled
incremental innovation) and radical or disruptive product in-
novations (hereafter labeled radical innovation). Some firms such
as Intel and Samsung have pursued the incremental innovation
path. On the other hand, firms such as Sony and Apple have grown
through adding radical innovation to their portfolio of products
(e.g., Walkman, Lisa). Influenced by the potential for high market
growth, profitability, and shareholder value, many U.S. firms are
now attempting to develop capabilities for introducing radical or
disruptive innovations in the domestic market place (Christensen,
1997; Christensen & Bower, 1996; Christensen & Overdorf,
2000; Christensen & Raynor, 2003; Leifer et al., 2000). Firms are
concerned that radical innovation can endanger them as
incumbents and the only way to combat this threat is for firms
to develop their own radical innovations (Gilbert, 2003).
Conclusions that are obtained in advanced countries on the
estimated likelihood of success of the type of innovation
strategy to be followed (incremental versus radical) may not be
relevant for new product introductions in emerging economies,
especially those in Asia. This paper focuses on the type of
innovations that should guide firms when pursuing new product
opportunities in international markets, with special reference to
India. The Indian market, as well as other Asian markets such as
China, is important particularly due to the growing size of
middle-class consumers and the growth of businesses in prac-
tically all industrial and services sectors. Firms from the West-
ern hemisphere are only beginning to understand such markets
and are still facing infrastructural, institutional, and other obsta-
cles to market entry and product development.
Successful commercialization of new products requires due
attention to the complete supply chain (both suppliers and
distributors) and to promotion. Specifically for technological
products, the innovation needs to be accompanied by adequate
market sizes and investments in market-based assets as well as
building distribution capability. Profits from innovation are
better appropriated if the innovation is supported by a sub-
stantial market size and adequate investments in supply and
distribution (Teece, 1987). The focus of this paper is to ela-
borate on the factors that suggest the type of innovation that
would be most appropriate given the environmental context of
an emerging country, such as India, and identify the relevant
managerial strategies that could be pursued for successful new
product introductions.
The organization of this paper is as follows. Details on the
various types of innovation are discussed, focusing specifically
on the major pros and cons of pursuing an incremental
innovation strategy versus a disruptive innovation strategy.
Attention is then directed to the Asian context, with particular
reference to India. The various country and cultural factors that
would impact innovation and new product success are then
discussed. The final section provides several managerial recom-
mendations and offers some directions for future research.
2. Incremental innovation and radical innovation
While the concepts, “innovation” and “new product devel-
opment” have sometimes been used interchangeably in the
marketing literature, the key difference between the two is that
the term “innovation” subsumes a much broader sphere of
managerial and institutional activity than the term “new product
development.” Innovation could be in the realm of technology or
management. Technological innovations could be product- or
process-level changes, while management innovations could be
in terms of the core business model of the firm, its strategy,
leadership styles, or organizational culture, to name a few of the
changes. Since marketing is more concerned with the product-
level innovations, it is therefore not surprising that within the
marketing literature, the term “innovation” refers primarily to the
new product and new business development.
In the marketing use of the term “innovation,” incremental
innovation refers to product line extensions or adding modifica-
tions to existing platforms and products (Ali, 1994; Ali, Kal-
wani, & Kovenock, 1993). Managers design such products to
satisfy a perceived market need and expect that products and
services to meet these needs would be developed in a relatively
short period of time (Ali, 1994). Banbury and Mitchell (1995)
examined the introduction of incremental innovations and found
that continuous innovations as well as the frequency of incre-
mental innovations contributed to a larger market share for firms.
Therefore, the introduction of incremental innovation is critical
for the long time survival of firms.
Radical innovations refer to two different dimensions of
innovations. Radical innovation refers to the technology basis of
the innovation, i.e., the extent to which innovation is based on
substantially new technology relative to existing technology
(Govindarajan & Kopalle, 2004). Disruptive innovations are
market-based in which, through adoption, a small early segment
of adopters allow the firm to develop the product and compete in
the market, i.e., marketers of established products find the in-
novation disruptive in the long term (Govindarajan & Kopalle,
2004; Tushman & O'Reilly, 1997). In the context and spirit of
previous research, this paper combines these innovations due to
their effects and labels them as radical innovations (Ali, 1994;
Ali et al., 1993). There are two reasons that firms examine
radical innovations more extensively. The first and most obvious
reason is that these innovations disrupt the market for
incumbents and these innovations have led to the demise of
incumbent firms (Christensen, 1997; Christensen & Bower,
1996; Christensen & Overdorf, 2000). Second, incumbent firms
are not very skillful at developing radical innovation (Chris-
tensen, 1997; Christensen & Bower, 1996; Christensen &
Overdorf, 2000; Leifer et al., 2000).
 G.R. Iyer et al. / Industrial Marketing Management 35 (2006) 373–382 375

The issue of incremental versus radical innovation has been Table 1

framed as an issue of low risk – low reward strategy for Key characteristics of different types of innovation
incremental innovations as opposed to high risk – high reward Characteristic Incremental Radical
strategy for radical innovations (Ali, 1994; Ali et al., 1993). Low-end New-market
Incremental innovations provide the firm with opportunities for disruption disruption
extending market share and market leadership. Firms, therefore, Firm's Continuous Development Development of
forego risky new opportunities in favor of less risky market and innovation improvements of low-cost new alternatives
product expansion strategies. They attempt to satisfy existing focus to product alternatives with greater
features and with sufficient simplicity and
customers through continuous improvements to products or
performance performance convenience
performance of products and explore more predictable strategies levels
for growth and success (Christensen & Raynor, 2003). However, Target Most attractive, Overserved Nonconsumers
such firms are always under a threat from a new entrant that customers profitable and customers or and less
challenges conventional wisdom and attempts to create new demanding new customers demanding
customers neglected by consumers
markets through new technologies or new ideas. Entrants with a
incumbents
vision of disruption attack based on the predictability of the Business Maintenance of New operating Development
incumbents, focus on offering benefits to consumers that are not model value network or financial, of a new value
offered by incumbents, and adopt a far less conservative strategy based on product approach, network
for market entry and growth (Christensen & Raynor, 2003). Such platforms, or both for supporting new
product developing a cost structures
entrants may target a new or unattractive customer segment and
enhancements, low cost value and customer
disrupt the incumbent (Christensen & Raynor, 2003). cost efficiencies network benefits
Christensen and Raynor (2003) make a distinction between and competitive
two types of disruptive innovations—low-end disruptions and advantages
new-market disruptions. Low-end disruptions are aimed at Entrant's Competition Limited No initial
situation with incumbents competition competition but
overserved and least profitable customers at the lower end of the
(if entrants on products with incumbents later intensive
original value chain. Such disruptions do not create new adopt such and processes for the firms' competition with
markets; instead, they concentrate on creating and profiting strategy) with unproven unattractive incumbents'
from low-cost business models that are positioned to capture the competitive segments reactions
least attractive of the existing firm's customers (Christensen, advantages
Incumbents' Shrinking Low-cost Diversification
Johnson, & Rigby, 2002; Christensen & Raynor, 2003). Some
situation (if growth rates product into domains with
examples of low-end disruptions in recent times include JetBlue incumbents over time; less extensions no prior expertise
and Amazon.com in air travel and retailing, respectively, which adopt such threats on to cover the
captured overserved and least profitable customers through strategy technology; market;
offering low cost alternatives to available choices. along with possible conflicts at
existing neglect organization/
On the other hand, new-market disruptions are focused on
strategy) of customer process levels
capturing non-consuming market segments through concentrat- value domains
ing on new product-market factors, typically simplicity and
Adapted and developed from Christensen and Raynor (2003).
convenience, that incumbent firms in their quest for technolog-
ical superiority and improved product performance often neglect entrants to the market. From the current literature, new entrants
(Christensen & Raynor, 2003; Lynn, Morone, & Paulson, 1996). stand to gain the most with disruptive strategies, while current
An entirely new value network is created that initially may not incumbents mostly follow the strategy of incremental or
challenge incumbent firms; however, with the successful continuous innovation (Gilbert, 2003). New entrants adopting
adoption of the innovation, more incumbent firm customers the path of incremental innovation, especially through compet-
are drawn to the new value network (Bhide, 2000; Christensen & itive benchmarking and leveraging available market-sourced
Raynor, 2003; Leavy, 2004). A recent example of a new-market technologies, do not stand to gain competitive advantages. In-
disruption is the Palm Pilot. The success of the Palm Pilot in cumbent advantages on technology as well as organizational
creating a new value network can be better evaluated through its knowledge and skills may far exceed those of the new entrants. As
comparison to other technology products, such as desktop or a result, new entrants may be able to gain market share only from
portable computers, as well as other organizer products, such as the market laggards rather than the market leaders.
paper-based diaries. In contrast to existing alternatives, the Palm Current incumbents that adopt the strategy of disruption after
Pilot provided a radically different way of organizing that years of competing on the basis of either having no innovation
provided customers with the simplicity (use of handwritten strategy or an incremental innovation strategy may find that the
inputs as in diaries) as well as convenience (better portability). organizational processes and cultural changes required are
Some key characteristics of incremental innovation, and the daunting (Christensen & Raynor, 2003). In such cases, the
two types of disruptive innovation are summarized in Table 1. different types of innovation may be best supported under
Note that all three types of innovation strategies among different organization forms, such as different divisions. For
incremental, low-end disruption and new-market disruption are example, the strategies pursued by GM with its Saturn launch
available to all firms, whether they are incumbents or potential were so different from the rest of the company that GM's Saturn
376 G.R. Iyer et al. / Industrial Marketing Management 35 (2006) 373–382

division remained distinct from the rest of GM, justifying the sions that affect innovativeness and new product commercial-
Saturn's positioning message of “A Different Type of Car, A ization, the Indian market lags considerably behind a large
Different Type of Company.” industrialized country such as the U.S. Some of these relevant
On the same note, it was evident from the Internet boom era differences between the Indian and U.S. markets are summarized
that few traditional firms were able to successfully grasp the in Table 2. From the indicators in Table 2, it can be concluded
complex technological and organizational issues involved in that, while India still retains most of the characteristics typical of
creating successful Internet divisions. Retail firms, such as a developing country, its growth and directions of growth in
Borders, and Toys-R-Us, that were otherwise successful in their terms of emphasis on industrial output and information tech-
traditional marketplaces failed or are faring only relatively nologies favor a rapid transition over the next several years to a
poorly in the Internet marketspace. business environment that would be very similar to developed
While the above discussion on different types of innovation countries. Thus, the Indian market holds significant promises
holds true for all types of products and sectors, including services that multinational firms cannot afford to ignore.
and retailing, a distinction needs to be made specifically for The ultimate measure of the firm's choice of innovation
industrial products or business-to-business products, consumer strategy is new product success or failure. The various uncontrol-
durables, and fast-moving consumer products. The innovation lable and controllable factors are represented in Fig. 1 in an effort
approaches outlined above may have different impacts, especially to elucidate more on the country-level uncontrollable factors that
given the types of customer segments and their buying behaviors affect the choice of innovation strategy. The remaining part of this
as well as the nature of the markets and competition. The focus of section details several of these uncontrollable factors in the
this paper is primarily on business-to-business markets and, in a context of India.
limited way, some consumer durable markets where effects
similar to industrial product markets may be more evident. 3.1. Effects of the country context uncontrollables
Focus on the innovation itself is important since it is the
logical precursor to the new product development process. The The relative impacts of marketing infrastructure, institutional
goals and criteria for new product development and manage- development, and the socio-cultural environment on marketing
ment are set more clearly and the process is managed more strategies have been a neglected area within academic research
effectively and efficiently, when firms adopt a lucid innovation (Iyer, 1997). Also, the examination of the transferability of
strategy. But more importantly, in international markets, the concepts and measures, especially as they relate to various
firm's innovation strategy provides long-term goals and helps in marketing strategies, across different countries and cultures is
resources allocation decisions to various subsidiaries and inter- only in the initial stages.
national operations. It also helps elucidate the relative chances Several country-level factors that impact the choice of inno-
of success or failure of the types of new products developed vation strategy and the success of new product development
under a variety of innovation scenarios.
The impacts of various country-level factors the choice of Table 2
innovation strategy and new product success are discussed in A comparison of India and the US
the following section.
India US
Indicators of market size/potential
3. The development of country-level innovation strategy
Population (millions)1 1,033.4 284.0
Gross national income ($ billions)1 474.3 9900.7
Following Ted Levitt's famous article on globalization Gross national income in PPP ($ billions)1 2530.0 9902.0
(Levitt, 1983), multinational strategy has slowly been moving Gross domestic product ($ millions)1 477,555.0 10,171,400.0
toward a global strategy due to the efficiencies that arise from GDP growth rates (total real product, 7.8% 2.9%
2002–2003)2
pursuing standardized strategies. This has been the conventional
Income distribution (Gini index)1 37.8 40.8
wisdom, but recently, some experts have started questioning this Industry contribution to GDP2 24% 24%
strategy. For example, Prahalad and Lieberthal (2003) suggest Services contribution to GDP2 46% 79%
that multinational firms currently impose western or developed Manufactured exports as % of total 79% 83%
country models on developing countries. They suggest that firms exports1
Foreign direct investment ($ millions)1 2315.0 287,680.0
will do better and learn more if they tailor their operations to the
Indicators of innovation and innovation
unique conditions of developing markets. Similarly, Ghemawat capability
(2003) suggests that most strategies focus on minimizing Productive enterprise R&D per capita 0.4 465.9
country operations differences between countries. He suggests (US $)3
that firms will be better off if they exploit the differences bet- Patents per 1000 people3 0.0001 3.297
Medium and high technology share 16.60 65.40
ween countries rather than utilizing a more homogenous stra-
in manufactured exports3
tegy. A special comparative focus on India and the US examines Engineering graduates per year 260,0004 59,2585
the difference between these countries and their impact of choice Information and communications 3.80 8.10
of innovation strategy. technology expenditures (as % of GDP)6
In terms of various country-level indicators such as market Sources: 1World Bank (2003), 2UNCTAD (2004), 3Lall (2003), 4Kripalani and
size, innovativeness, global competitiveness, and other dimen- Engardio (2003), 5NSF (2004), 6Dutta et al. (2003).
 G.R. Iyer et al. / Industrial Marketing Management 35 (2006) 373–382
UNCONTROLLABLE
Contextual Factors
- Infrastructure
- Country’s Economic
Development Path
- Market Size
- Business and
Consumer Culture
Fig. 1. Factors affecting new product success.
efforts stemming from such strategy are represented in Fig. 1 and
elaborated below.
3.1.1. Development of necessary country-level infrastructure
Economic development levels affect the availability of a
suitable marketing infrastructure and the resulting market
structure across industries within a nation (Sharma & Domin-
guez, 1992). First, marketing infrastructure is also affected by
such broad forces such as education and the political–legal
instruments available for the development of markets. Second,
economic development levels as well as historic patterns of
regulations also result in different market structures, even in
familiar industries. The primary reason may be that the levels of
competition may be different. Thus, what could be an intensely
competitive industry in a developed country, such as travel and
transportation in the U.S., may be an industry where there might
be only few firms, with some being state-owned. Additionally,
the various arrangements for supply chain, such as the avail-
ability and roles of various relevant intermediaries, may be quite
different. For example, distribution chains in traditional coun-
tries such as in India are quite long, with several agents, brokers,
wholesalers, and semi-wholesalers carrying out the process of
bulk-breaking before the products reach the retailer. This is also
377
CONTROLLABLE
Type of
Innovation
* Incremental
* Radical
New Product
Development
Strategies
New Product Commercialization
Strategies
- Promotion Efforts
- Distribution Efforts
- Supply Chain Development
- Strategic Control
New Product
Success or Failure
so because the quantities bought by individual customers may
be quite small and infrequent, thereby reducing the inventory-
carrying preferences of the various intermediaries in the supply
chain.
A sufficiently developed marketing infrastructure is needed
to activate the innovation adoption process. Moreover, mar-
keting processes assume a basic level of customer education
about the market, with emphasis on the customers' ability to
seek alternative suppliers. A customers' inability to seek alter-
natives in an economy characterized by managed supply side
and frequent shortages of products and services would imply
that innovation adoption may be less about quality or service
levels than simply about availability.
A sufficient marketing infrastructure is also necessary to
implement newer modes of innovation adoption. For example,
customer relationship management (CRM) thought and prac-
tices in the area of e-commerce are quite developed in the U.S.
However, in most developing countries, including India where
there has been a tremendous growth in information technology
investments in recent years, e-commerce relationships are yet to
develop (Dutta, Lanvin, & Paua, 2003). At the more obvious
level, marketing infrastructure is very important for the com-
mercialization of the product. This is especially true when a
378 G.R. Iyer et al. / Industrial Marketing Management 35 (2006) 373–382
disruptive innovation strategy is pursued. Disruptive innova-
tions, both low-end and new-market, require newer constella-
tions of supply chain to be successfully commercialized, unless
the innovation focus is at the level of distribution itself, such as
leveraging an existing distribution arrangement (e.g., e-com-
merce platform) for the marketing of other products.
The following examples from India illustrate the problems of
focusing on radical innovation.
• Radical innovations in voice mail systems and voice
response systems with touch-tone dialing did not work in
India because the majority of phone systems are pulse-based
systems. The more successful firms adapted their existing
pulse or touch tone systems for systems that had capabilities
for both (pulse for land line and touch tone for mobile
phones).
• Firms developed dramatically faster modems for the
business market. However, the technology of speed dialing
was not compatible with the switches in the local telecom-
munication services. Customers had to add pauses between
each number to use the new modems.
• To increase distribution at lower prices, Pepsi asked bottlers
to create a large fountain sales distribution network. How-
ever, due to the lack of filtered water availability, the loca-
tions became liabilities rather than asset.
• For critical time function, firms designed products that uti-
lized frequency of the electric current rather then the tra-
ditional battery-based systems. However, due to power
shortages and back-up power from inverters and generators
whose frequency may be inaccurate, the time systems did not
work.
This leads to the following proposition:
P1. Incremental innovation would be more successful than
radical innovation in countries where the infrastructure does
not provide support necessary for the commercialization of an
innovation.
3.1.2. Impacts of country's economic development path
Apart from simply the level of economic development, the
priorities in institutional development in a country's economic
development trajectory are very important. Institutions are
essential for exchange systems to operate efficiently (North,
1991). Institutions, whether formal or informal, “create order and
reduce uncertainty in exchange” (North, 1991; p. 97). Institutions
provide the rules, norms, and routines that enable and structure
markets and facilitate market-based exchanges (North, 1991).
Such institutional processes are necessary for the development of
laws, regulations, cultural norms, and liberalization processes in
the developing countries as well as those undergoing transition
from historical political–economic systems.
Countries differ in the levels of institutional development,
the types and extents of formal and institutional arrangements
prevalent, and processes by which institutional change is ena-
bled (North, 1990). Institutional development impacts the re-
lative development of markets and the characteristic nature of
the exchange itself. Even the most perfect market, operating on
the principles of demand–supply and equilibrium prices and
thus, approaching textbook notions of free market, is in fact
governed by a complex and elaborate set of regulations (Bhide,
1994). Relevant market institutions are necessary for the
formation and development of markets and to avoid instances
of market failure. Such market institutions may include formal
institutions, such as constitutional guarantees, laws and regu-
lations, and property rights, as well as informal institutions,
such as customs, codes of conduct, and taboos (North, 1991;
Peng & Heath, 1996). The differences in marketing institutions
lead to differences in marketing systems across countries (Iyer,
1997). In countries where market institutions are well deve-
loped, exchange may be more formal and under the “shadow of
the law” (Macneil, 1980; Williamson, 1985). However, in other
countries, informal institutions may be primary and exchange
itself may be more informal and governed by norms and cus-
toms rather than law (Plattner, 1983). Liberalization also ena-
bles the creation of new domestic enterprises offering new
products (Katrak, 2002).
The increasing development of formal institutions benefits
multinational corporations since the political, legal, cultural,
and other rules prevalent in the country can be more readily
understood. On the other hand, in many traditional countries,
the co-existence of informal market institutions has deterred the
entry and/or successful product development efforts by mul-
tinational firms. For example, it has been argued that Japanese
distribution systems are quite complex and, due to historical
arrangements, linkages, and loyalties, are difficult to crack by
foreign firms (Kaikati, 1993). Similar complexities are found as
well in the Indian distribution system, which is typically cha-
racterized by long channel lengths, presence of numerous area-
specific agents and brokers, and rural retailing. Moreover, due
to the inefficiency of the distribution system, a product may be
in the distribution system for long periods of time. Given the
importance of distribution competence in new product com-
mercialization, the adoption rate of foreign products in such
traditional markets will likely remain low.
Market-oriented reforms, especially in India, have only
recently started dismantling the older regimes of protections
from import competition, restrictions on technology inflows, and
foreign direct investments (Katrak, 2002). However, developing
countries such as India still lack the necessary institutional
development that allows for a rigorous implementation of radical
innovation. Moreover, success also depends on prior experience
with technologies needed for radical innovation. It is only with
regulatory and economic liberalization and the increase in number
of new technologies, either transferred from abroad or developed
in-house, that a developing country like India evolves the ne-
cessary technology institutions and experience needed for
commercialization of high technology innovations (Kumar &
Jain, 2003).
For radical or disruptive innovation to be successful, legacy
systems must not be present within the distribution system. If
legacy systems exist, there will be multi-generational products
with similar prices, thus creating channel conflict. In this case,
manufacturers need to buy back obsolete inventory or the
 G.R. Iyer et al. / Industrial Marketing Management 35 (2006) 373–382
distribution channel will not purchase the firm's products. This
buy-back will reduce a firm's profitability.
As conditions are created that mimic innovation-stimulating
environments, certain regions in developing countries may also
exhibit characteristics similar to developed countries. For
example, it has been found that both radical and incremental
innovations are common in Bangalore, India, to the same
extent as they are in the U.K. (Bala Subrahmanya, 2005). The
primary reason is the similarity between in industrial and
institutional infrastructure and the availability of human capital
in the form of scientists and engineers in Bangalore (Bala
Subrahmanya, 2005).
Again, the following examples from India illustrate the
problems of focusing on radical innovation.
• When electronic typewriters were launched in India, they
were largely unsuccessful because of an existence of manual
typewriters and an absence of an effective channel for
electronic office products. Moreover, manual typewriters are
still preferred because the product involves low initial outlay,
lasts longer (without risk of obsolescence), and is serviced
easily and at low cost.
• A large number of firms, including the largest long-distance
communications firm in India still use dot-matrix printers.
Their suppliers (printer distributors) need to keep spare
parts and the suppliers (and customers) do not adopt
innovations easily.
Thus, it can be argued that:
P2a. With increasing levels of economic development, institu-
tional conditions are created that foster the imperatives for
radical innovation.
P2b. Institutional conditions would impact the success of
radical innovations, especially in developing countries.
3.1.3. Market size
Another factor highly correlated with development is the
market size of products and services. The population of India
is currently over one billion, and continues to grow. Economic
liberalization and transition towards a market economy have
contributed to rising income levels; the growing middle class
base in India is already larger in absolute numbers than the
middle class in the United States. It is expected that the
purchasing power of the middle class consumer will likely
grow in the next several years, so long as the liberalization
momentum does not lose its steam. However, in spite of the
rapid pace of development, the Indian economy is only one-
twentieth the size of the U.S. economy in real terms. Also, the
total market size for most products and services is smaller in
India. As an example, it was estimated that 17 million
automobiles would be sold in the U.S. in 2004, as compared to
only 1 million in India.
Radical innovations are most effective when market potential
is high and the sales volumes are sufficient to satisfy higher
expected returns. Additionally, radical innovation leads to greater
market share that further exploits higher sales volumes. Higher
379
sales volumes allow firms to develop legacy-free or non-
backward compatible products. Backward compatibility is
expensive in terms of costs and innovations. Therefore, sales
volume must be very high to justify maintaining spare parts
inventory of non-backward compatible products. Incremental
innovations that are backward compatible lead to a reduction in
spare parts inventory. PC suppliers, for example, build in
backward compatibility, so that a 10GB drive can be replaced
by a 40GB drive.
As discussed earlier, sales volumes of automobiles in India are
low and the returns on radical innovation may not be realized due to
lower sales volume. Therefore, incremental innovators with lower
cost and price structures may triumph over radical innovators.
Successful radical innovation may create a new generation of
legacy products that will impact the reputation of firms. Radical
innovation with low sales volumes will be constrained to be
backward compatible so as to reduce spare parts inventories.
Also, due to uncertainty of availability of spare parts, customers
are more hesitant to purchase the new product, often relying on
older and proven stalwarts rather than experimenting with newer
products, even if these are derivations of existing products. For
example, in the automobile industry in India, the basic model of
Ambassador cars remained successful for more than four de-
cades despite challenges from various other models, as well as
from Ambassador's own newer Contessa product line.
A similar situation can be observed in the office paper
market. The market size for this industry is small and, therefore
serviced by only few paper distributors. The existing paper
distributors pre-dominantly sell paper that is sub-standard by
Western standards. Some paper manufacturers have recently
introduced radical innovation in paper that is comparable to
Western standards; however, distributors and office supply
consumers have not adopted these new paper products.
However, with increasing liberalization and open markets for
imports and exports, some firms in India have started viewing
their effective target market to be more global rather than just
restricted to India. This increase in market size potential mo-
tivates firms to innovate on technology and bring forth radically
different products and product designs for global markets. For
example, the largest scooter manufacturer in India, Bajaj Auto
Ltd., had for years relied only on a 1960s design of a classic
Vespa from the Piaggio Group in Italy (Bellman, 2004). With
increasing opportunities for scooters in the global market, Bajaj
is now competing in global markets with new product offerings
(Bellman, 2004).
The following proposition is derived from the above
discussion:
P3. As the target market size for the firm increases, firms will
shift the product development strategy from one of continuous
innovation to focus more on radical innovations for new
product development.
3.1.4. Business and consumer culture
In developing cultures, both business and consumer cultures
may seek frugality and extended product usage. In the
traditional societies of several Asian countries, family-owned
380 G.R. Iyer et al. / Industrial Marketing Management 35 (2006) 373–382
businesses are still dominant. Even the larger enterprises are
part of some family-controlled conglomerate. For example, in
India, family conglomerates such as the Tata, Birla, and Goenka
have a presence in several industries and control several large
industrial firms. While each firm does operate somewhat inde-
pendently, the business culture of these family-controlled units
are quite similar within, in terms of their frugality and monetary
control (Iyer, 1999). Such business cultures often shape stra-
tegy, especially in terms of the outlook on innovation and
imperatives for introducing new products.
In consumer markets, economic liberalization and rising
income levels may not produce the same results throughout a
large country such as India. Despite a growing middle class, a
vast majority of people in these countries will be left somewhat
behind, especially given the historical patterns of uneven deve-
lopment already present. Thus, while liberalization would pro-
duce a middle class eager for new products, especially durables,
that their rising disposable incomes would now provide, there
will be an even larger set of consumers, with lower incomes,
who will be able to spend less on durables and continue to prefer
low-cost and affordable alternatives. Again, the issue of fruga-
lity and extended product life cycles continues to emerge.
Even among the middle class, it cannot be assumed that
rising incomes would make them more amenable either to
innovative new products or to foreign products and brands. In
fact, their rising incomes would provide them with a new
“voice” in the market and the demanding consumers may still be
looking for value rather than the best quality. As de Mooij and
Hofstede (2002) note, such consumer values may be a greater
predictor of behavior than simply income.
The emphasis on value imposes different priorities on the
derived demand for industrial products. Locally sourced and
manufactured products would keep costs down, but more
importantly, the priorities for the innovating firm would be more
on developing systems for low-cost production and marketing
combined with extended product life cycles. This may involve
creating completely new value chains. For example, in an effort
to produce and market low-cost washing machines, Whirlpool
has decentralized its operations, shifting even its design work to
the developing countries. The result would be a washing ma-
chine in the $150–$200 range for the developing country mar-
kets, far below the average price of $461 in the U.S. market
(Jordan & Karp, 2003). In addition, Whirlpool may develop
products for extended product life cycles thereby adding ad-
ditional value to their product offerings.
Radical innovation leads to obsolescence of older products.
Therefore, product life needs to be short to reduce the impact of
legacy products. These conditions may not be fulfilled in de-
veloping countries. Specifically, if a person is selling products
to an automobile manufacturer in a country like India, they may
find that radically improving a gear box design may not be seen
as an asset by automobile manufacturers. One reason for this
perception is that owners keep their automobiles for longer
periods of time. For example, the typical automobile life in the
U.S. household may be seven years, but automobiles in a
country like India are maintained for over 15 years. Therefore,
firms in India are required to maintain spare parts inventory
longer. On the other hand, if products rapidly evolve and older
product models disappear from the market place at a fast rate, it
will be very efficient for firms to maintain spare parts
inventories for the newer models rather than stocking parts
for older models.
In addition, as noted earlier, automobile sales volumes are
low and the returns on radical innovation may not be realized
due to the lower sales volume. Therefore, incremental innova-
tors with lower cost and price structures may triumph over
radical innovators. Similar longer life cycles are seen in most
products, thus making the radical innovation a relatively inef-
ficient and inappropriate strategy.
However, changes in business environment and culture call
for different approaches to innovation. For decades before the
1980s, Indian businesses made limited attempts to develop
technologically sophisticated products or to invest in innova-
tion. Government R&D expenditure accounted for most of the
research spending in India and technology imports or reverse-
engineering accounted for most of the new product introduc-
tions (Forbes, 1999). However, since liberalization in the early
1990s, Indian firms started investing more in R&D and have
turned to in-house sources for innovation and new product
development (Forbes, 1999).
The above discussion leads to the following proposition:
P4. With changes in business environment and business
culture, firms in developing countries will start emphasizing
radical innovations for new product development.
4. New product development success in India
There are several strategies that could be pursued for
successful commercialization of innovations in India.
4.1. Focus on the platform as the product
While technological innovations are often derived from a
core platform, the successful platform itself should be the
product in developing countries. This is evident from various
industries and from case examples of various firms in India.
One such example is the basic Fiat automobile that was suc-
cessful for more than two decades based on the same platform.
Similarly, a local firm Bajaj ruled the scooter market for two
decades based on a 150cc that remained essentially the same.
Recently, HP's DeskJet printers have enjoyed success by
maintaining the same platform.
4.2. Concentrate on the installed base
Since revenues from continuous innovations and newer
models may not be forthcoming, servicing of the installed base
becomes a major source of revenue. Thus, automobile dealers
would be servicing cars more than a decade old, and printer and
copier services centers and personnel would be engaged in
servicing “archaic” models of their products. In India, most
firms make more money maintaining products than they do
selling products. An example of this type of firm is the
 G.R. Iyer et al. / Industrial Marketing Management 35 (2006) 373–382
Computer Maintenance Corporation, whose revenue stream is
defined by services.
4.3. Develop distribution capabilities
While the traditional system of distribution cannot be
radically altered, firms can take steps to play by the rules of the
game and yet be able to successfully penetrate the market.
Firms should offer continuous training and skill development
not only for channel promotions but also for after-sales
services. Thus, continuous innovation efforts are placed
outside the firm for channel and complementary asset
development rather than internally for new product develop-
ment. Since the model of mobile phones is pre-paid, there is a
large group of dealers in the country that service all major
brands of phones and SIM cards.
4.4. Develop capability through alliances
Alliances may be needed for better penetration of the
traditional distribution system. Firms should seek alliance
partners that already have the distribution system and support so
that the new product introduction can successfully piggy-back
on the existing distribution structure. Further, an alliance partner
with an existing product in the same product-market would be
preferred for two reasons. One, the distribution system is
already in place, and two, the partnership with a potential future
competitor would yield better market dominance while turning
the competitor into a winner as well. These types of alliances
have emerged in the mobile phone market where information
providers have created alliances with mobile phone operators.
5. Conclusion
This paper focused on distinguishing between different
forms of innovation and the country specific factors that would
impact innovation activities and form. In emerging economies,
incremental innovation may be more appropriate than radical
innovation, a condition that is reversed in developed countries
like the US. Rather than empirically describing the current
realities within Asia, this paper develops insights from one
emerging economy—India. Such an approach is warranted,
especially given that increased environmental volatility, market
dynamism, pace of economic liberalization, and rapid political–
economic policy changes in a large developing country, such as
India, make it impossible to pinpoint the current realities. Any
predictions based on such a shifting base would most certainly
be wide off the mark.
However, the theoretical insights from India can be extended
to other emerging economies in Asia as well, including China.
A country's infrastructure, its economic development path,
market size, and business and consumer culture impact the
choice of radical or incremental innovations. Empirical research
could provide additional support for the myriad country and
cultural effects identified in this paper, and demonstrate the
possible impacts of each factor on firm-level innovation and
new product development. Empirical research is also needed on
381
the innovation orientation and innovation climate of firms in
emerging economies. While the construct of market orientation
attempts to bring the market inside the firm, so to speak, the
firm's innovation orientation is an attempt to move the firm
more solidly into the market. In this sense, both are
complementary to each other and successful firms must place
as much attention to responding to the market as to
understanding it.
Future research is also needed, more specifically on
innovation strategies themselves. While the literature within
marketing has an abundance of new product development
frameworks, approaches, and practices, there is little by way of
theory building in the realm of innovation. This neglect of a
firm's innovation strategy is particularly bothersome, when one
considers the fact that such strategies provide the broad vision
and pace for the firm's new product development efforts. In
fact, apart from market factors, the relative success or failure of
a firm's product development efforts can be gauged only in
relation to the vision of what the firm had intended to achieve.
Perhaps the most practical contribution of academic research
would be the study of how specific forms of innovations
contribute to the firm's performance in developing countries.
Here, the focus would be on the extent to which the firm's
innovation can be appropriated, and the factors within deve-
loping countries that contribute to the development of
appropriation regimes for profiting from innovations (e.g.,
Teece, 1987). A myriad of different factors may affect the firm's
profits from innovation, including but not limited to the
institutional environment, especially the legal, political, and
economic institutions; supply and distribution networks,
including the extent to which the firm has co-opted the various
intermediaries into its commercialization strategy; and buyer
preferences and behaviors, including the extent to which
liberalization and economic development would bring about a
buying culture that places greater demand on quality and
performance than on value and price.
References
Ali, A. (1994). Pioneering versus incremental innovation: Review and research
propositions. The Journal of Product Innovation Management, 11(1),
46−61.
Ali, A., Kalwani, M., & Kovenock, D. (1993, March). Selecting product
development projects: Pioneering versus incremental innovation strategies.
Management Science, 39(3), 255−274.
Bala Subrahmanya, M. N. (2005). Pattern of technological innovations in small
enterprises: A comparative perspective of Bangalore (India) and Northeast
England (UK). Technovation, 25, 269−280.
Banbury, C. M., & Mitchell, W. (1995, Summer). The effect of introducing
important incremental innovations on market share and business survival.
Strategic Management Journal, 16, 166−188.
Bellman, E. (2004, August 10). Indian scooters zip to the global market. Wall
Street Journal, A8.
Bhide, A. (1994, November–December). Efficient markets, deficient gover-
nance. Harvard Business Review, 72, 128−139.
Bhide, A. (2000). The origin and evolution of new businesses. New York:
Oxford University Press.
Booz Allen & Hamilton, Inc. (1989). Product management for the 1980s. New
York: Booz Allen & Hamilton.
Christensen, C. M. (1997). The innovator's dilemma. Boston: Harvard Press.
382 G.R. Iyer et al. / Industrial Marketing Management 35 (2006) 373–382
Christensen, C. M., & Bower, J. L. (1996). Customer power, strategic in-
vestment, and the failure of leading firms. Strategic Management Journal,
17(3), 197−218.
Christensen, C. M., Johnson, M. W., & Rigby, D. K. (2002). Foundations for
growth: How to identify and build disruptive new businesses. MIT Sloan
Management Review, 43(3), 22−31.
Christensen, C. M., & Overdorf, M. (2000). Meeting the challenge of disruptive
change. Harvard Business Review, 78(2), 66−77.
Christensen, C. M., & Raynor, M. E. (2003). The innovator's solution. Boston:
Harvard Business School Press.
Cooper, R. G., & Kleinschmidt, E. J. (1995). Benchmarking the firm's critical
success factors in new product development. Journal of Product Innovation
Management, 12(5), 374−391.
Cooper, R. G., & Kleinschmidt, E. J. (1996). Winning businesses in product
development: The critical success factors. Research Technology Manage-
ment, 39(4), 18−29.
Damanpour, F. (1991). Organizational innovation: A meta-analysis of effects of
determinants and moderators. Academy of Management Journal, 34(3),
555−590.
de Mooij, M., & Hofstede, G. (2002). Convergence and divergence in consumer
behavior: Implications for international marketing. Journal of Retailing, 78,
61−69.
Dutta, S., Lanvin, B., & Paua, F. (2003). The Global information technology report:
Readiness for the networked world. New York: Oxford University Press.
Forbes, N. (1999). Technology and Indian industry: What is liberalization
changing? Technovation, 19, 403−412.
Ghemawat, P. (2003, November). The forgotten strategy. Harvard Business
Review, 81(11), 76−85.
Gilbert, C. (2003). The disruption opportunity. MIT Sloan Management Review,
44(4), 27−32.
Govindarajan, V., & Kopalle, P. K. (2004). Can incumbents introduce radical
and disruptive innovation. MSI Reports, 04-001.
Hargadon, A. B. (1998). Firms as knowledge brokers. California Management
Review,, 40(3), 209−227.
Henard, D. H., & Szymanksi, D. M. (2001). Why some new products are more
successful than others. Journal of Marketing Research, 38(3), 362−375.
Hult, G. T. M., Hurley, R. F., & Knight, G. A. (2004). Innovativeness: Its
antecedents and impact on business performance. Industrial Marketing
Management, 33(5), 429−438.
Iyer, G. R. (1997). Comparative marketing: An interdisciplinary framework for
institutional analysis. Journal of International Business Studies, 28,
531−561 (Third Quarter).
Iyer, G. R (1999). The impact of religion and reputation in the organization of
Indian merchant communities. Journal of Business and Industrial
Marketing, 14(2), 102−117.
Jordan, M., & Karp, J. (2003, December 9). Machines for the masses. Wall Street
Journal, A19.
Kaikati, J. G. (1993, Summer). Don't crack the Japanese distribution system—
just circumvent it. Columbia Journal of World Business, 28, 34−45.
Katrak, H. (2002). Economic liberalization and new product enterprises in the
newly industrializing countries: An analysis of the Indian experience.
Journal of International Development, 14(2), 195−206.
Kripalani, M., & Engardio, P. (2003, December 8). The rise of India. Business
Week, 66−76.
Kumar, V., & Jain, P. K. (2003). Commercialization of new technologies in
India: An empirical study of perceptions of technology institutions.
Technovation, 23, 113−120.
Lall, S. (2003). Indicators of the relative importance of IPRs in developing
countries. Research Policy, 32(9), 1657−1680.
Leifer, R., McDermott, C. M., O'Connor, G. C., Peters, L. S., Rice, M. P.,
Veryzer, R. W., et al. (2000). Radical innovation: How mature companies
can outsmart upstarts. Harvard Business School Press.
Leavy, B. (2004). Outsourcing strategies: Opportunities and risks. Strategy and
Leadership, 32(6), 20−25.
Levitt, T. (1983, May/June). The globalization of markets. Harvard Business
Review, 61(3), 92−103.
Lynn, G. S., Morone, J. G., & Paulson, A. S. (1996). Marketing and
discontinuous innovation: The probe and learn process. California
Management Review, 38(3), 8−37.
Macneil, I. R. (1980). The new social contract: An inquiry into modern
contractual relations. New Haven, CT: Yale University Press.
National Science Foundation (2004, March). Science and Engineering Degrees:
1966–2001. Division of Science Resources Statistics, National Science
Foundation.
North, D. C. (1990). Institutions, institutional change and economic
performance. New York: Cambridge University Press.
North, D. C. (1991, Winter). Institutions. Journal of Economic Perspectives, 5,
97−112.
Peng, M. W., & Heath, P. S. (1996, April). The growth of the firm in planned
economies in transition: Institutions, organizations, and strategic choice.
Academy of Management Review, 21, 492−528.
Plattner, S. (1983, December). Economic custom in a competitive marketplace.
American Anthropologist, 85, 848−858.
Prahalad, C. K., & Lieberthal, K. (2003, August). The end of corporate
imperialism. Harvard Business Review, 81(8), 109−120.
Porter, M. E. (1990). The competitive advantage of nations. Harvard Business
Review, 68, 73−93.
Sharma, A., & Dominguez, L. V. (1992, Winter). Channel evolution: A
framework for analysis. Journal of the Academy of Marketing Science, 20,
1−15.
Teece, D. J. (1987). Profiting from technological innovation: Implications for
integration, collaboration, licensing, and public policy. In D. J. Teece (Ed.),
The competitive challenge: Strategies for industrial innovation and renewal
New York: Harper & Row.
Tushman, M. L., & O'Reilly III, C. A. (1997). Winning through innovation: A
practical guide to leading organizational change. Boston, MA: Harvard
Business School Press.
United Nations (2004). UNCTAD handbook of statistics 2004. New York:
United Nations.
Williamson, O. E. (1985). The economic institutions of capitalism: Firms,
markets, relational contracting. New York: Free Press.
World Bank (2003). World development report 2003: Sustainable development
in a dynamic world. NY: Oxford University Press.
Gopalkrishnan R. Iyer is Associate Professor and Director, Center for
Services Marketing at Florida Atlantic University.
Peter LaPlaca is Adjunct Professor of Marketing at the University of Hartford
and Associate Professor Emeritus at the University of Connecticut.
Arun Sharma is Professor of Marketing at the University of Miami.