The potential of corporate innovation in Emerging Economies

We talk a lot about innovation, it is a recurring theme in academic conversations, government, and the corporate world. All entities want to innovate as mechanism to get or strengthen their competitive advantages and continuous improvement processes. Innovation is not just a wish, but a reality that is built continuously. But ¿how much innovation really takes place in emerging economies?

According to the Global Innovation Index 2020, created by Cornell University, INSEAD and the World Intellectual Property Organization (WIPO), the BRICS (Brazil 62, Russia 47, India 48, China 14, South Africa 60) have an average ranking of 46, and are slightly better than the MIST (México 55, Indonesia 85, South Korea 10 and Turkey 51) with an average ranking of 50. Clearay Asia takes the lead in innovation for emerging economies. One of the main actors driving the development of innovation in develop countries such as Switzerland, Sweden, and the United States, which occupy the first three places in the ranking, are the corporations.

Nowadays, innovation is a relevant and fundamental issue in the development of an organization. Companies such as Google and Goldman Sachs have equity interests in 23 unicorns (companies valued at more than a billion dollars) each. This has not been a haphazard factor, rather they have a clear and robust corporate innovation strategy that have built over the years.

The first thing these companies understood was the effect of innovation, like incremental, disruptive or breakthrough (please refer to Tools for Corporate Innovation https://medium.com/@ACV_VC/tools-for-corporate-innovation-fdeac077d05f). For example, Google has internal Research and Development (R&D) areas to generate incremental innovation in its processes, and products and services, just like Apple do. In addition, it has the Google for Startups acceleration program, which generates disruptive innovation, through alliances with startups and ecosystem players, sharing knowledge and offering access to the company’s suite of technological tools. Google, directly or through its venture capital arm (Google Ventures), has also invested in companies that promote breakthrough, such as Ripple (a blockchain technology company to carry out financial transactions in real time) and SpaceX (company that designs, produces and launches rockets and ships into space).

This innovation promoted by corporations aims to impact processes, products and services, or business models. Google, to achieve this, additionally has different business units, for example, M&A, Google Ventures and CapitalG.

Google’s internal mergers and acquisitions area (M&A) has acquired approximately 243 companies in 21 years (according to Crunchbase). In addition, in 2009 established his corporate venture capital fund called Google Ventures (GV). Today it manages more than USD$4.5 billion and has invested in 730 companies; within which Uber, Medium, Slack and DocuSign stand out. In 2013 the company established CapitalG, a private equity investment arm focused on robust technology companies with accelerated growth. By this means it has invested in 76 companies; for example, Lyft, Robinhood, Airbnb, Stripe, Credit Karma, and SurveyMonkey.

Other Google’s initiatives focused on innovation are: Area120 and X Company. Through Area120, Google’s incubator, internal projects are developed in all areas of the company, fostering an environment of entrepreneurship and creativity. X Company (The Moonshot Factory) is a research and development center, founded by Google in 2010 with the goal of creating radical new technologies to solve some of the world’s toughest problems.

Based on the innovation culture of a world leader like Google, corporations in Emerging Economies should reflect on the following elements to increase the degree of corporate innovation:

- Accept risks and learn from failure: clearly a high percentage of early-stage investments or incubation projects will fail. However, great learnings result from these projects, applying them to improve in subsequent iterations is vital.

- Build portfolios: successful corporations should think about building portfolios to diversify and manage risk. It is essential to develop multiple initiatives and invest in multiple companies, generating innovation and development of all kinds.

- Think in the long term: the results of projects or investments will not be reflected in the next quarterly report to investors, but it will have a long-term impact on the organization.

- Create and permeate a genuine culture of entrepreneurship and innovation: authorizing projects is not the only decision that corporations must make. They must work under a genuine culture of entrepreneurship and innovation permeating all areas and levels of the corporate.

- Define the problem correctly and focus on the solution: corporations must overcome the circles of power and internal bureaucracy, with the goal of solving the problems that will bring new skills and talent to the organization.

It is clear that Emerging Economies has lots of talent and creativity; and it is the organizations who have the opportunity and resources to take advantage of it and generate innovation, with the ultimate goal of strengthening their competitive advantages and continuing to be relevant to their customers in the market. At the end of the day, innovation is a strategic tool.

Note: please refer to the original publication at EL CEO: https://elceo.com/opinion/el-potencial-de-la-innovacion-corporativa-en-mexico/

Written by:

Hector Shibata. Director of Investments & Portfolio at ACV a global Corporate Venture Capital (CVC) fund and Adjunct Professor for Entrepreneurial Finance.

Gonzalo Soriano. Investment analyst at ACV.

ACV is an international Corporate Venture Capital (CVC) fund investing globally in Startups & VC funds.

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