Sophistication of consumer demand and its impact on emerging market firms’ innovation capabilities, sources of information and strategies

Abstract

This study investigates the impact of consumer sophistication on emerging market firms’ ability to innovate. Three constructs, namely, innovation capabilities, sources of information and strategies, were identified as critical factors in the innovation process. By leveraging off these factors emerging market firms may gain sustainable competitive advantages in a highly competitive environment. The context of the study was South African based software development firms competing in more developed markets (wealthier), less developed markets (poorer) and domestic markets only (middle income). Data collection took place via telephonic survey. It was found that the size of the firm as measured by the number of employees is related to the consumer sophistication. Firms in less developed markets tend to be significantly larger than firms in more developed markets and the domestic market. Suppliers and clients as sources of information that impact the firms’ innovation development were found to be statistically significant. Firms in the more developed markets made considerable use of international clients for innovation ideas whereas firms in the domestic market leveraged ideas off local suppliers. The firms’ resource strategy was found to be significantly different across the three groups. Domestic market firms considered themselves ahead of the industry compared to less developed markets who considered themselves average with regard to having the latest equipment.