Short answer
When operating in environments with significant informal competition, prioritize strategies that either differentiate from informal offerings or build resilience against their competitive pressures, rather than solely focusing on radical new product development.
- Field
- Innovation & Design
- Source
- Journal of Product Innovation Management (2023)
- Method
- Quantitative analysis of survey data
- Sample
- Data from firms operating in Eastern Europe and Central Asia
- Evidence
- Moderate effect
Formal firms facing significant pressure from informal competitors are less likely to invest in developing entirely new-to-market products. This innovation & design research insight is drawn from a 2023 study published in Journal of Product Innovation Management. Using Quantitative analysis of survey data with Data from firms operating in Eastern Europe and Central Asia, researchers explored how this design variable affects real-world outcomes. The key design takeaway: When operating in environments with significant informal competition, prioritize strategies that either differentiate from informal offerings or build resilience against their competitive pressures, rather than solely focusing on radical new product development.
Intense informal competition stifles radical product innovation in emerging markets
Formal firms facing significant pressure from informal competitors are less likely to invest in developing entirely new-to-market products.
Journal of Product Innovation Management · 2023
Key Findings
- 01Intense competitive pressure from informal firms reduces the likelihood of formal firms developing new-to-market products.
- 02Credit constraints exacerbate the negative impact of informal competition on radical innovation.
- 03State legitimacy mitigates the adverse effect of informal competition on new-to-market product innovation.
Application
Design takeaway
When operating in environments with significant informal competition, prioritize strategies that either differentiate from informal offerings or build resilience against their competitive pressures, rather than solely focusing on radical new product development.
How to apply
Before launching a new product, especially in emerging markets, conduct a thorough analysis of the informal sector's competitive influence and its potential impact on your innovation strategy.
Project actions
- 01When researching a product idea, consider the existing informal market and how it might affect your ability to innovate.
- 02Think about how government support or lack thereof might influence your project's success in a competitive environment.
Method & Evidence
Variables
Strengths & Limitations
Strengths
- +Utilizes a large, real-world dataset from emerging economies.
- +Investigates moderating factors (credit constraints, state legitimacy) that add nuance to the primary relationship.
Limitations
It can be difficult to accurately measure the 'intensity' of informal competition or to definitively categorize products as 'new-to-market' in a real-world design project.
Reliability & validity
The study's reliance on survey data may introduce recall bias or subjective reporting. The use of established statistical methods aims to enhance reliability, while the inclusion of moderating variables strengthens external validity within the studied context.
Think critically
To what extent does the perceived legitimacy of the state influence a firm's risk appetite for radical product innovation when facing informal competition?
Design Principles
"The intensity and nature of the competitive landscape significantly influence a firm's capacity and willingness to pursue disruptive innovation."
This insight is crucial for understanding the innovation landscape in emerging economies. It suggests that the presence of a robust informal sector can divert resources and strategic focus away from breakthrough innovations towards incremental improvements or cost-cutting measures within formal businesses.
What This Means for Your Design
If lots of small, unofficial businesses are competing with your company, it's harder to make and sell totally new kinds of products.
How to use in your project
- 1.Reference this study when discussing the external factors that might influence your design choices, particularly regarding market competition and innovation potential in your chosen context.
Add to My Project
Quick Cite
Paragraph starter
Research indicates that intense competitive pressure from informal firms can significantly reduce formal businesses' inclination towards developing new-to-market products, a factor that must be considered when strategizing product innovation in emerging economies.
Source
Journal of Product Innovation Management
Competition from informal firms and new‐to‐market product innovation: A competitive rivalry framework
journal · 2023
View sourceQuestions About This Research
- What does the research say about intense informal competition stifles radical product innovation in emerging markets?
- When operating in environments with significant informal competition, prioritize strategies that either differentiate from informal offerings or build resilience against their competitive pressures, rather than solely focusing on radical new product development. Evidence: Journal of Product Innovation Management (2023).
- Why does "Intense informal competition stifles radical product innovation in emerging markets" matter for design?
- This insight is crucial for understanding the innovation landscape in emerging economies. It suggests that the presence of a robust informal sector can divert resources and strategic focus away from breakthrough innovations towards incremental improvements or cost-cutting measures within formal businesses.
- How can designers apply this research?
- When operating in environments with significant informal competition, prioritize strategies that either differentiate from informal offerings or build resilience against their competitive pressures, rather than solely focusing on radical new product development.
- What were the main findings?
- Intense competitive pressure from informal firms reduces the likelihood of formal firms developing new-to-market products.. Credit constraints exacerbate the negative impact of informal competition on radical innovation.. State legitimacy mitigates the adverse effect of informal competition on new-to-market product innovation.
- What research method was used?
- Quantitative analysis of survey data with Data from firms operating in Eastern Europe and Central Asia.
- How strong is the evidence?
- Evidence strength is rated Moderate effect, based on a 2023 journal from Journal of Product Innovation Management.
- What should I do differently in my next project?
- Before launching a new product, especially in emerging markets, conduct a thorough analysis of the informal sector's competitive influence and its potential impact on your innovation strategy.
- What are the limitations?
- The study focuses on specific regions (Eastern Europe and Central Asia) and may not be generalizable to all emerging economies. The definition and measurement of 'informal firms' and 'new-to-market products' can vary.