In management literature, there appear to be two major strategy dimensions. The first one is to strategise business success by capturing greater share of the existing market. The other one is about creating a new value proposition, new market. It's about creating an uncontested market place and making the competition irrelevant. The core focus is on the organisation's ability to systematically create and capture "blue oceans"-unexplored new market areas. Value innovation is the simultaneous pursuit of differentiation and low cost, creating value for the buyer, the company, and its employees, thereby opening up new and uncontested market space. What it takes to leverage it is often a question to ponder and prepare.
It challenges Michael Porter's idea that successful businesses are either low-cost providers or providers of high quality or differentiation. Instead, the blue ocean strategy proposes finding a value that crosses conventional market segmentation and offering of higher quality and lower cost simultaneously. It has been observed that emerging technology cores offer the opportunity of improving the quality and reducing the cost simultaneously-making blue ocean strategy implementable. Both incremental and disruptive innovations offer the tool to management to implement the strategy of increasing both consumer and producer surpluses simultaneously-consequentially, creating blue ocean opportunity.
The cornerstone of blue ocean strategy is "value innovation" through ideas of producing higher quality products at a lower cost, a concept originally outlined in Kim & Mauborgne's 1997 article "Value Innovation -- the Strategic Logic of High Growth". Blue ocean strategy is based on the view that market boundaries and industry structure are not given and can be reconstructed by the actions and beliefs of industry players. Particularly, emerging technology cores provide the opportunity of bringing substitutions in creating a new, larger market, often causing disruption to existing products, firms, and industries as well. Moreover, the continued growth of the technology powers the addition of new features and/or improving existing ones of incumbent products pushing the envelope of the market further.
Over the centuries, advanced firms, as well as countries, have been progressing towards higher height by creating blue ocean opportunities. Often they are building it by reducing the role of human labour and natural resources. On the other hand, firms in developing countries have been engaged in aggressive competition in an already matured market-often known as Red Ocean. These firms in developing countries are primarily engaged in trading labor and raw materials, and processing them through imported or infringed ideas. Due to technology based expansion of blue ocean opportunities, often the matured market opportunities around labour and raw material centric value addition have also been diminishing. For example, India made some progress in creating labour-based value addition opportunities in automobile making. But the growth of electric vehicles out of ideas powering automobiles with battery or hydrogen as opposed to gasoline has been eroding India's hard-earned market. Policymakers are often offering diverse incentives in maintaining competitiveness as well as entering into red ocean segments of the global value chain.
On one hand, blue ocean opportunity has been expanding. On the other hand, such expansion is offering substitution to products of the red ocean, eroding the possibility of value addition through labour or raw materials. According to Paul M. Ramer, the output of the industrial economy could be conceived as the mixing of ingredients with ideas. These ingredients are composed of standard inputs like labour, raw material, energy, land, capital machinery and so on. These ingredients are broadly termed as objects. So far, developing countries have concentrated on increasing the supply of objects. They have not focused on the importance of ideas in creating a blue ocean opportunity.
As a result, they are failing to create a new market out of ideas around new technology core. As it's a new one, initially the competition is very low. Often, it offers a monopolistic opportunity. But where is the challenge? Irrespective of the greatness of the idea and strength of the underlying technology core, the journey begins at a loss. To turn this loss into profit, technology should be kept improving for reducing the cost and improving the quality simultaneously. Despite its high potential, often, such a journey is long and highly uncertain as well. For example, Tesla has been trying to create a blue ocean out of the idea of electric vehicles. In pursuing technology opportunities, they are often offering protection for creating labour-based value addition, which is neither rewarding nor sustainable. Such an approach of creating a high-tech economy could be termed as creating yellow ocean opportunity for a few, at the cost of the mass population. For example, both Bangladesh and India, like many other developing countries, have been providing incentives for creating value addition window to high-tech products. In the absence of acquiring the capacity of redesigning high-tech products or other products with high-tech through innovative ideas, their successes are being short-lived. For example, India's majority market share of mobile phone handsets is being taken over by Chinese providers. These Chinese companies have been rapidly developing ideas and getting patents for creating blue ocean opportunity of offering next-generation higher value handsets at a less cost.
Unfortunately, the creation of yellow ocean opportunities for startups is also touted in developing countries. Particularly in developing countries, startups are running out of investment funds to keep financing their loss-making journey. There could be a suggestion of giving protection and providing financial incentives to them. But is it a solution? Startups are in a journey of offering substitutions to existing products, leveraging new technology core-creating blue ocean opportunity. But irrespective of the greatness of ideas, the journey starts at a loss. To turn this loss into profit, they need to keep adding ideas for making the product better as well as cheaper. This is a critical requirement for the success of startups. Until and unless this critical competency issue is addressed, any level of protection and financial incentives will likely fail to help startups graduate to profitable businesses.
In addressing diverse issues starting from growing graduate unemployment, slow growth of Small and Medium Enterprises (SMEs), decreasing labour-based value addition in manufacturing, high startup mortality rate, to coping with as well as leveraging the fourth industrial revolution, it's high-time for developing countries to focus on creating blue ocean opportunity out of ideas as opposed to ingredients.
M Rokonuzzaman PhD is an academic and researcher on technology,
innovation ands policy. [email protected]
