Between 1970 and 2000 the proportion of global R&D occurring in low income economies rose from two percent to more than 20 percent. However, this rising commitment to R&D does not easily translate into the emergence of a family of innovations meeting the needs of low income consumers "at the bottom of the pyramid", since much of these technological resources are invested in outdated structures of innovation. A number of transnational corporations are targeting these markets but it is our contention that much of the previously dominant innovation value chains are either ignorant of the needs of consumers at the bottom of the pyramid, or lack the technologies and organisational structures to meet these needs effectively. Instead, the firms and value chains that are likely to be most successful in these dynamic new markets are those that are emerging in China and India and other developing countries, disrupting global corporate and locational hierarchies of innovation.
The aim of this paper is to improve our understanding of the nature, extent and importance of knowledge creation, development and commercialisation in developing countries. The article focuses on the process through which "new" knowledge is converted into beneficial socioeconomic outcomes in developing countries. It recognises that a wide range of science and technology capabilities and activities are critical in this process and identifies the different forms of technological capabilities that underpin the process. It is argued that there is a deficiency of non-research and development specific capabilities in developing countries and that this constitutes a major drawback to the innovation process. The paper also discusses the critical role of demand in innovation processes and demonstrates how the demand of lowincome earners in developing countries is driving changes in the global investments in innovation. Innovation in developing countries is increasingly focusing on the market rather than the technology.
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