Innovators and investors gathered this month at the sixth annual Lux Executive Summit to take measure of the opportunities and challenges emerging in the wake of a devastating global recession. Among the prospects they discussed were the rising technologies driving developments in energy, the environment, advanced materials, and human health – technologies that will require not millions of investment dollars to advance, but billions. The potential opportunities not only signify better profits, but the possibility of catapulting beyond one-time rivals. Such success, however, will require more than interdisciplinary collaboration. It will demand international coordination.
This week, Lux Populi highlights some of the insights and observations tracked by Lux Research analysts from select Intelligence Services – beginning with our newest, the Lux Research China Innovation service.
China Innovation: China’s two markets
China’s influence and opportunities were a prevalent theme at the Summit, and figured prominently in a keynote presentation from Jack Perkowski, the founder of JFP Holdings, and past CEO and founder of ASIMCO, a major Chinese automotive components manufacturer. Perkowski highlighted the importance of an empowered China-based management team, as well as an understanding of local perspectives around cost as critical aspects for success. Of particular interest were Perkowski’s comments around product (and hence technology) disparity needed to serve China’s two distinct market segments: namely the high-end and low-end consumers.
Foreign companies typically target the high-end, focusing on high-performance and quality. This domain, however, faces intense competition from domestic companies whose technologies are becoming increasingly comparable but offer a cost advantage. Fuelling the adversity is the implementation of policies and regulations by Chinese authorities to ensure the competitiveness of local providers. So, expect an incessant market demand for superior products and services in China. In 2010, China’s gross domestic product (GDP) grew an average annual rate of 11.2%, and the per capita disposable income of urban residents and net income of rural residents rose by 9.7% and 8.6% respectively. With increasing affluence, rising incomes, and government efforts to propel technology momentum, China may potentially outshine Japan as the world’s largest consumer of high-end goods by 2015. However, we note that this does not necessarily translate into a massive shrinkage of the low-end market, which still strives on a free industrial approach.
While clients selling products into China are no doubt aware of the increasing pressure and competition in the high-end market, many struggle to develop strategies, let alone products, to profitably access the lower end consumer. Clients must use the teams present in emerging geographies such as China to identify opportunities and develop products that fit the local market. These teams will no doubt have the highest probability of developing offerings that meet the local need, but they will also open up reverse innovation opportunities already realized by the likes of GE and Caterpillar.
* * *
Summit panelists and attendees shed light on key themes in solar
The sun never sets on emerging technology markets, and Lux Research’s Solar analysts covered a lot of ground at the annual Summit. Among the highlights: Senior Analyst Ted Sullivan gave a presentation entitled, “Taking Away the Punchbowl: Forecasting the Solar Industry in an Era of Declining Subsidies,” which focused on the radical demand shift away from core markets like Germany and Italy and towards emerging markets elsewhere. Whereas Germany and Italy accounted for roughly 2/3 of the market last year, Lux Research expects 1/3 of the market demand for 2015 to come from new countries not yet on the solar map. India, South Africa, and even Brazil are leading contenders to become large solar markets as they introduce subsidies amidst a continuing fall in module prices.
Meanwhile, during networking sessions, Analyst Pallavi Madakasira noted a very active debate whether corporate venture capital (VC) would work better than private VC for emerging technology providers in the PV space. As PV industry consolidations increase, many attendees seemed to favor corporate VC’s ability to support and position a company over the long term. The topic was addressed more directly by the panel “Crossfire: Can Corporate VC and Private VC Get Along?“, which consisted of VCs on both sides. In general, Lux Research believes that corporate VC could work better for later-stage start-ups that are in the process of ramping up their production capacity, because:
- Later-stage start-ups are better positioned, with an established pilot production process, “de-risking” the investment for corporate types
- They have typically scoped out their targeted end market, and can clearly map to an existing business unit at a corporate investor
- Corporations bring significant expertise in scaling manufacturing facilities (Consider, Intel’s recent consulting engagement with Miasolé, for example), and
- Most importantly, corporations often possess the balance sheet and access to finance required to scale manufacturing facilities costing into the billions of dollars