Lead Markets: Regional Starting Points of Global Dominant Designs of New Products
In the international diffusion of innovations one can observe that a particular technological design such as the facsimile machine, the personal computer or the mobile cellular telephone is often adopted by one country or region, called the lead market, much earlier than by other countries which follow this country subsequently. In general, a lead market is defined as a regional or national market which adopts an innovation that is subsequently adopted world-wide. When different designs of an innovation with the same function compete internationally, the design preferred in the lead market becomes the global dominant design. Former research suggests that the subsequent adoption of an innovation design preferred in the lead market by other countries can be traced back to peculiar demand preferences and the market conditions in the lead market.
Based on microeconomic concepts of modern innovation theory, the lead market concept suggests that there is a system of country-specific attributes that constitute a lead market role of a country. Lead markets can be explained by five basic lead market factors: anticipatory prices, a high degree of domestic competition, the ability to transfer preferences abroad, the export orientation of domestic firms and anticipatory needs. In this instance, a lead market is a regional market that fore-shadows future global needs. Firms in the lead market have a competitive advantage. Once local innovations have been developed to fit the needs of local users, they can also be successfully intro-duced into most other regional markets. Lead markets lead the industry?s world-wide prevailing evolution because they first mirror im-pen-ding global technical changes and shifts of demand and prices.
The lead market concept is an important strategy of the location decision for innovation activities, because multinational firms are still faced with different country-specific demand preferences and market conditions. At the same time, firms in high-tech industries are pressured into introducing global products into the world market in order to reap economies of scale of production and profit from vast R&D investments for new products. This study suggests that multi-national firms can harness lead markets for the generation of global products. Firms that align their innovation activities towards the lead market context can subsequently introduce their innovations successfully in other countries as well. Firms can react at several levels to lead markets: from locating sensing resources in the lead market to assigning R&D tasks within the multinational company to those affiliates which are located in the lead market. By loca-ting R&D units in the lead market and developing and refining innovations in close interaction with the local environment a firm can economize on feedback loops. They can thus lower the risk of locking-in to idio-syn-cratic environments and generate truly global innovations through locally-leveraged innovations.
This project attempts to develop and test a method for the identification of lead markets for certain innovation projects. Firstly, the case of the international diffusion of the cellular mobile telephone industry is studied in detail. Secondly, this case is employed to evaluate the theoretical concept developed by the research team in the past. Through this evaluation process a quantitative method of identifying and predicting lead markets ex ante is to be derived.
Duration: 01.06.1999 - 31.03.2003
- Prof. Dr. Thomas Cleff, Fachhochschule Pforzheim, Pforzheim, DE
Beise, M. (1999), Vom Lead-User zum Lead-Market: Regionale Ausgangspunkte globaler Innovationen, Technischer Vertrieb 1 (5).
Beise, M. (1999), Lead Markets and the International Allocation of R&D, in: Kocaoglu, D. and T. Anderson (eds.), Technology and Innovation Management: Setting the Pace for the Third Millennium, Proceedings of the PICMET ’99 Conference, Vol. 2, Portland.
Monographs, Articles in Anthologies
Beise-Zee, Marian (2001), Lead Markets, ZEW Economic Studies, Bd. 14, Heidelberg/New York.