Schooled by China and India

What US tech companies can learn about innovation from abroad. Hint: it isn't just about cheap labor.

EMAIL  |   PRINT  |   SHARE  |   RSS
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all RSS FEEDS (close)
By Stephanie N. Mehta, assistant managing editor

NEW YORK (Fortune) -- It would be a groundbreaking deal if consummated: According to press reports, telephone operator Sprint is in serious discussions with Telefon AB L.M. Ericsson to outsource management of its wireless network to the Swedish equipment maker. If finalized, the arrangement would make Sprint (S, Fortune 500) the first major U.S. wireless operator to cede total maintenance of its network to a third party consultant.

But in parts of Asia, outsourcing whole swaths of a tech business is old hat. India's leading wireless operator, Bharti Airtel, for example, does little more than set strategy and handle marketing and sales of phones and service. Contractors, including Ericsson (ERIC) and IBM (IBM, Fortune 500), take care of running and upgrading the actual phone network, operating call centers and other day-to-day operations.

Global consultant John Hagel expects to see more U.S. companies plucking ideas from their international counterparts. Hagel, co-chairman of Deloitte Consulting's Center for Edge Innovation, says Asian companies have started to implement some innovative management ideas that could resonate in the United States. And while many of these ideas on the surface seem like cost-cutting initiatives, Hagel says they also give tech companies flexibility and leverage, two things that benefit companies in good times and bad. "Chinese and Indian entrepreneurs understand that the only way to get scale is to be very modular in terms of how you define activities," Hagel says.

He cites the example of motorcycle manufacturers in Chongqing, where groups of parts makers, designers and other suppliers come together on an ad hoc basis to build a line of products. Unlike more formalized supply chains, such as those in Japan, the suppliers and vendors in China's motorcycle circles aren't bound to one another: They can leave the alliance at any time or forge new relationships. Some analysts liken this structure to the U.S. movie industry, where artists and craftsmen work together on a project-by-project basis, but in China the relationships are even less formal, allowing the motorcycle maker to add (or subtract) capabilities midway through a production cycle.

In India, on the other hand, Hagel notes that companies use loose networks for distribution. Instead of trying to open offices in every rural village in India, banks, telcos and other retailers find ways to partner with community groups and even each other to extend their reach. "On one level, [western companies] have gotten into trouble because we've been so focused on financial leverage," Hagel muses. "There's a different kind of leverage that these Asian companies are pioneering: How do you connect with your customers without having to do it all yourself? "

India's outsourcing giants have jumped on the innovation bandwagon, too. Wipro (WIT), for example, has started a division to help its customers with research and development. A few years ago tech companies would have blanched at the idea of outsourcing R&D. (Then again, it was pretty unthinkable until recently that a U.S. carrier would outsource its network.) But Wipro executives say they've had some successes, most notably with telecom customers, but also with computer and electronics companies.

Co-CEO Girish Paranjpe has said the company often wins business because it can bring, say, telecom R&D expertise to a non-telecom customer: It recently successfully helped a medical device maker, for example, add wireless monitoring capabilities to a product.

And while many U.S. companies may turn to their Asian counterparts for inspiration as a way to cut costs and bolster flagging businesses (Sprint this week said it lost more than 180,000 net subscribers in the first quarter of the year), Hagel maintains that international companies have much more to offer than cost-cutting solutions. "These companies are finding new ways to organize large networks. They often have to deal with challenging business problems, and they come up with some very creative solutions," he says. "This is innovation." To top of page

Company Price Change % Change
Ford Motor Co 8.29 0.05 0.61%
Advanced Micro Devic... 54.59 0.70 1.30%
Cisco Systems Inc 47.49 -2.44 -4.89%
General Electric Co 13.00 -0.16 -1.22%
Kraft Heinz Co 27.84 -2.20 -7.32%
Data as of 2:44pm ET
Index Last Change % Change
Dow 32,627.97 -234.33 -0.71%
Nasdaq 13,215.24 99.07 0.76%
S&P 500 3,913.10 -2.36 -0.06%
Treasuries 1.73 0.00 0.12%
Data as of 6:29am ET
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.