Emerging economies leapfrogging on sustainability

by Terence Jeyaretnam

In Australia, sustainability is still perceived by many as an unnecessary bottom line expense tagged to good corporate citizenship and responsibility rather than offering business a strategic competitive advantage. Therefore, it may come as a surprise to Australians (and for that matter most developed countries) that emerging economies are indeed gearing up to leapfrog their developed counterparts on innovation through sustainability.

The term ‘leapfrog’ originated in the context of Joseph Schumpeter’s theory that companies holding monopolies based on incumbent technologies have less incentive to innovate than potential rivals. This sees them eventually lose their technological leadership role when new radical technological innovations are adopted by new firms, which are ready to take the risks. Similarly, companies in emerging economies are starting to leapfrog their counterparts in developed countries accelerating development by skipping inferior, less efficient, more expensive or more polluting technologies and industries and moving directly to more advanced ones. Indeed a recent study by Sustainia on the top 100 global sustainable technologies found 55 of them came from emerging economies.

Developing Value: The business case for sustainability in emerging markets, a 2002 study by SustainAbility, International Finance Corporation (IFC) and Ethos Institute on 240 case studies from 60 developing countries found the most significant opportunities available through actively pursuing more sustainable approaches to business are to:

  • save costs by making reductions to environmental impacts and treating employees well;
  • increase revenues by improving the environment and benefiting the local economy;
  • reduce risk through engagement with stakeholders;
  • build reputation by increasing environmental efficiency;
  • develop human capital through better human resource management; and
  • improve access to capital through better governance.

A 2013 Harvard Business Review Article highlighted four themes in sustainable innovation in emerging market businesses:

  • Taking a systems approach – businesses in emerging markets are more readily recognizing that nurturing the system leads to riches over the longer term. An example presented is Zhangzidao, a fishery in China that is harvesting from a balanced ecosystem rather than following the more traditional single-species approach.
  • Taking the low-tech road – unlike their counterparts who retrofit tail-end pollution prevention technologies at a higher cost, businesses such as Shree Cement in India are reducing unit costs with low-risk, high-return energy efficiency measures.
  • Taking a broader view – businesses at the bottom of the pyramid (BoP) are creating shared value by boosting both their bottom line whilst enhancing broader socio-economic value. An example that I’m familiar with is Dialog in Sri Lanka. Dialog in partnership with the IFC, seeded a retailer network of 1,200 social entrepreneurs (termed ‘Five Star Partners’) who in addition to functioning as retail points of presence for the company’s products and services, also build capacity at the BoP to enable greater levels of technology adoption.
  • The rewards and risks of pioneering – in a world of scare resources, companies such as Sekem, Egypt’s first organic farm established in 1977 with sustainable practices that enabled reclaiming arable land, are seeing the rewards of their pioneering efforts as demand for organic production surges worldwide.

Let’s hope that this leapfrogging continues to accelerate and we take heed for our businesses, our economy and our environment before it’s too late.

Sustainia100: A guide to 100 sustainable solutions, Sustainia, 2013
Making sustainability profitable, Kunt Haanaes, David Michael, Jeremy Jurgens and Subramanian Rangan, Harvard Business Review, 2013
Developing Value: The business case for sustainability in emerging markets, SustainAbility, International Finance Corporation and Ethos Institute, 2002


Terence Jeyaretnam is a Director of Net Balance (terence@netbalance.com), 
one of the world’s leading sustainability advisory firms.
Terence is based in Melbourne.

Twitter: TerenceJey

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