Global Movement of Innovation and the Long Tail to Export Markets

In looking at global trade, we usually focus on the cross border movement of goods and services, but one of the most prolific drivers of the new economy is the globalization of innovation.  There are profound changes in globally integrated commerce resulting from the development and adoption of new business models that expand and accelerate a company's ability to effectively reach farther and broader markets.

An example of one of these new business models was highlighted with the award of the Nobel Peace Prize two weeks ago to Muhammad Yunus and his Grameen Bank.  An unusual recipient of the peace prize, Yunus and the bank won as a result of their efforts to make small loans (known as micro-credit) to poor and largely rural residents in India.  Needless to say, this is a market that is not serviced by typical banks as the amounts to be lent cannot possibly justify the bank administration fees, to say nothing of an innate fear of out-sized loan defaults.   The Grameen Bank was able to overcome these obstacles through an unconventional method of delivering small loans and building an intimate community with each borrower resulting in even higher than usual loan repayment.  The peace angle is that even these small amounts of money can make a huge difference in the positive development of impoverished communities.

As discussed in a post entitled "Peace and Entrepreneurship" on John Hagel's Edge Perspectives blog, this business model innovation is an extension of the Long Tail, a name originally coined by Chris Anderson in an article in the October 2004 edition of Wired magazine.  The essential idea here is that traditional businesses are driven to focus on the central portions of a normal distribution where they can get the biggest bang for the buck.  They ignore the outlying markets where there is not enough population density or not enough income to justify the marginal expense of accessing or servicing those markets.   Because of the long reach of the outlying tail of the normal distribution, all of these outlying markets taken together represent a sizable opportunity which is being largely under-served by traditional business models.  Accordingly, if a company can figure out how to access these markets in an efficient manner they will be the dominant player in a potentially huge market largely unaffected by existing competition -- a desirable place to be.

In order to accomplish this, a business must figure out how to centralize its internal functions so as to greatly reduce unit costs for carrying the inventory necessary to service a broad and diverse  market while decentralizing external functions so as to permit effective community building customer service at a reasonable per customer cost.   

Amazon and Netflix are typically cited as exemplars of this Long Tail business model.  It is similar forces, however, that has enabled so many small businesses to reach global markets in this internet enabled age.  Access to customers and customers' access to information have developed to the point that a company that might have a hard time competing against global behemoths in the most popular target markets can exploit smaller markets, which together can add up to a very attractive export opportunity.