The ripple effect of disruptive innovation

LAHORE: Disruptive innovation has reshaped industries in the developed world, often leading to the complete elimination of entrenched companies. In Pakistan, however, this phenomenon is still in its infancy, with limited impact on established corporations.

In the US, the Fortune 500 list is renowned for its dynamic turnover, driven by the rise of disruptive innovators. As of 2023, only about 52 per cent of companies from the year 2000 remain on the list. The rest were displaced due to acquisitions, bankruptcies, or failure to adapt to technological advancements. Companies like Amazon, Tesla, and Meta (formerly Facebook) have surged ahead, underscoring the transformative power of disruptive innovation.

In contrast, Pakistan’s corporate landscape remains relatively stagnant. A significant majority of companies listed in 2000 are still present, reflecting limited market dynamism. This stagnation is attributed to factors such as insufficient venture capital, low investment in research and development (R&D), cartelisation, protectionist policies that stifle competition, and the limited global reach of Pakistani firms.

Disruptive innovation thrives in industries ripe for change, especially where complacency among incumbents prevails. It often creates entirely new markets or transforms existing ones, as seen in the case of ride-sharing apps disrupting traditional taxis. Meanwhile, incremental innovation drives success in established markets by offering gradual improvements to products or services, such as better fuel efficiency in automobiles.

Developing economies have the potential to disrupt developed economies by combining innovation, cost advantages, and scalability. India’s Byju’s, for instance, has revolutionised global education technology with its online learning platformme. Similarly, Xiaomi from China has disrupted global smartphone markets by offering high-quality yet affordable products.

In Pakistan, several companies have emerged as successful disruptors, leveraging technology and addressing local challenges:

Although not consumer-facing, Interloop disrupted global markets by becoming one of the largest hosiery manufacturers worldwide. Its technology-driven approach and emphasis on sustainability have set new benchmarks in Pakistan’s textile industry and elevated the country’s profile in global value chains.

By leveraging motorcycles, Bykea provides affordable transportation, courier and delivery services, addressing urban challenges such as traffic congestion and high fuel costs. It has disrupted ride-hailing and courier services, particularly among middle- and lower-income segments underserved by some app-based ride-hailing companies.

easypaisa introduced branchless banking and mobile wallets in a predominantly cash-based economy, offering financial services to the unbanked, especially in rural areas. JazzCash followed, intensifying competition and driving the adoption of mobile payments.

By combining technology with financial solutions, Finja has introduced digital lending to small and medium enterprises (SMEs) and individuals, bypassing the traditional banking sector’s slow and complex processes. It has helped small businesses access quick loans, filling a critical gap in financial services.

As a pioneer in e-commerce, Daraz introduced online shopping to a market dominated by traditional retail. Its wide product range, convenience, and marketing strategies disrupted brick-and-mortar stores and spurred the growth of digital shopping, leading to competition from platforms like Telemart and Shophive.

By digitising real estate listings and transactions, Zameen[dot]com transformed a market historically reliant on informal brokers. The platform offers transparency and easy access to property information, revolutionizing the way people buy, sell, and rent properties in Pakistan.

These companies have sounded alarm bells for entrenched players by leveraging technology, addressing underserved markets, and offering convenience, transparency, and cost efficiency. While some drew inspiration from global models, their adaptation to local challenges and consumer needs positioned them as successful disruptors in Pakistan.

In the US, several Fortune 500 companies failed to survive disruptive forces, including Enron (energy), Lehman Brothers (finance), Circuit City (electronics), Blockbuster (video rentals), and Kodak (partially restructured as a smaller company). These examples highlight the transformative -- and unforgiving -- nature of disruptive innovation.