The Red Herring Blog provides three reasons:
First, countries that don’t have existing infrastructures, legacy systems, or extant markets leaders can adopt radically innovative technologies more quickly than advanced nations. In colonial America, constant labor shortages encouraged entrepreneurs to adopt technologies much more rapidly than their Europe counterparts. The result could be seen in 19th century high-tech centers (the Lowell cotton mills, for example), and in a broader view of technology as a source of strategic advantage.
More recently, cell phones have taken off in countries that had poorly-developed or slow-moving, government-run phone systems; some countries may leapfrog landline systems completely, and go straight from word-of-mouth to short messaging service (SMS). Many alternative energy technologies in the U.S. are sold as “premium power” solutions for small functional niches, and don’t try to compete against well-established utilities. In countries with poor or nonexistent power grids, in contrast, small-scale power generation, and wind power, biomass, and solar power are serious players.
Second, the best products created for these markets can have global reach. Chinese appliance manufacturer Galantz, for example, has created a large market by developing kitchen products for middle-class Chinese, whose kitchens are cramped and can’t handle the power requirements of bigger Japanese, European, and American appliances. Those products fit in kitchens all over the world and Galantz now has a 35 percent share of the global microwave market.
Third, companies serving the poor are going to be the future’s lean, mean multinationals. In the 1950s, Japanese companies like Honda and Sony were producing products for what was essentially a third world country their own domestic markets, which were still rebuilding after being destroyed in World War II. The products these companies created were cheap and robust, and provided the means for establishing a place in European and North American markets: they could sell proven goods there for prices far lower than better-known local companies.
Today, the wheels continue to turn. Japanese companies still do well in advanced markets, but are facing severe challenges in developing countries like India and Brazil. Korean giants Samsung and LG, for example, have proved serious competitors to Sony in consumer electronics and cellular phones in part because until recently Korea was itself a developing country.