Frugal Innovation as a Tool for Competitive Advantage in the Informal Business Sector

This chapter explores the role of frugal innovation (FI) as a tool for competitive advantage in the informal business sector of BRICS+ nations, which represent both developed and developing economies. The informal economy is a prevalent feature of many developing nations, therefore understanding how small and medium enterprises (SMEs) maintain competitiveness within this sector is crucial. A multiple case study approach was employed to examine frugal innovations in the informal business sectors across BRICS+ nations. The research utilizes the Type II case study method, focusing on FI and dynamic capabilities through multiple case comparisons. Secondary data from various sources, including case studies and company reports, provided insights into how FI contributes to the competitive advantage of SMEs in resource-constrained environments. The findings highlight that SMEs in the informal sector leverage frugal innovation through key dimensions such as resource constraints, improvisation (bricolage), cost reduction, ease of use, focus on core functionalities, and optimized performance levels. These dimensions enable SMEs to adapt to challenging environments, meeting the needs of underserved markets with affordable and practical solutions. The competitive advantage is achieved through the ability to innovate with minimal resources while maintaining operational efficiency and market accessibility. The implications of this study are significant for policymakers and business leaders in both developed and developing countries. By fostering frugal innovation, governments and stakeholders can support the growth of the informal economy, particularly in resource-constrained environments. The study recommends that SMEs continue to focus on frugal innovation as a strategic tool for achieving a competitive advantage through agility and flexibility. Furthermore, policy frameworks that support innovation in the informal economy should be developed to enhance the potential of SMEs in these sectors. This chapter contributes to the literature on competitive advantage, particularly from the perspectives of the resource-based view (RBV) and dynamic capabilities view (DCV). It offers a unique lens through which to understand how SMEs in the informal business sector utilize frugal innovation to remain competitive, agile, and flexible amidst resource constraints. The insights from BRICS+ nations provide valuable lessons for other economies facing similar challenges, demonstrating the potential of frugal innovation to drive growth and sustainability in the informal economy.