Key capabilities for frugal innovation in developed economies: insights into the current transition towards sustainability

Frugal innovation has become a requirement for success in resource-scarce environments, a situation that the COVID-19 pandemic has exacerbated. In this context, the literature has developed several frugal innovation approaches for promoting sustainability, but there is no a widely accepted theory nor a predominant paradigm given the incipient and relatively new nature of a research domain that requires further studies. There is also a high potential for under-exploited markets, represented by low-income consumers who no longer concentrate on developing countries and where there is a cumulative number of consumers with minimal spending capacity, rising income distribution inequality, and the increasing polarization of wealth and risk of poverty. This paper contributes to the literature by examining from a Resource-Based View perspective, the critical role of two key organizational capabilities, namely market-focused learning and organizational ambidexterity, to develop firms’ innovation capability in low-end markets due to the unique characteristics of these markets. In doing so, the study employs partial least squares structural equation modeling (PLS-SEM) with a sample of 190 manufacturing firms to provide empirical support to our theoretical predictions that establish that: (1) market-focused learning capability drives organizational ambidexterity, (2) market-focused learning capability and organizational ambidexterity foster organizational innovation capability, which, ultimately, affects cash flow, and (3) market-focused learning capability has a stronger effect on organizational innovation capability in low-end markets. Contrary to our expectations, organizational ambidexterity has a stronger impact on organizational innovation capability in non-low-end markets, considering that this is the first step to shed light on this issue.