Abstract With the changes in the global environment, emerging markets seek opportunities in the slits, and the prevailing frugal innovation theory provides ideas for the rise of emerging markets under the background of diversification and resource scarcity. Based on the Kilimall case, this research uses the procedural grounded theory to analyze how companies break through the resource constraints, consumer affordability constraints and institutional constraints in the emerging markets from the perspective of resource-capacity and frugal innovation, and form a unique ability to advance the evolution mechanism. The research finds that: (1)the integration mechanism of resource capability and frugal innovation can be interpreted as five sequential stages of identifying opportunities and constraints, determining the dominant logic of the enterprise, resource-capacity interaction, and achieving different levels of frugal innovation construction, with stage positive feedbacks before entering the next cycle. In this cycle, the core goal is to build a sustainable competitive advantage of the company. (2)The evolution stage of the frugal innovation can be decomposed into three levels: circuit innovation, industrial chain innovation, ecological system innovation. The innovation level gradually expands from point to surface. (3)Enterprises always focus on the development and sustainable competitive advantages for the evolution of innovation and resource-capacities. Innovation and resource actions at different stages will accumulate different levels of ability, forming an advanced process of “zero-order capacity, first-order capacity, and second-order capacity”. This paper aims to enrich the frugal innovation theory, and provide reference and inspiration for Chinese companies entering emerging markets for frugal innovation.
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