Climate change mitigation and other pressing environmental needs call for technological innovations in sustainable development. Some efforts to develop "green" technologies are in fact currently being undertaken, mainly in OECD countries and some of the major emerging economies. In addition to environmental objectives, governments and firms increasingly recognize the opportunities to build competitive advantages in the rapidly growing area of green technologies. The lead market concept suggests that certain domestic markets anticipate international demand trends and therefore stimulate innovations (and eventually entire sectoral innovation systems) before competitors do; these markets then become the reference market for others; standards are set here, and demand conditions encourage the development of more sophisticated goods and services, thereby providing local innovators with an early mover advantage. Product sophistication may stem from demanding customers (French or Italian fashion, for example) or new regulatory requirements (Danish wind turbines, German flue gas cleaning technology). The lead market idea is particularly relevant for policy-induced innovation, such as those stimulated by stricter environmental regulations or labels. In any case, these demand and regulatory conditions are more likely to be found within rich economies.

At the same time, overall consumption is growing only very slowly in OECD countries, whereas some population-rich emerging economies are witnessing an explosive growth of consuming middle classes, which is unprecedented in history. It is mainly the emerging economies that add new power plants, factories and other buildings to global stocks; and their share in the world market for cars, consumer electronics and other products is expanding rapidly. In these countries, demand is concentrated on less sophisticated products that are affordable for households that have recently grown out of poverty and who are less demanding in their purchases. Market dynamism thus makes these countries attractive for investors and innovators, but the type of demand calls for "frugal innovations", that is, new low-cost products or processes of "good enough” quality developed for price-sensitive consumers, often with very low profit margins but economies of scale in production. While it may be difficult to place those products in OECD markets, the properties of frugal products suggest they may encounter growing demand in developing countries throughout.