In the days of the rudimentary pistol, unlucky shooters were now and then hurt when unburned gunpowder escaped backward toward their faces. They came to describe this unpleasant experience as "blowback," a term that has subsequently gained wider application in military affairs—to any event that turns on its maker.

Blowback is an apt term for the unexpected consequences of the investments that Western companies have made in emerging markets. Since first entering them several decades ago, and to a remarkable extent today, these companies have tended to view them in what Kenneth Lieberthal and C. K. Prahalad¹ call "imperialistic" terms: as a beguiling mix of increasingly prosperous consumers and limitless pools of low-cost labor. Here, the thinking goes, companies can expect to harvest the fruits of the R&D and innovation skills painstakingly developed in their home countries.

That view is dangerously complacent. The very presence of Western intruders and the competition they create have inspired the emerging world's companies to raise their game in response. Far from being easy targets for exploitation, emerging markets are generating a wave of disruptive product and process innovations that are helping established companies and a new generation of entrepreneurs to achieve new price-performance...