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March 28, 2014

Swimming Upriver: Reverse Innovation

Posted by Puneet Gupta (View Profile | View All Posts) at 6:50 AM


Vijay Govindarajan on Reverse Innovation - Nordic Business Forum 2013 [Source: http://www.youtube.com/watch?v=LM85P1arcNE]

Professor Vijay Govindarajan, who along with General Electric CEO Jeffrey Immelt coined the term "Reverse Innovation" - a.k.a. blowback or trickle-up innovation - says that it has the power to transform every industry, from energy and healthcare to transportation and consumer goods. Yet, outside the quoted-to-death example of GE's wonder ECG machine, real world examples of successful reverse innovation are few and far between. So, is this a case of third world hype or a story of missed opportunity?

Perhaps a bit of both.

Like any other commodity, reverse-innovated products need to find an equilibrium between demand and supply side factors to successfully transition from developing to developed world markets. This means they need to encounter a need that local players in developed markets have not fulfilled because they are either unwilling or incapable of doing so. Also, emerging market firms must keep up a steady stream of innovations and develop an instinct for identifying good "reverse" bets - those with a greater likelihood of acceptance among industrialized world consumers.

Rarely will all these conditions converge into a sweet spot, which explains why reverse innovation is yet to gain traction. But this does not mean the end of the road, merely a question of looking for opportunities where none existed before.

Historically, consumers in developed markets demanded high quality products and paid a premium for them. On the other hand, consumers in low-income emerging markets settled for acceptable quality, at a price they could afford. But the global economic crisis has now created a market for cheaper products even in rich markets. Kiva.org, a non-profit website connecting small entrepreneurs and microfinance institutions in developing nations, took its services to the United States in 2009 where the recession had sparked a need for cheaper loans; beating skepticism, the program succeeded in attracting a large number of new users.

India's Tata Motors, makers of a US$ 2,500 automobile, are planning to introduce the Nano in Europe and the United States where they see potential for their little car. As outlandish as it may seem, the Nano - and many other emerging market manufactures - actually come with a higher "performance for price" proposition than many developed world products. A great - if tragically ironic - example is that of an artificial leg made in Thailand, which is designed to perform in much more demanding rural conditions than its much more expensive western world counterparts.

Niche demands are also creating opportunities in the developed world for reverse-innovated products, at times in unexpected ways. India's innovative entrepreneurs have designed a solar-powered battery charger to meet the needs of a country with burgeoning mobile demand, abundant sunshine, and a huge shortage of electricity. In the United States, the same device functions as a portable mobile phone charging unit for outdoor enthusiasts.

But even as the emerging world focuses on reverse innovation, there's a case for the industrialized one to look at it seriously, and not just from a consumption perspective. Multinational developed world organizations should look at tapping this opportunity for themselves by setting up research and (reverse) innovation centers in low cost destinations. As counterintuitive this might appear, their provenance could even put them at an advantage in identifying the products from emerging markets with the greatest likelihood of success at home.

Comments

An interesting example in this regard would be the successful Metal Mayhem puzzles on ProfessorPuzzle. A travelling Brit found a street vendor in Kolkata selling simple horse shoe type metal puzzles that he was hammering out at his roadside shop. He brought the idea back to the UK market, improvised the products and created a range of metal puzzles. From the visibility of its products on the internet, clearly the simple idea from the Kolkata street vendor was a powerful one.

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