A reverse innovation, very simply, is any innovation likely to be adopted first in the developing world. Increasingly we see companies developing products in countries like China and India and then distribute them globally. In contrary Glocalization (made up of two words Globalization and Localization) where in the innovation are done in the developed country and then distribute them worldwide, with some adaptations to local conditions has been the strategy for the MNCs for growth across the world. It allows multinationals to make the optimal trade-off between the global scale so crucial to minimizing costs and the local customization required to maximize market share. Glocalization worked fine in an era when rich countries accounted for the vast majority of the market and other countries didn’t offer much opportunity. But those days are over—thanks to the rapid development of populous countries like China and India and the slowing growth of wealthy nations.
VG (Vijay Govindrajan, Professor of International Business and Consultant of General Electric ) and Jeffery Immelt, CEO of GE who are the pioneers of this concept has explained the evolution of this concept in General Electric. Following this concept General Electric announced that over the next six years it would spend $3 billion to create at least 100 health-care innovations that would substantially lower costs, increase access, and improve quality. Two products it highlighted at the time—a $1,000 handheld electrocardiogram device and a portable, PC-based ultrasound machine that sells for as little as $15,000—are revolutionary, and not just because of their small size and low price. They’re also extraordinary because they originally were developed for markets in emerging economies (the ECG device for rural India and the ultrasound machine for rural China) and are now being sold in the United States, where they’re pioneering new uses for such machines. This is how the reverse innovation is working and believed to be the future for the growth of the MNCs.
The fundamental driver of reverse innovation is the income gap that exists between emerging markets and the developed countries. There is no way to design a product for the American mass market and then simply adapt it for the Chinese or Indian mass market. Buyers in poor countries demand solutions on an entirely different price-performance curve. They demand new, high-tech solutions that deliver ultra-low costs and “good enough” quality.
Reverse Innovation has evolved in following four phases:
Phase 1 — Globalization —Multinationals built unprecedented economies of scale by selling products and services to markets all around the world. Innovation happened at home, and then the new offerings were distributed everywhere. For instance, Xerox Corp. developed big, bulky, expensive copiers for U.S. consumers; it then sold them in Europe through its subsidiary Rank Xerox and sold them in Asia through its subsidiary Fuji Xerox.
Phase 2 — Glocalization — In this phase, multinationals recognized that while Phases 1 had minimized costs, they weren’t as competitive in local markets as they needed to be. Therefore, they focused on winning market share by adapting global offerings to meet local needs. Innovation still originated with home-country needs, but products and services were later modified to win in each market. To meet the budgets of customers in poor countries, they sometimes de-featured existing products. For instance, McDonalds changed its menu in India to include a lamb burger while still maintaining its core global product platform.
Phase 3 —Local Innovation — In this phase, the first half of the reverse innovation process, multinationals are focusing on developing products “in-country, for country.” They are taking a “market-back” perspective. That is, they are starting with a zero-based assessment of customer’s needs, rather than assuming that they will only make alterations to the products they already have. As teams develop products for the local market, the company enables them to remain connected to, and to benefit from, global resource base. For instance GE is using this concept for development of the low cost ECG machine.
Phase 4 — Reverse Innovation — If Phase 3 is “in country, for country,” Phase 4 is “in country, for the world.” Multinationals complete the reverse innovation process by taking the innovations originally chartered for poor countries, adapting them, and scaling them up for worldwide use.
Now after understanding the concept of this reverse innovation I would like to apply this on micro level in our country. Take an example of TATA NANO which was developed for the two wheeler rider who can not afford to have four wheeler. But now this is planed to launch TATA NANO in European market with the name of TATA EUROPA.
I want to through one question to my audiences that is there any way where in we can use the innovation to cater the demand of low income group and then escalates them for the upper segment market too.
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