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Assignment on Reverse Innovation
Student Name – Piyush Goyal MMU ID - 12107092
Table of Content 2 .
PIYUSH GOYAL 12107092 3 .
1. Later on it will be focusing upon how Emerging Market Multinational Enterprise (EMNE) and DMNE participate in the dispersion process of reverse innovation and how their innovation helps in knowledge development and economic growth. Researcher have found that Developed Market Multinational Enterprise (DMNE) are investing their R&D 90% in developed country and 10% in emerging country since late 2004 to capture Knowledge and innovate all around the world which give possibility of innovation at emerging market and then flowing to developed market. which means its being flowing from developing to developed countries. This paper will able to answer about why innovation travel from developing to developed country now but not before. Tata Nano and Grameen Bank (Micro Finance) are some examples of trickle up innovation. which was firstly used in Bangladesh. is now used in USA for funding inner poor city in the country and they have 4 branches with over $56 million loan and now are being joined by big bank like Citigroup (Chad O’Connor. This paper will focus upon Reverse Innovation. While when innovation is done in developed country like UK and USA and is been spread to developing / emerging countries like India and china then its called trickle down Innovation.Reverse Innovation Its been seen that innovation is been flowing from rich country to poor country since last two century. But in last one decade we have seen innovation is flowing from poor country to rich country totally opposite of before. It will also talk about competitive advantage of firms coming from emerging market over developed market. 2012). Innovation in emerging market will be more recognized then innovation at developed market. Social enterprises are being important in developed countries like 4 . As we can see the use of Grameen bank facility. which is said to be Reverse Innovation. Bharti Airtel wireless telephony.Introduction Innovation is said to be important pillar of multinational enterprises and is anticipated that innovation is originated from developed countries where all the Multinational firms are located. In few decades it has been seen that Developing and emerging countries also contributes in innovation. Rich country wants innovation from poor country since there are many people who are being frustrated due to decline in their income level and graduates students are being unemployed. 2.
3. Reverse innovation mainly see where the innovation is first adopted and brought into use it doesn’t see where it is developed further and brought into use. DMNE targeted people before were of premium segment but their realization about the consumer needs in emerging 5 . Innovation done is being flowed to developed country and is developed as per their need. 2010) In emerging country per capita income of the consumers are low so they want the product. In Emerging country per capita income of the consumers are low so they want the product which are cheaper and with improved features which crates the possibility of affordability innovation in emerging market. Its explain that innovation can also happens in emerging country and then can “trickle up” to rich countries as well. which gave them the technological path for innovation.PIYUSH GOYAL 12107092 USA to fight against recession and European Union to cope up with the ongoing Recession (Felicity Carus. Innovations done by emerging country are not technological but are done as per the demand of the public and for solving their local problem. which are cheaper and with improved features which creates the possibility of affordability innovation in emerging market. which is being carried by local firm or any foreign MNE in emerging market. which have raised higher chances of innovation in emerging countries then prior period. They innovate through combination of existing knowledge and technology. DMNE are targeting emerging market seeing the GDP growth.Why Innovation Trickle up from Poor to Rich Country Industrial backward countries are competing and catching up in emerging market as well as developed market like India and China. As we can see in the case of General Electrical ultralow cost ultra sound was firstly innovated in china. MNE were not able to enter due to FDI restrictions in prior periods but now globalization and internationalization have opened the way for them and DMNE can participate in innovation process. There are factors. Bharti Airtel’s innovation like ultracheap wireless telephony was not possible before liberalization of India. Rise in Gross Domestic Product of the emerging market has been seen in last decade and in present time it is increasing with a great pace and it will share the 2/3 of the world GDP in coming decade.
which is world cheapest car. Secondly EMNE enjoys the first mover advantage in their country since due to restriction and barriers in entry of FDI in the country. 2012). 4. Emerging markets firms relays too much on the advantage of their country and moreover they depend on their general knowledge and technological skills. 6 .Competitive Advantage of firms from Emerging Market Reverse innovation says about flow of innovation and technology from emerging to developed country so it has arises many questions like how ownership advantage will be enjoyed by EMNE over DMNE and how will this capabilities will lead them to internationalization process will EMNE exploits its current knowledge by going abroad or they acquire new knowledge (Mathews. MNES in emerging market have fewer prior investment then DMNE and have a presence of patient capital with them. which added to the local innovation of emerging market.countries made them to innovate in emerging markets. was produced in India as per the need of poor and middle class family (Chad O’Connor. low cost manufacturing cost and needs of the consumer which will give them competitive advantage over DMNE in knowing people more and having a deep understanding about them. 2006). The creation of Tata Nano was one example. Like portable ECG machine opened a new market for GE to compete. EMNE enjoys the advantage of utilizing resources and benefits to full. Narula. Innovation has three process stage firstly it is adapted in the emerging country like India and china. Its been seen that EMNE has great knowledge about the consumption pattern of their country. New features developed for emerging market can trickle up its innovation to developed country by creating new segments for developed countries. Secondly its being shared with other developing and emerging countries and lastly transferring to developed country as well. which challenged DMNE about their innovation and technological skill. Tata Nano is one example. 2002. Innovation can trickle up to rich country if they have a market and product that can meet poor people demand of rich country. Example reduction in the price of the product by 70 to 90 % example general electrical innovation which reduced the price and made it fall by 70 to 80% in USA.
5. Both the enterprise has equal sharing and presence in emerging market since EMNEs innovate which are well suited and are based as per their needs and requirement and are therefore easy to innovate and share with them. MNEs have high prospect of getting more profit by moving to developed counties later on.PIYUSH GOYAL 12107092 MNEs from emerging market have pricing pattern and same product.How do EMNEs and DMNEs compete in diffusion process of Reverse Innovation? Reverse innovation is diffused by EMNEs and DMNEs in three stages. Second stage says about how EMNEs and DMNEs share innovation in other emerging market. While in the second hand side DMNEs have great presence in the world and have brand recognition all over the world so they also contribute and share much larger market in emerging market. First stage will talk about the advantage that EMNEs have over DMNEs. which is well suited to other emerging market consumer as well which gave them the competitive advantage over the DMNEs in other emerging market too. Thus to be in the market they have to change and adapt the new plans and strategies of the business so that they don’t deviated by the local firms and EMNEs. EMNEs have first mover advantage in the emerging market and are well known about the market as paper discussed earlier and have fewer restrictions on the same side DMNEs have challenges like zero–based innovation for the foreign market though they have big pockets and technology with them. MNEs from emerging market don’t have any internal resistance to expand their product and market and are well aware and unconstrained about risk and investment of launching product in new market. Last but the third stage says about winning in developed country of 7 . For Ex we can see the case of telephone service in India 95% people use pay as you go top up since they have less income and now it is been used all over the world peoples in USA are cancelling their AT&T and Virgin contract to cut of their expenses and Law street journal stated that out of four American one has Switched to prepaid plan. EMNEs have large and powerful market and understanding of local surrounding thus they will be patient about their strategies and plan and on the same hand side DMNEs though have larger share in the whole world wont be able to cope up with near surroundings.
which help in improving the market and increase the competition in market by making it more saturated and clear for business. Spillover effect is seen moreover more in emerging market since local suppliers and firms get to know about the technology and new methods of carrying business innovation by exploiting their recourse to full in a sustainable way. which got boomed in developed country and now nestle has launched its product in Australia and NewZealand which has opened new market for their products. which relates to FDI spill over which DMNEs has on emerging market. There spillover effect can be both negative and positive in developing countries. at that time they have to change their technology and business practice and adopt methods use by the local firms or changes their business model and try to know how they sell. Reverse spillovers is that in which DMNEs learns from customers.the world. In this challenges behind DMNEs are placing reverse innovation against existing offers and to manage the threat of cannibalization where they share a large market and presence and have brand recognition in rich country of the world. It happens only when DMNEs feels they are being suppressed by the local firm and they are falling behind the market demands.How both EMNEs and DMNEs innovation contribute to knowledge development and economic growth The last area where Reverse innovation raises questions. customers and suppliers. They also help local firms in knowing about international standards to carry business in developed market as well like Bharti Wal-Mart in India. Reverse innovation also helps in transferring of knowledge from DMNEs to EMNEs and vice versa which can be beneficial for both of market. For example Nestle produced noodles for emerging market. and management practices. DMNEs also remove the local firms. suppliers and local firms in emerging market about their new business model. new technology. which removed the small local suppliers and set the equal pricing standards for all the local business. Positive spillover relates to enhancing of local competitor. 6. produce and design product according to the customers like McDonald’s learned from Indian market when they first launched their products they were not successful since they used beef burgers as very less amount of people eat beef in India but later on they 8 . Negative spillover are closing down of local firm and crushing of their local technology.
Innovation activity in poor countries are being lad by EMNEs and more of innovation activity are going to be seen in much more poor countries. Reverse innovation helps both the country weather its poor or rich in economic Growth of the country since there is presence of poor people in rich countries also and there is presence of rich people in poor countries also as we can see some example like innovation of Grameen bank and Tata Nano. Rich country forgets to target people who are poor thus Grameen bank facility helps them to finance and fund peoples in poor village. Reverse spillover can be also seen when EMNEs invest in developed country to grab intangible assets like brand and technology to be known in world-class clusters (Mathews. Aulakh. Reverse innovation and Transfer of Knowledge helps in economic growth of the country in both the country i. Firstly innovation was not seen due to lack of knowledge and transparency in the business but now its clear and government has become flexible in inviting MNEs to their country. Innovation is being shared in emerging market first and then it trickles up to developed or rich country. which are carrying innovation activity.e. Reverse innovation will help emerging market to grow and compete with the developed market 9 . Poor countries contribute more then the rich countries in GDP of the world and will raise more in coming decades. On the other hand side it helps poor country to develop company R&D department and it also helps in increasing the global awareness of the people in poor country by increasing the education level of people.PIYUSH GOYAL 12107092 changed their food product according to Indian culture. 2002. poor or rich. Innovation from emerging markets has much more value and recognition. Reverse innovation also helps in knowledge transfer between DMNEs and EMNEs. 7. Which itself will contribute in development of the economy and rise in per-capita income of the country. 2007. Innovation is first led my EMNEs and then are followed and taken by developed countries. EMNEs has large competitive advantage then DMNEs due to their knowledge about the local market and suppliers. luo and tung 2007). which is been seen since last one decade and will continue to rise since they have higher presence of the consumers.CONCLUSION Reverse innovation is the present trend.
uk/sustainable-business/reverse-innovation-social-solutionshome 10 .guardian.com/business/blogs/global-businesshub/2012/12/reverse_innovat.co.http://www.boston.html http://www.
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