Reverse Innovation – Definition and Examples

What is Reverse Innovation?

Reverse Innovation is the strategy of innovating in emerging (or developing) markets and then distributing/marketing these innovations in developed markets. Many companies are developing products in emerging countries like China and India and then distributing them globally.

Examples of Reverse Innovation:

Tata Motors – Tata Nano

While companies like Ford set up its global automobile platform in India and catered to the niche premium segments in India, Tata introduced the Tata Nano for the price conscious consumer in India in 2009. Tata plans to launch Tata Nano in Europe and U.S. subsequently.

GE – GE MAC 800

GE’s innovation on the GE MAC 400 to build a portable low-cost ECG machine to cater to the rural population who cannot afford expensive health care was launched as an improved version a year later in 2009, in U.S. as MAC 800.

editions of its Windows operating system. Nestle – Low-cost. low-fat dried noodles developed for rural India and Pakistan found a market in Australia and New Zealand as a healthy and budget-friendly alternative. Microsoft – Starter Edition Microsoft is using its Starter edition’s (targeted at not so technically savvy customers in poor countries and with low-end personal computers) simplified help menu and videos into future U. Nokia – New business models .S.Procter and Gamble (P&G) – Vicks Honey Cough – Honey-based cold remedy P&G’s (Vicks Honey Cough) honey-based cold remedy developed in Mexico found success in European and the United States market. low-fat dried noodles Nestle’s Maggi brand – Low-cost. Xerox – Innovation Managers Xerox has employed two researchers who will look for inventions and products from Indian start-ups that Xerox can use for North America. The company calls them as ‘innovation managers’.

Nokia also incorporated new features in its devices meant for U. LG – Low-cost Air Conditioners (AC) South Korea based LG Electronics (LG) planned to develop low-cost air conditioners targeting the middle and lower-middle classes in India. customers after observing phone sharing in Ghana. power or boiling and uses paddy husk ash as a filter.S. Their goal . The company has also received seed capital from Shell foundation in 2009 to scale up operations. Tata – Swacch – World’s cheapest water purifier Swacch means clean in Hindi.Nokia’s classified ads in Kenya are being tested as new business models. Hewlett-Packard (HP) – Research Labs in India HP intends to use its research lab to adapt Web-interface applications for mobile phones in Asia and Africa to other developed markets.000) by using locally grown rice husks to produce electricity (a unique and costeffective biomass gasification technology). It also uses silver nanotechnology. It can give purified water enough to provide a family of five drinking water for a year. Tata launched the water purifier – Tata Swacch targeting the rural market in India with the cheapest water purifier in the market. Husk Power Systems In India. The company feels it will open a whole new market. Husk Power Systems brings light to rural population (over 50. The product does not require running water.

It is about innovating in poor countries and bringing those products into rich countries. of late. India and China. So. There was an outbreak of cholera in Bangladesh in the 1960s (the country used to be called East Pakistan in those days). He was ranked #3 on the Thinkers 50 list of the world’s most influential business thinkers. Q: What does the term reverse innovation mean? How did you end up coining the term? A: Historically. After all. the Godzilla of sports drinks. Meanwhile. is an expert on strategy and innovation. Innovations are flowing from the poor countries to the rich. . Innovations are flowing in the opposite direction. came from an unlikely source: Bangladesh. This makes sense. VG. Q: In the first chapter of your book. Cholera causes diarrhoea resulting in severe dehydration. My co-author. In this interview to Vivek Kaul.was to manufacture air conditioners at the cost of air coolers which were very common. you talk about the American drink Gatorade as an example of reverse innovation. the United States and Germany have well over three hundred Nobel Prize winners in science and technology. He was the first professor-in-residence and chief innovation consultant at General Electric. April 16. 2012 9:20 IST Vijay Govindarajan is the Earl C. Something strange is happening.dnaindia. multinationals innovated in rich countries and sold those products in poor countries. Chris Trimble. it is logical that innovation should flow from the rich world to the poor. Can you talk the DNA readers through that example? A: Gatorade is an example of reverse innovation. VG talks about the concept of ‘reverse innovation’ and his eponymous new book Reverse Innovation: Create Far From Home. Daum 1924 Professor of International Business and the founding director of Tuck’s Centre for Global Leadership. have fewer than ‘Reverse innovation is not optional. http://www. It is oxygen’ DNA / Vivek Kaul / Monday. Win Everywhere (co-authored with Chris Trimble and published by Harvard Business Review Press). with six times the combined population. This is the essence of reverse innovation. as he is popularly known. And consumers in rich countries can pay for innovative products. coined the term. The inspiration for Gatorade.

uptake was quicker. The research labs of the University of Florida came up with a concoction of water. multinationals were satisfied to focus on satisfying needs of rich-world customers. Yoga has created a slew of new businesses in the US: instruction classes. “by giving carbohydrate and sugar in the solution with salt. . a Canada-based company. Q: Why did the treatment work? A: As Dr Mehmood Khan. Innovations typically originated in rich countries and later flowed downhill to the developing world. rice water. books and even clothes. the local treatment worked. this is a relatively recent phenomenon. Gatorade took its name from the Florida Gators. DVDs. glucose. It was a reverse innovation. the University of Florida athletics department was looking for ways to get their football players quickly rehydrated. Why? First. The Gatorade story was unusual for its era.The doctor saw a common problem in the need for rapid re-hydration. Q: What would be some of the earliest examples of reverse innovation? A: I already gave you the story of Gatorade which was an example of reverse innovation that happened in the 1960s. The company has a market capitalisation of $10 billion today. and it made its way to a doctor at the University of Florida. Q: And this was reverse innovation? A: Yes. Post-2008 financial crisis. Americans embraced yoga in the early part of the 20th century as they were seeking ways to control stress. The success of the treatment was covered in the British medical journal Lancet. potassium. growth has significantly slowed in developed countries. Yet. Q: Despite these early examples. you suggest that reverse innovations have been rare historically. Lululemon Athletica. I would single out yoga. swam against the tide. If you want to go much before in time. carrot juice. At the time. and dehydrated bananas. sodium.The Western doctors who went to help the victims were surprised that locals were giving a drink containing carbohydrates to treat diarrhoea. chief scientific officer of PepsiCo (which now owns Gatorade) puts it. Gatorade. the football team of the University of Florida. and patients rehydrated faster”. started to sell yoga gear about 15 years ago. Chicken tikka masala became the #1 favorite food in UK in the 1990s — an innovation from India. Western medical opinion held that putting carbohydrates in the stomachs of patients suffering from diarrhoea would cause cholera bacteria to multiply and the disease to worsen. The concoction included ingredients such as coconut water. and flavorings. by contrast. The tasty cocktail sped the replenishment of the electrolytes and carbohydrates (just as was the case with diarrhoea patients in Bangladesh) that players lost through sweat and exertion. as long as the rich countries were growing at healthy rates. carob flour. A: Yes. It ran counter to the dominant innovation pattern. Q: And what happened after that? A: Around that time. it would surely work for healthy football players. If such a treatment worked well for cholera patients. Yoga was an Indian innovation thousands of years ago.

consumers not only don’t drive SUVs. Therefore. Brazil (Embraer) and Mexico (Cemex) have global aspirations. Smaller stores thrive in those places because shoppers typically lack the liquidity to buy in bulk and maintain a home “inventory. Q: Any examples? A: When the giant big-box retailer Wal-Mart entered emerging markets in Central and South America. China (Haier. they often ride bicycles.Multinationals are therefore forced to look for other avenues for sustained growth. but with potential to appeal to a wider global palette. Second and more importantly. Q: What is glocalisation? How does in help the process of reverse innovation? A: Most global companies recognise that emerging markets have become today’s last source of growth. Small Wal-Marts matched the needs of the local culture. ignoring emerging markets can cost multinationals more than a missed opportunity abroad. Specifically. a new savory cracker created by Indians to satisfy the Indian consumers. only in the past decade. Deere developed a small 35 horsepower tractor customised for such lots. But to capture that opportunity.Indian farmers cultivate on small pieces of land. This is “glocalisation” — a strategy bound to under-deliver. firms must innovate since middle-class consumers in emerging markets are fundamentally different from the middle-class in the rich-world. Huawei). local firms from developing countries have started to become global rivals. Tata. Lenovo. tractors often do double duty. over 5 billion live in poor countries — they represent a huge customer base. In China and India. Mahindra & Mahindra). Brazil or Argentina. Q: Any other examples? A: GE innovated a portable ultrasound machine for rural China for $15. But all they do is modify and export products that they developed in their home country. The company created a version of the Wal-Mart store similar to the more “cozy” retail outlets common in Mexico. This possibility inevitably draws multinationals into the reverse innovation game. To capitalise on the full potential of emerging markets. mopeds or buses — or else they walk — to do their shopping. Q: But how is this a reverse innovation? . it discovered that it couldn’t simply export its existing retail formula. After all. Q: Can you give us a few examples to show that the scene on reverse innovation is changing now? A: Oh sure. It can open the door for local firms from the developing world to inflict pain or even severe damage even in multinationals’ well-established home markets.000 which has generated over $250 million of global sales. Emerging giants from India (Infosys. its big box had to be radically scaled down. In India. It has generated more than $5 billion from the new business around the globe. Harman designed from scratch a completely new automobile infotainment system for emerging markets with functionality similar to their high-end products at half the price and one-third the cost. they must head in the opposite direction — by innovating specifically for and in developing countries to create breakthroughs that will be adopted next at home and around the globe. It needed to innovate.” Moreover. Deere has now designated India as the global centre of excellence for small horsepower tractors. both working the farm and providing family transportation. There are limits to what they can carry home. Customers therefore value low price and fuel efficiency — two characteristics on which Deere’s new tractor excelled. Poor countries offer a significant opportunity. PepsiCo drew upon local teams and global resources to develop Aliva.

Mahindra had developed a high-quality. specialisation of labour. where a big box simply couldn’t thrive.A: Today.000-bed hospital in Cayman Islands (60-minute flight from Miami) to serve American patients. Many US consumers suffer from big-box fatigue. These tractors became very popular in India. This is reverse innovation par excellence. its big-box market is saturated. For one thing. Q: What do you mean when you say that “the new reality is that the future is far from home”? . with constrained space and ultra-high rents. With a few modifications for the US market — such as super-sized seats and brake pedals to comfortably accommodate larger American bodies — Mahindra was good to go. This difference cannot be explained by differences in labour costs. had entered the agriculture market nearly 20 years later. can more easily — and profitably — support numerous small stores distributed around town instead of one or two that are the size of a full city block. They are now building a 2. It is bringing the “small-mart” concept back to the United States. They were affordably priced and fuel-efficient. Mahindra figured its little red tractor would be perfect for hobby farmers. extremely reliable and priced to sell. The company. That drives the cost per unit down. landscapers and building contractors. Wal-Mart is doing something that would have been hard to imagine just a few years ago. This is a segment which uses the tractor not for earning a living but for enjoyment. they buy the same world-class equipment you will see in Mayo Clinic (one of the best hospitals in the United States) but they use it 20 times more.000. They took that product and created the “hobby” farming segment in the US. dense urban environments. two qualities highly valued by thrifty Indian farmers. in that it still enjoys vast economies of scale in purchasing and supply chain management even with a small store footprint. Q: And this became a reverse innovation? A: Yes. Mahindra and Mahindra (M&M) arrived on American shores. Wal-Mart will be a powerful rival to smallbox competitors. They have taken the manufacturing sector’s principles that have been around since Ford’s Model T —standardisation. founded as a steelmaker in 1945. partnering with International Harvester to manufacture a line of sturdy 35horsepower tractors under the Mahindra name. and they were sized appropriately for small Indian farms. The machine was sturdy. It is pure and simple innovation. Q: You talk about Narayana Hrudayalaya Hospital performing world-class open heart surgery for just $2. economies of scale and assembly line production—and applied them to healthcare. This is classic reverse innovation. low-horsepower. Q: Any other Indian companies doing reverse innovation? A: In 1994. For instance. A variant of the same logic applies in very sparsely populated rural areas. low-cost tractor for the Indian market. This price — 90% to even 99% below rich-world’s comparables prices — can this become a reverse innovation? A: Narayana Hrudayalaya Hospital does open heart surgery at a fraction of the cost of what it takes in the US. Furthermore.

All rights reserved.dnasyndication. Japanese automakers disrupted the Detroit Big Three during the 1970s and 1980s. local companies will and use those innovations to disrupt multinationals in their home URL of the article: http://www. who understands local customers better — local companies or multinationals? 3 Local companies can use such innovations to launch global strategy.A: It is simple. Q: What makes you say that “reverse innovation is not optional. This movie has played before. Vivek Kaul is a writer and can be reached at © 2005-2012 Diligent Media Corporation Ltd. they must be just curious about the problems of customers in poor countries as they are about the problems of customers in rich countries.kaul@gmail. . 2Local companies in emerging markets are best positioned to do such Permission to reprint or copy this article or photo must be obtained from www. It is oxygen”? A: If multinationals do not practise reverse innovation.dnaindia. Q: What is the central message of your book that has just come out? A: We have three important messages: 1 Capturing opportunities in emerging markets requires innovation. It is oxygen. After all. If multinationals have to remain competitive . Reverse innovation is not optional.

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