REVERSE INNOVATION

Neeraj Vig12BSPHH010601

Section- C

VIJAY GOVINDARAJAN SAYS

“Reverse inno va tion will trans form just about every industry, including energy, health care, trans porta tion, housing, and con sumer prod ucts,” - Govin darajan, who coined the term in 2009 while working as a chief inno va tion con sul tant at Gen eral Electric.

WHAT IS REVERSE INNOVATION?

Historically , MNC developed New product in the developed countries & sold it to the emerging economy.

Reverse innovation is just doing the opposite

It develop the products in the emergingmarkets (developing world) & sell it to thedeveloped world.

STRATEGIC VIEW OF REVERSE INNOVTION.

Reverse innovation: 1. Adapted in poor countries

2. Trickle up in rich countries

Reference : Exploring Corporate Strategies.

WHY REVERSE INNOVATION?

The main economics growth of the coming years will be in developing countries .

They are the non customers, international organizations could access.

Products tailored to their needs, could form a platform for new global products.

Global organizations have to develop new structures and a mindset to capture those markets.

HOW THINGS WORK

Typically, companies start their globalization efforts by removing expensive features from their established product, and attempt to sell these de-featured products in the developing world.

This approach, unfortunately, is not very competitive, and targets only the most affluent segments of society in these developing countries.

Reverse innovation, on the other hand, leads to products which are created locally in developing countries, tested in local markets, and, if successful, then upgraded for sale and delivery in the developed world.

ADVANTAGES OF REVERSE INNOVATION

LEAP FROGGING Politically, the businesses which were concentrated

towards the developed countries, expand in the developing nations especially the manufacturing and R&D, termed as ‘Globalization’.

34.3% 31.1%

25.9% 24.1%

13.5% 11.2%

9.5% 14.2%2% 2.9%

2007 2012

Shares of global R&D’s spending1

USA EU Japan China India

112 94 68 66

1652

465115 121

China India Russia Brazil

# of patents registered in USA by countries of origin1

2000 2010

YES!! IT’S AFFORDABLE…

Traditionally, the West was the hub for R&D.

However, with changing times, much the R&D centres have enrooted their base towards the developing parts of the world, to save cost and for better human capital.

Manufacturing tycoons like China are betting on this theory so as boost their stagnant economy.

Source : CNBC

SERVICE ECOSYSTEMS Service Ecosystems literally

translates, testing services the economical way.

Developing and servicing in the western countries involves a lot of capital.

India and Philippines are occasionally termed as the Outer hubs for IT services.

BPO’s, Call Centres are the perfect example for service ecosystems.

NEW APPLICATIONS…

Products developed and tested in emerging economies actually provide a base for their launch in the developed markets.

Applications are subject to ‘PPP’, hence, companies may get a new perspective for their application in the 1st world.

Classic example of which is P&G’s ‘I want education programme’ conducted in Nigeria and Kenya.

CLASSIC EXAMPLES OF REVERSE INNOVATION.

Tata Nano, a low budget car introduced in India, costing $2,000 is all set to launch it’s new version in the European markets.

The car will be modified according to the taste and preference of the users in Europe and will be sold at a higher price, thus backing the ‘Leapfrog Strategy’.

EXAMPLE II

What we just saw, is another example of Reverse Innovation.

Electro-cardio machine in US costs anything around $3,500-4,000. Doctors in India invented a much portable and cheaper version of the machine which costs only $500.

This machine is now sold in 90 countries. GE has struck an intriguing balance in

the case of healthcare in India.  By creating lower-cost end-user solutions, they’ve actually been able to create an entirely new market, primed for expansion globally. 

WHAT ARE THE LIMITATIONS OF REVERSE INNOVATION?

INCOME GAP

The first is created by the income gap between rich countries and developing ones.

Because per-capita incomes are so low in the developing world, conditions are ripe for innovations that offer decent quality at an ultralow price — that is, a 50% solution at a 5% price.

At first, the 50% solution is unattractive in the rich world, but eventually, performance rises to the point that it is attractive in the rich world. This is clearly also a disruptive innovation story, where A is performance or quality and B is price.

INFRASTRUCTURE GAP

The second is created by the infrastructure gap between rich countries and developing ones. Most of the infrastructure (energy, transportation, telecom, and so forth) in the developing world has yet to be built.

As such, demand for new infrastructure technologies is much higher in the developing world than it is in the rich world, where demand for infrastructure is created primarily by the need to replace existing infrastructure. This is not an illustration of disruptive innovation.

SUSTAINABILITY GAP

The third is created by the sustainability gap between rich countries and developing ones.

Many developing nations are confronted with environmental constraints far sooner in their path of economic development than rich nations were.

Desalination technologies, for example, are likely to be adopted in places like Northern Africa before the desert southwest in the United States needs them. This is also not an illustration of disruptive innovation.