Reverse Innovation

Introduction – What is reverse innovation?

Historically, multi-national companies innovated in west (developed countries) and sold those products in east (developing countries).  Reverse Innovation is doing exactly the opposite.  It is about innovating in east and bringing those products to west. Reverse Innovation is the strategy of innovating in emerging (or developing) markets and then distributing/marketing these innovations in developed markets. Reverse innovation has two parts; one is that companies got to innovate in east and then bring those innovations into west.

Who is doing what?

Many companies are developing products in emerging countries like China and India and then distributing them globally. One has to look at innovation paradigms in companies like GE, P&G, Nestle, Pepsico, Tata Motors, Godrej, etc. these companies have shed the conventional way of innovating in the west and have really generated dramatic growth by means of reverse innovation that has created huge market not only in the east but also in the west.

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.

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.

Nestle – Low-cost, low-fat dried noodles: Nestle’s Maggi brand – 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.

Pepsico – Kurkure and Aliva: Pepsi is planning to give developed markets (particularly West Asia) a taste of its salted snack Kurkure (and also another snack Aliva). The product enjoys huge success in India and has become a Rs. 700 crore brand within a decade of its launch. The success is attributed to product innovation and a good marketing strategy. E.g. Made from corn, rice and gram flour, zero per cent trans fats and no cholesterol, Rs-3 small packs for pushing sales in the lower-tier towns.

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.

Godrej – Chotukool Refrigerator: In 2010, Godrej Group’s appliances division, Godrej & Boyce Manufacturing Co Ltd test-marketed a low-cost (dubbed the world’s lowest-priced model at Rs. 3,250) refrigerator targeted mainly at rural areas and poor customers in India. The product runs without a compressor on a battery and cooling chips. The company wants to use a community-led distribution model (as an alternative channel of distribution) to push for product growth.

Key Drivers

The fundamental driver of reverse innovation is the income gap that exists between emerging markets and the developed countries. The per capita income of India, for instance, is about US$3,000, whereas it is about $50,000 in the U.S. There is no way to design a product for the American mass market and then simply adapt it and hope to capture middle India. You need to innovate for India, not simply export to India. Buyers in east demand solutions on an entirely different price-performance curve. They demand new, high-tech solutions that deliver ultra-low costs and "good enough" quality.

to be continued...