Reverse Innovation, the term coined by two Dartmouth University Professors Vijay Govindarajan and Chris Trimble refers to any innovation that is first introduced in the Developing countries with an intention to later launch it in the western or developed markets. Reverse Innovation is also popularly known as Trickle-up Innovation.
Developing countries like India, today, with their increasing disposable incomes, and the largest and ever surging middle class with higher than before spending capacitates, is now a very lucrative and potent target market for many global companies to venture into and capitalise on or to establish a stronger hold. Though the middle class in India today can afford to spend an extra buck for their added necessities and interests, they still find the products developed in the western economies out of reach, highly priced or unaffordable.
Clearly, the products developed in the western or developed economies for their average income families would find very less consumers in countries like India despite having the world’s largest middle class population, simply because Indian Consumers’ price to features requirements of products do not match with that of the products developed in western markets for their average income families.
Simply de-featuring the product and introducing the less featuristically loaded product model in the emerging markets would not attract them any more either.
Such markets demand and require the products to be produced keeping in mind their specific requirements, and necessities in terms of product performance and price. Hence it would not be a viable and a smart strategy for the Multi nationals to sell the de-featured or demoted version of the product developed for the western consumers in the Indian market. They have to take into consideration the Indian consumers’ buying behaviour, their price sensitivity, their product performance expectations, and thereby develop the product in the local markets engineered to match their needs with a cost effective or frugal engineering approach. With this approach, the companies can develop products that match the local taste while making it affordable for the consumers to own.
The multinationals today, in their attempt to survive, sustain and succeed over the competition are fast adopting reverse innovation as their approach to make a mark on the world market as this facilitates them to open the new avenues of growth through creation of an entire new demography through tapping the new emerging markets. All the more, these markets also serve as a litmus test for them to evaluate the market response to the product which they later intend to pioneer in the western market with added applications congruent to their needs and also are consistent with their expectations. The multinationals clearly stand to benefit from economies of scale or volume sales in the local markets, and higher top-line and bottom-line profit margins gained through low cost production in the developing countries and higher priced product sale in the western market enthused also by Currency rate arbitration.
Some of the examples of reverse innovations are:
Tata Nano, the up-scaled or advanced version of which the company plans to introduce in the western market with the new name of Tata Europa. A 1000$ General Electric’s Electrocardiogram device developed in Bangalore is another example of Reverse Innovation.
Although Reverse Innovation has led to more Disruptive innovations or has helped companies develop radically new products, this approach is not limited to it. Reverse Innovation does not necessarily mean or go hand-in-hand with Disruptive innovation. It could mean any product innovation (may it be disruptive, incremental, radical or Kaizen) that is incorporated, exercised in or put to use in the developing country to create products which would later be introduced in the western markets as cost effective solutions.
How would Reverse Innovation benefit India:
Primarily Reverse Innovation would lead to further boom in industrialization. As more and more Multinationals adopt and opt to produce and/or invent new products in India for local as well as western markets, the Indian economy would witness an increase in FDIs and also the Indigenous Multinationals would instinctively raise their investments to build advanced R&D facilities that would inspire cutting edge innovation and engineering. It also means the engineers would experience higher employment opportunities, and the consumer market would profit from better products developed to cater to their needs at reasonable prices.
Besides OEMs, Reverse Innovation would also lead to the overall development of the entire eco-system comprising of Tier I and II suppliers, technology vendors, educational institutions which support, fortify and facilitate this unprecedented growth through concurrent engineering, providing smart and agile engineering and production solutions to complex challenges, and development of resources.
Reverse innovation is bringing the countries and global markets further closer by fading the global borders to make “one world, one market” phenomenon a more reality. Reverse innovation would provide further impetus to the globalization while increasing the influence of cross economic dependency and making cross border production and marketing viability plausible and effective.
Highlights of Key benefits:
• Better products for consumers and a variety of options to choose from at reasonable prices
• Companies investing higher amounts in building the sustainable technological infrastructure that would facilitate advanced engineering. It would thus further stimulate industrialization
• Rise in the demand for engineers
Reverse Innovation would definitely reform, and revolutionize industry standards, market imperatives, and global expansion and success strategy perspectives for the Multinationals who constantly require to keep exploring various distinctive ways and means to become resilient in the perilous market conditions.
(Vikas Khanvelkar is Managing Director of DesignTech Systems Ltd. He has rich experience of over 30 years in this industry. Prior to starting his own business, DesignTech Systems, in 1998, Khanvelkar was associated with HCL Infosystems for nine years, where he was heading CAD/CAM Division as a Country Manager for five years.)