Reverse Innovation Revisited: What the Poor Teach the Rich

By Shlomo Maital



 Vijay Govindarajan




   In an earlier  blog I mentioned business professor Vijay Govindarajan’s new book about ‘reverse innovation’ (innovating for the poor, leveraging the result for the rich).  Here is an excerpt from an excellent YouTube talk by Prof. Govindarajan about this important idea.

 “What is reverse innovation? Why is it so important?  What is it that multinationals must do to master reverse innovation? Think about the innovation paradigms inside GE, P&G, Pepsi, IBM, Cisco, Nestle and others. Historically, MNC’s design products in rich countries, and sell them in poor ones. Reverse innovation involvesthe opposite, innovating in poor countries and bringing the products to rich ones.  Clearly poor people want what rich people have.  But why would a rich man want a poor man’s product? That is the essence of reverse innovation.

  * Nestle:   is remaking itself as a health and wellness company. The place they are looking to innovate is emerging markets, because of the size of the consumer base.  They innovated under the brand name Maggy (noodles), in India,  low fat healthy noodles. It created a huge market in India, but is now sold successfully in rich countries.

  * Tata Nano:  $2000 car.  The cost of a DVD player in a BMW is much more!  They target the two-wheeler population in India.  Two-wheelers cost $1500. A $2000 car will win the two-wheeler population.  You are converting non-consumers into consumers. This is fundamental innovation.  Tata Motors plans to bring the Nano into Europe and the U.S.  This will transform the global auto business.

  * GE.  Five years ago GE pioneered an ultra low cost portable ultrasound machine in China. It costs $15,000.  Contrast that with the premium ultrasound machines, sold for $350,000.  Why do you need a portable machine in China?  90% of China is rural.  You have no hospitals.  The hospital has to come to the patient.  So the machine must be portable.  The low cost portable machine, innovated for China, is now creating markets for GE all over the world, including the US.  It is a $300 m. global business for GE.

    In the US, you can put the portable ultrasound machine in an ambulance, when there is an accident. 

     How come reverse innovation has become so important? It is because of the 2008-9 Great Recession. It has fundamentally reset the world.  Growth has shifted from developed to developing countries, from rich to poor.  15 years ago, GE used to prepare its global strategy, so there was a strategy for the US, Europe, Japan and the rest of the world.  Today GE has a BRIC strategy,  for the Mid-East, and – the rest of the world.  This is a fundamental change.  MNE’s have taken the 7 b. people on earth and divided them into 2 b. rich people, and 5 b. poor.  The latter were left to government and charity. This is outmoded.  We need to bring the 5 b. poor into the consumer base.  They cannot consume the same products consumed by the 2 b. rich base.  There is no product created for middle America ($50k pcap.) that can be adapted to capture middle India ($800 pcap.).  

    What should the MNE’s do to master reverse innovation?  1. Have a big dream for emerging markets.  Unless you think big, you won’t become big.  2.  Make ‘amplifying weak signals’ a core competence.  The future is unknowable. There are many ‘weak signals’ in emerging markets, MNE’s are unused to hearing them. They must become expert at it.  You cannot wait for the weak signal to become clear before you act.  By the time the signal is clear, the game is over.   The golden rule is, spend a little, learn a lot. Keep the cost of failure cheap. Then you can fail more often.  Failure is converting assumptions into knowledge. Fail early, fail fast, fail cheap. 3.  Fundamentally change the center of gravity of your organization. You have to massively redeploy resources from rich lands to poor ones. Delegate power.  Localize power and resources in emerging markets. This is hard for MNE’s. “