Could the next big breakthrough in medicine or technology come from the developing world?
We Americans may think of poorer nations as hotbeds of war and disease, a place to send our charity checks. But emerging economies are actually an invaluable breeding ground for innovations that could change lives in the U.S.
In a process known as “reverse innovation,” multinational corporations are rolling out cheap, easy-to-use products in Africa, India and China and then bringing them “home” to Western markets.
Examples of reverse innovation range from the prosaic – low-cost Levi’s jeans that debuted in China and hit American stores last spring – to the revolutionary – a portable, seven-pound heart monitor developed by General Electric engineers in Bangalore, India.
Chris Trimble is an adjunct professor at Dartmouth’s Tuck School of Business and has written an influential book on reverse innovation with his “super star” (according to The Economist) colleague Vijay Govindarajan.
In an interview with Latitude News, Trimble argued that globalization is forcing big, bureaucratic companies like GE and Proctor & Gamble to change the way they do business.
“Emerging economies,” he says, “are the globe’s high-growth hotspots, and most of the world’s growth over the next two decades will be there. It used to be that you could grow a big corporation at a good clip in just the U.S., Europe and Japan. That’s not the reality anymore.”
In order to stay competitive in the global marketplace, Western companies have discovered they must tap into emerging economies, where experts predict that 90% of the world’s middle class will live by 2030. And multinationals can’t just “dumb down” existing products for consumers in the developing world by stripping away features and lowering the price.
A clean (and cheap) slate
“If you’re trying to serve the people that live rich in poor countries, the old model is fine,” says Trimble. “But the needs of the middle class in the developing world are rising dramatically. The challenge when you go from the U.S. to, say, India is that where before you had one consumer with ten dollars to spend, now you have ten consumers with one dollar to spend. So there’s no way you can take your rich world company and just customize your product for the middle class.”
Other experts agree.
“You really have to start from scratch,” says Joanne Lawrence , a professor at the Hult International Business School in Boston. “It’s not business as usual. These are different places with different markets, different consumers and different needs.”
For example, Lawrence explains, India is a very poor country with a very high rate of heart disease. But GE’s standard electrocardiogram (ECG) heart monitor wouldn’t do much good there. It weighs 65 pounds, costs thousands of dollars and requires a good deal of electricity and training to use. In India, most people don’t live near a hospital or clinic, and the power supply can be intermittent at best.
So GE engineers in Bangalore designed the MAC 400, which is hand-held, runs on batteries and retails for just $800. Lawrence says that the product has great potential for poorer rural and urban areas in America, as well as emergency rooms and doctors’ offices.
Chris Trimble points to another GE product, a cheap and portable ultrasound device called the Vscan that was developed in China and is now for sale in the U.S. “The current generation of kids is the last one that will need stethoscopes to dress up as doctors,” he says. “The next one will be carrying around these hand-held ultrasound devices.”
Innovate, or lose your lunch
Reverse innovation has actually been happening for a long time, according to Mike Grandinetti, who teaches entrepreneurship at Hult. The sports drink Gatorade, for example, was born in 1965 after University of Florida scientists noticed a study showing that carbohydrate-rich drinks helped save the lives of Bangladeshi cholera patients (it’s called Gatorade after Florida’s football team, the Gators, who used the drink to re-hydrate).
But Grandinetti argues reverse, or “frugal,” innovation has a lot of room for growth as consumers and corporations look to cut costs. “Look what’s happened to the global economy,” he says. “There’s no question people are living on different budgets than they have in the past. The West has moved to a different mindset about purchasing, and there are all sorts of opportunities for innovation at the bottom of the pyramid.”
Reverse innovation is, in part, a defensive strategy. Foreign companies like Tata (cars), Mahindra (tractors), Mindray (healthcare) and Lenovo (technology) are all making cheap products and selling them in domestic and, increasingly, Western markets. If big multinationals don’t keep up, they’ll find their markets have been “cannibalized” by low-cost competitors from abroad.
And Trimble says Western corporations still have a long way to go:
“Reverse innovation is still an emerging phenomenon. Companies are working on it, doing some things – but not everything – right. It’s tough because these are companies like GE, like Pepsi, like Proctor & Gamble, that have grown up in a different world.”
“If you look at these big multinationals,” he says, “while they may have both a technology and a sales team in India, chances are they’re not even in the same city. And chances are they report back to different people in the US.”
For Trimble, perhaps the most important take-away of reverse innovation is what it means for today’s students. “For young people to be successful later on,” he argues, “they’ll have to be just as curious about the needs and opportunities of places like Brazil and India and Japan as they are of those in U.S. That’s pretty daunting.”
“There are places in America that are very worldly. But for the most part, this country is pretty insular, and it’s going to be an enormous challenge for us.”