Need of the Hour: Reverse Innovation

Reverse Innovation, in the layman's terms, means, an innovation carried first in the emerging markets and then introduce them to the global markets, which is quite contrary to what MNCs have been following over the decades.

Traditionally, for decades, MNCs used to develop and manufacture products in the US and tweak it to cater to the needs of emerging markets. Post-recession, the global scenario is changing where developed markets are in doldrums and emerging markets largely remained unscathed, GE changed itself in a disruptive way, and termed it as "Reverse Innovation".

In 2008, GE Healthcare, one of the divisions of GE, introduced MAC 400, a portable ECG machine and LOGIQ 100, a portable and compact ultrasound imaging system. These machines cost less than a fifth of their conventional counterparts.

One may wonder how and why. This is because of GE's "In India for India" strategy. Both of these products are conceptualized and built from scratch at John F. Welsh Technology Center in Bangalore and manufactured in India. These products, because of the quality and affordability, which the emerging markets need, are now being sold globally in developed markets, which is reaping great dividends for GE.

GE calls this process as "Reverse Innovation" since it is exactly contrary to the glocalization approach that MNCs have used to follow for decades. MNCs using glocalization invent and develop new products at their home turf, usually US and Europe, and then distribute them to rest of the world at higher costs where only few can afford. This worked fine till few years back where majority of their products were sold in developed countries, which keep their margins intact and rest of the world markets contributing minuscule to their top line and bottom line.

Fast-forward, thanks to recession and globalization, the emerging markets, especially, BRIC countries are growing at double digits vis-à-vis developed markets, where growth has plateaued. MNCs like GE today needs breakthrough innovation badly since their survival in the forthcoming decades depend on the emerging markets. For this to happen, MNCs have to change their mindset from centrally managed processes to decentralize it depending upon the markets and the demographics they serve. This requires a paradigm shift in the way the top brass thinks about the way they do business.

As Vijay Govindarajan, Professor of International Business at the Tuck School of Business at Dartmouth College, and consultant to GE, says, "The game has just started and the full impact of this is going to be felt over the next couple of decades."