Remember glocalisation? The ‘Go Global, Think Local’ mantra that multinational corporations have used in emerging markets, adapting their ideas and products aimed at consumers in developed countries to those in poor countries, with a tweak here, a downgrade there? Well, forget it, fast, says Vijay Govindarajan, Earl C Daum 1924 Professor of International Business at the Ivy League Dartmouth University's Tuck School of Business. In Reverse Innovation—Create Far From Home, Win Everywhere (Harvard Business Review Press, April 2012), his latest book, co-authored with his colleague Chris Trimble, Govindarajan, better known as VG, argues that to be successful, companies will urgently need to come to grips with the counter-intuitive process of using simple, traditional ideas from poor countries and developing them into market-leading technologies and products around the world.
The book profiles several examples of this trend. Says VG, “If multinational companies don’t do this, then a local company will do it and then disrupt you in your own home market.” He points to the examples of Japanese carmakers taking on the Big 3 of Detroit in the 1970s and 1980s, and Mahindra & Mahindra challenging US tractor giant John Deere by offering cheaper, lower horse-power tractors to an emerging segment of American hobby farmers by adapting their Indian machines.
Of the seven case studies in the book of companies that have successfully used reverse innovation according to the authors, three relate to ideas developed in India. There are numerous other examples from India scattered through the book. “Even though the physical infrastructure in India is not good, there is a well developed social and institutional infrastructure and digital infrastructure. So that’s what makes India an ideal ground for reverse innovation,” says VG.
The first step, however, is to convince companies of the need for reverse innovation. As the authors ask, “Why would a rich man ever want a poor man’s product?” The answer: “Under certain circumstances, it offers new, unexpected, or long-overlooked value.” VG has often mentioned the example of Gatorade, “the Godzilla of sports drinks”, which became a monster brand inspired by the Ayurveda-based rehydration formula used to treat cholera patients in dirt-poor Bangladesh.
In another example, the book notes that when the big-box retailer Wal-Mart entered markets in Central and South America, it had to radically scale down the size of its stores after noting that shoppers there, unlike Americans, didn’t have the liquidity to make bulk purchases, nor did they drive giant sport utility vehicles to take their purchases back home in. The retailer is now bringing back its “small-mart” stores, a concept it honed in poorer markets, back to urban areas in the US where space is at a premium, and also to sparsely populated rural areas, all the while keeping its advantage of vast economies of scale in purchasing and supply chain management.
The book also highlights the example of India’s Narayana Hrudayalaya hospital, which performs open heart surgery for as little as $2,000, an unimaginably low cost in the US. The authors say the Indian model is based only partly on lower labor costs, and more on process innovation. They point out the hospital is in fact bringing its business model to the West, with a planned cardiac hospital in the Cayman Islands, an hour’s flight from Miami, where it will offer American heart patients treatment at costs 40 per cent below US prices.
If emerging economies are the markets of the future for multinationals, then innovative strategies will also have to be tailored to those markets, according to the authors. That’s because “One person with ten dollars to spend has a completely different set of wants and needs than ten people each with one dollar to spend.” To address those needs, the authors advise, companies engaged in reverse innovation must begin not with inventing, but with forgetting. “In fact, it’s best to assume you’ve just landed on Mars.”
Often, global corporations offer watered down versions of their core products to emerging economies, something that would deliver 70 per cent performance at a 70 per cent price, points out the book. But the authors caution that such an offering can capture only a small slice of the market, and that what emerging markets demand are new technologies that deliver decent performance at an ultra-low cost, or a 50 per cent solution at a 15 per cent price. It’s impossible to achieve that ratio by starting with the existing product; instead, they must start from scratch.
Take cellphone maker Nokia’s approach to the Indian market as described in Reverse Innovation. It captured a whopping 60 per cent market share by creating an ultra low cost handset that was available for as little as $5. VG and Trimble say Nokia succeeded by re-imagining the cellphone — it slashed costs by offering just a few basic models while its global competitors offered dozens of options; it added Hindi text messaging, but using a cheaper software rather than hardware solution and added features like flashlights that were appreciated by rural customers.
The point the book stresses repeatedly is that developing nations are not playing catch-up because they do not follow the same path to development as the rich nations. It warns global corporations that ignoring reverse innovation “can open the door for the so-called emerging giants, the rising generation of multinationals headquartered in the developing world, to inflict pain or even severe damage even in your well-established home markets. There are dozens of such companies now with names like Tata, Mahindra, Reliance, Lenovo and Haier.”
VG, who grew up in Annamalai Nagar near Chennai, and studied at Annamalai University and later at Harvard Business School, believes reverse innovation by multinationals will also benefit India. “When GE brings their technological strength into India, Indian consumers benefit because they are using world class technology to solve Indian problems. Not only that, it gives jobs to Indians, and there is also going to be spillover because the R&D centre in India for GE spills over to other companies and thereby the Indian corporate sector benefits,” he says.
And at a time when Indian companies are thinking global, VG says, they can apply their inherent head start in reverse innovation to capture global markets. But he advises staying away from “jugaad”, the all-purpose catch-phrase often applied to low-brow improvisation in India. “If you want to solve problems in India we have to be technologically at the cutting edge. It’s not about cheap technology, it’s about cutting edge technology at an affordable price.”
Reverse Innovation is dedicated to the late CK Prahalad (misspelled in the dedication as Prahlad), the famous management guru who passed away in 2010. The foreword is by Indra Nooyi, chairman and CEO of PepsiCo. VG describes Nooyi as a visionary, and adds, “She really sees the importance of emerging markets, given her own background and experience; so PepsiCo is a great company for reverse innovation, the concept.
It became very logical to ask her to do the foreword and she was happy to do it.”