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Panel: 'Reverse innovation' serving, creating new markets

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In the past, global corporations developed products in the U.S. and brought them to developing countries. Now it's the other way around.

BERKELEY, Calif. -- In the past, the common innovation model for many large global corporations was to develop products in the U.S. and other leading markets, and then bring them to developing countries.

Nowadays, that really isn't the case. Some experts argue that the opposite method is really the new key to success.

During a panel discussion hosted by The Economist on Wednesday, Vijay Govindarajan, a professor of international business at Dartmouth College, called it "reverse innovation."

Not only is that the name of his forthcoming book, but Govindarajan described it as innovating in developing countries and then bringing those products to richer countries.

"It's a serious mistake to think that people in poor countries want cheap products," warned Govindarajan, "It's about offering a lot more value at an affordable price."

Beth Comstock, a senior vice president at General Electric, asserted that reverse innovation is actually "innovation the way it should be." She pointed out that global corporations can miss a lot of needs in local markets.

"If you're going to reinvent yourself, you're going to need to be where the market is," Comstock explained, "You can't just parachute in every now and then."

In that way, reverse innovation is actually giving local and developing markets a lot more control than they might have ever seen before.

Vijay Vaitheeswaran, the China business section editor at The Economist and the panel's moderator, argued that the closed innovation model of making decisions at headquarters in New York City or Munich and then relaying those decisions worldwide is on the way out.

At GE, Comstock added that in markets such as China, India and Africa, local branches of the company often have the authority to supersede higher business units and global directions. For reference, approximately 60 percent of GE's revenue comes form outside US, and 40 percent derives from emerging markets.

Of course, there are many international businesses struggling with this new model -- especially when it comes to costs, scale and efficiency.

Nevertheless, Comstock argued that the needs in these emerging markets always existed. There just wasn't a way or a model to serve them before.

Thus, reverse innovation is actually giving way to the creation of new markets, especially for industries such as healthcare and energy.

"Reverse innovation is about creating new value because it's about creating new markets," Govindarajan posited. He also noted that poorer consumers are not just waiting patiently as local companies in developing countries are becoming "extremely smart and savvy."

Thus, that puts the pressure on and gives a sense of urgency for innovation.

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Rachel King

Rachel King is a staff writer for ZDNet. Previously she worked for The Business Insider, FastCompany.com, CNN's San Francisco bureau and the U.S. Department of State. She holds degrees from the University of California, Berkeley and Columbia University. She is based in San Francisco.