Reverse Innovation: Changing the Location or the Drivers of Innovation?

By February 04, 2014
Innovation inversée

With the availability of ‘fab labs’ to support the innovations being created in developing countries, ‘reverse innovation’ could re-energise world markets.

Innovation – at least as the word is understood nowadays – usually emanates from research laboratories or the minds of young entrepreneurs who have managed to spot a new market. Although this picture corresponds quite closely to reality in affluent Western societies, innovation is nevertheless not confined to these specific geographies. On the contrary, innovators are at work in some of the least developed countries to meet the needs of local people more cheaply, making the most of the dramatic reduction in the cost of the materials required, especially such basics as sensors and electronic circuits. What some theorists call ‘frugal innovation’, often designated by the Hindi word ‘jugaad’, describes the inventiveness that exists among low-income populations, and their ability to find a quick, alternative way of solving or fixing a problem in direct response to real needs. This change in approach, i.e. towards demand-driven innovation, is now challenging the existing supply-side-driven approach to innovation.  So does this represent a problem for Western firms? Or an opportunity? This is the basic theme of a study published by Netherlands-based consultancy BearingPoint highlighting the key advantages of local innovation.

Telling (but still rather scarce) examples

This approach is not really new, and is quite similar to the concept of ‘glocalisation’ – thinking globally but acting locally – that was all the rage in the 1980s and 1990s among multinational firms looking to conquer emerging markets. The key difference however lies in the structural economic changes that have occurred over the last 30 years. People in many of these countries are now relatively affluent and – perhaps most importantly – local manufacturers now have access to technological infrastructure that enables them to find a market for their products in the developed world. One example of this is the Dacia Logan, a car developed in Romania expressly for the East European market that has rapidly won sales in Western Europe. In the same vein, the Mac 800, a portable electrocardiographic device developed by GE Healthcare specifically for doctors in rural areas who have to work in difficult climatic conditions, often without electricity, is now one of the standard tools used by the US emergency services. Rather than waiting until they can get the patient to a hospital, paramedics can carry out an ECG on a patient on the spot, under all conditions. GE has also developed an incubator for hospitals in India, using technology which provides similar performance to incubators used in the Western world, but for a fraction of the price.

Innovating from the ground up

By offering low cost but high quality products, these innovations are now able to find success beyond their original target markets. And if a given product already exists, the innovation will at least help to reduce costs, as in the case of the GE incubator. Moreover, given the gradual but relentless decrease in purchasing power among the middle and lower classes in developed countries, items such as the Dacia Logan can quickly obtain a foothold. This leads the authors of the BearingPoint study to conclude that ‘reverse innovation’ will henceforth inevitably play an increasing role in the existing ecosystem. In fact, the consistently faster growth in emerging markets, even if due purely to demographics, translates into an ever-increasing number of potential consumers, China being the prime example. Which means that if companies wish to penetrate these markets, meeting the demands of consumers whose tastes are frequently not well understood in the more developed countries, the ‘reverse innovation’ or ‘glocalisation’ approach – which nowadays can give rise to mass market products – seems to have become a highly useful, if not essential, strategy.

Legal mentions © L’Atelier BNP Paribas