'Reverse innovation is not optional. It is oxygen'
Vijay Govindarajan is the Earl C. Daum 1924 Professor of International Business and the founding director of Tuck's Centre for Global Leadership. VG, as he is popularly known, is an expert on strategy and innovation. He was the first professor-in-residence and chief innovation consultant at General Electric. He was ranked #3 on the Thinkers 50 list of the world's most influential business thinkers. In this interview to Vivek Kaul, VG talks about the concept of 'reverse innovation' and his eponymous new book Reverse Innovation: Create Far From Home, Win Everywhere (co-authored with Chris Trimble and published by Harvard Business Review Press).
What does the term reverse innovation mean? How di
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Historically, multinationals innovated in rich countries and sold those products in poor countries. This makes sense. After all, the United States and Germany have well over three hundred Nobel Prize winners in science and technology. Meanwhile, India and China, with six times the combined population, have fewer than ten. And consumers in rich countries can pay for innovative products. So, it is logical that innovation should flow from the rich world to the poor. Something strange is happening, of late. Innovations are flowing in the opposite direction. Innovations are flowing from the poor countries to the rich. This is the essence of reverse innovation. It is about innovating in poor countries and bringing those products into rich countries. My co-author, Chris Trimble, coined the term.
In the first chapter of your book, you talk about the American drink Gatorade as an example of reverse innovation. Can you talk the DNA readers through that example?
Gatorade is an example of reverse innovation. The inspiration for Gatorade, the Godzilla of sports drinks, came from an unlikely source: Bangladesh. There was an outbreak of cholera in Bangladesh in the 1960s (the country used to be called East Pakistan in those days). Cholera causes diarrhoea resulting in severe dehydration. The Western doctors who went to help the victims were surprised that locals were giving a drink containing carbohydrates to treat diarrhoea. The concoction included ingredients such as coconut water, carrot juice, rice water, carob flour, and dehydrated bananas. At the time, Western medical opinion held that putting carbohydrates in the stomachs of patients suffering from diarrhoea would cause cholera bacteria to multiply and the disease to worsen. Yet, the local treatment worked.
Why did the treatment work?
As Dr Mehmood Khan, chief scientific officer of PepsiCo (which now owns Gatorade) puts it, "by giving carbohydrate and sugar in the solution with salt, uptake was quicker, and patients rehydrated faster". The success of the treatment was covered in the British medical journal Lancet, and it made its way to a doctor at the University of Florida. The doctor saw a common problem in the need for rapid re-hydration. If such a treatment worked well for cholera patients, it would surely work for healthy football players.
And what happened after that?
Around that time, the University of Florida athletics department was looking for ways to get their football players quickly rehydrated. The research labs of the University of Florida came up with a concoction of water, glucose, sodium, potassium, and flavorings. The tasty cocktail sped the replenishment of the electrolytes and carbohydrates (just as was the case with diarrhoea patients in Bangladesh) that players lost through sweat and exertion. Gatorade took its name from the Florida Gators, the football team of the University of Florida.
And this was reverse innovation?
Yes. The Gatorade story was unusual for its era. It ran counter to the dominant innovation pattern. Innovations typically originated in rich countries and later flowed downhill to the developing world. Gatorade, by contrast, swam against the tide. It was a reverse innovation.
What would be some of the earliest examples of reverse innovation?
I already gave you the story of Gatorade which was an example of reverse innovation that happened in the 1960s. Chicken tikka masala became the #1 favorite food in UK in the 1990s — an innovation from India. If you want to go much before in time, I would single out yoga. Yoga was an Indian innovation thousands of years ago. Americans embraced yoga in the early part of the 20th century as they were seeking ways to control stress. Yoga has created a slew of new businesses in the US: instruction classes, DVDs, books and even clothes. Lululemon Athletica, a Canada-based company, started to sell yoga gear about 15 years ago. The company has a market capitalisation of $10 billion today.
Despite these early examples, you suggest that reverse innovations have been rare historically.
Yes, this is a relatively recent phenomenon. Why? First, as long as the rich countries were growing at healthy rates, multinationals were satisfied to focus on satisfying needs of rich-world customers. Post-2008 financial crisis, growth has significantly slowed in developed countries. Multinationals are therefore forced to look for other avenues for sustained growth. Poor countries offer a significant opportunity. After all, over 5 billion live in poor countries — they represent a huge customer base. But to capture that opportunity, firms must innovate since middle-class consumers in emerging markets are fundamentally different from the middle-class in the rich-world.
Second and more importantly, only in the past decade, local firms from developing countries have started to become global rivals. Emerging giants from India (Infosys, Tata, Mahindra & Mahindra), China (Haier, Lenovo, Huawei), Brazil (Embraer) and Mexico (Cemex) have global aspirations. Therefore, ignoring emerging markets can cost multinationals more than a missed opportunity abroad. It can open the door for local firms from the developing world to inflict pain or even severe damage even in multinationals' well-established home markets. This possibility inevitably draws multinationals into the reverse innovation game.
Can you give us a few examples to show that the scene on reverse innovation is changing now?
Oh sure. PepsiCo drew upon local teams and global resources to develop Aliva, a new savory cracker created by Indians to satisfy the Indian consumers, but with potential to appeal to a wider global palette. In China and India, Harman designed from scratch a completely new automobile infotainment system for emerging markets with functionality similar to their high-end products at half the price and one-third the cost. It has generated more than $5 billion from the new business around the globe.
Any other examples?
GE innovated a portable ultrasound machine for rural China for $15,000 which has generated over $250 million of global sales. Indian farmers cultivate on small pieces of land. Deere developed a small 35 horsepower tractor customised for such lots. In India, tractors often do double duty, both working the farm and providing family transportation. Customers therefore value low price and fuel efficiency — two characteristics on which Deere's new tractor excelled. Deere has now designated India as the global centre of excellence for small horsepower tractors.
What is glocalization? How does in help the process of reverse innovation?
Most global companies recognise that emerging markets have become today's last source of growth. But all they do is modify and export products that they developed in their home country. This is "glocalisation" — a strategy bound to under-deliver. To capitalise on the full potential of emerging markets, they must head in the opposite direction — by innovating specifically for and in developing countries to create breakthroughs that will be adopted next at home and around the globe.
When the giant big-box retailer Wal-Mart entered emerging markets in Central and South America, it discovered that it couldn't simply export its existing retail formula. It needed to innovate. Specifically, its big box had to be radically scaled down. The company created a version of the Wal-Mart store similar to the more "cozy" retail outlets common in Mexico, Brazil or Argentina. Smaller stores thrive in those places because shoppers typically lack the liquidity to buy in bulk and maintain a home a
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