Reverse Innovation: Business Strategy and Technology

What is Reverse Innovation?

Reverse Innovation is the strategy of innovating in emerging (or developing) markets and then distributing/marketing these innovations in developed markets. Many companies are developing products in emerging countries like China and India and then distributing them globally.

Some Examples:

• South Korea based LG Electronics (LG) planned to develop low-cost air conditioners targeting the middle and lower-middle classes in India. Their goal was to manufacture air conditioners at the cost of air coolers which were very common.
• Nestlé learned that it could sell its low-cost and low-fat dried noodles (Maggi) originally created for rural India and position the same product as a healthy alternative in Australia and New Zealand.

Understanding Reverse Innovation:

Innovations typically originated in rich countries and later flowed downhill to the developing world. If you see the above examples of Maggi and LG air conditioners, they swam against the tide. It was a reverse innovation. A reverse innovation is any innovation that is adopted first in the developing world. To be clear: What makes an innovation a reverse innovation has nothing to do with where the innovators are, and it has nothing to do with where the companies are. It has only to do with where the customers are. Surprisingly often, these innovations defy gravity and flow uphill. Historically, reverse innovations have been rare.

Under that set of assumptions, a strategy known as glocalization makes perfect sense. As practiced by multinational businesses, glocalization posits that the work of innovation has already occurred. Glocalization is the practice of conducting business according to both local and global considerations. Emerging markets can be tapped simply by exporting lightly modified versions of global products developed for rich-world customers – mainly de-featured lower-end models.

Case Study: Mahindra & Mahindra

In 1994, when Mahindra and Mahindra (M&M) arrived on American shores, it was already a powerhouse in its native India. Their tractors were very popular in India, priced affordably and fuel efficient and were sized appropriately for small Indian farms. Over the years, M&M continued to innovate to perfect its offerings, and its tractors proliferated throughout India’s vast agricultural regions. By the mid-1990s, the company was one of India’s top tractor manufacturers — and it was ready for new challenges. The lucrative U.S. market beckoned.

When Mahindra USA opened for business, Deere & Company was the dominant brand. Deere’s bread and butter were enormous machines ranging as high as 600-horsepower for industrial scale agribusiness. Rather than trying to develop a product that could compete head-on with Deere, M&M aimed for a smaller agricultural niche, one in which it could grow and make the most of its strengths.  Flying below the radar, M&M decided to make its mark through personalized service. It built close relationships with small dealerships, particularly family-run operations. Rather than saddle dealers with expensive inventory, M&M allowed them to run on a just-in-time basis, offering to deliver a tractor within 24–48 hours of receiving the order. M&M also facilitated financing. In return, Mahindra benefited from the trust the dealers enjoyed in their communities. M&M’S U.S. sales growth averaged 40 percent per year; making M&M has become the number one tractor maker worldwide, as measured by units sold.

Reverse innovation is an opportunity of sustain growth for countries and companies. Glocalization and Reverse innovation need to cooperate and the companies need to be on both sides of this strategy.

About Author:

Shweta Samudra is a consultant in Systems Plus Pvt. Ltd. Within Systems Plus, she actively contributes to the areas of Technology and Information Security. She can be contacted at: shweta.samudra@spluspl.com