Vijay Govindarajan: Historically, multi-nationals innovated in rich countries and sold those products in poor countries. Reverse Innovation is doing exactly the opposite. It’s about innovating in poor countries and bringing those products to rich countries. This is kind of counterintuitive. It’s perfectly logical to see why a poor man would want a rich man’s product. The rich man is driving a car; the poor man wants a car. Rich man has a cell phone; poor man wants a cell phone. It is not that logical to see why a rich man would want a poor man’s product. This is what reverse innovation is all about.
Reverse innovation has two parts; one is you’ve got to innovate in poor countries and then bring those innovations into rich countries. And why is this necessary? It is necessary because if you take a look at the per capita income, say, in a poor country like India, it’s $1,000. The per capita income in the U.S. is $50,000. You can’t take a product that is created for Middle America, where the mass market per capita income is $50,000 and go and adapt it and hope to capture middle India where the mass market per capita income is $1,000. You have to innovate. Because in rich countries, imagine there is one person who has $1,000 to spend. In poor countries there are 1,000 people each have $1.00 to spend. The total consumption is $1,000, but the fundamental demand structure there is very, very different. Therefore, you have to innovate. And what also happens is, in rich countries, the paradigm of innovation is, you spend more money and innovate; we have seen this in the health care industry in the U.S. Whereas, in poor countries, you have to spend less to innovate because they don’t have a lot of resources, you have to do more with less for a lot of people. We have to change our innovation paradigm from value for money to value for many. And value for many implies frugal innovation; frugal thinking.
Therefore, the biggest opportunity for American corporations going forward is this notion of reverse innovation--the opportunity that exists for innovating in poor countries and then bringing those innovations back to rich countries.
Directed / Produced by
Jonathan Fowler & Elizabeth Rodd