TEDxBigApple - Vijay Govindarajan - Reverse Innovation

Summary

The concept of 'reverse innovation' is explored, challenging traditional innovation models by advocating for the development of products in poorer countries and then marketing them in wealthier nations. Highlighting the potential of the vast consumer base in developing economies, the speaker uses examples like GE's affordable ECG machine to illustrate how innovations tailored for low-income markets can also revolutionize industries in rich countries. The talk emphasizes the need for American corporations to adapt their innovation strategies to tap into this significant growth opportunity, shifting from a focus on high-cost solutions to frugal innovation that benefits both developing and developed markets.

Takeaways

• 🔄 **Reverse Innovation Defined**: The concept of innovating in a poor country and then selling those products in a rich country, reversing the traditional innovation flow.
• 🌐 **Global Market Shift**: Developing economies, with 5.5 billion people, represent a significant portion of the global consumer base.
• 📈 **Growth Potential**: Even with a modest growth rate, developing economies offer over $1.5 trillion in incremental growth opportunities.
• 💡 **Innovation Necessity**: The differing GDP per capita between countries like India and the U.S. necessitates innovation to meet local market needs.
• 🏥 **GE Healthcare Example**: General Electric's innovation of a $500 ECG machine for India, which is now sold in 150 countries, including the U.S.
• 🏠 **Housing Innovation**: The idea that housing is a human right and the potential for ultra-low-cost housing as a global movement.
• 🚗 **Automotive Innovation**: The Tata Nano, a $2000 car, as an example of breakthrough innovation in transportation.
• 🌱 **Renewable Energy**: How poor countries are leapfrogging to become leaders in renewable energy technologies due to lack of existing infrastructure.
• 📊 **Value Over Cost**: The paradigm shift from focusing on cost to delivering value at a low price point, as seen in Indian hospitals offering high-quality services at a fraction of U.S. costs.
• 📚 **Frugal Innovation**: The need for American corporations to adopt a frugal innovation mindset to succeed in emerging markets.
• ⏰ **Urgency of Adoption**: The warning that if American companies do not embrace reverse innovation, local companies in poor countries will disrupt them in their home markets.

Q & A

What is reverse innovation?

Reverse innovation refers to the process of innovating in a developing or poor country and then selling those products in a developed or rich country. It contrasts with the traditional approach where innovations are made in rich countries and sold in poorer countries.

Why is reverse innovation considered counterintuitive?

It is considered counterintuitive because it's easier to understand why a poor person would want a rich person's product, but less obvious why a rich person would want a product developed for poorer markets. However, reverse innovation shows that innovations tailored for low-income countries can meet needs in high-income countries as well.

What are the two components of reverse innovation?

The two components are: 1) Innovating in developing countries to meet the needs of their markets, and 2) Bringing those innovations back to developed countries to create new market opportunities.

Why do developing economies represent a significant growth opportunity?

Developing economies represent a significant growth opportunity because they comprise about 5.5 billion people with a collective GDP of around $30 trillion. Even modest growth in these economies can result in substantial incremental growth.

What challenges do companies face when innovating for developing economies?

Companies face challenges such as lower GDP per capita, different consumption patterns, and limited infrastructure in developing economies, which require tailored innovations that are affordable, portable, and easy to use.

What example illustrates reverse innovation in healthcare?

General Electric (GE) developed a portable $500 ECG machine for rural India, addressing the need for affordable, lightweight, and battery-operated medical equipment. This innovation was later sold in over 150 countries, including the US, where it has been used in ambulances and crowded hospital settings.

How has reverse innovation affected healthcare in developed countries like the US?

Reverse innovation has introduced cost-effective, portable medical technologies like GE's $500 ECG machine, which is used in ambulances and operating rooms in the US, improving healthcare access and efficiency in situations where larger, expensive equipment is impractical.

What role does frugal innovation play in reverse innovation?

Frugal innovation, or creating more value with fewer resources, is essential in reverse innovation. Companies in developing countries must innovate with limited budgets to create affordable solutions, which can then disrupt markets in richer countries by offering high value at low costs.

How can companies from developed countries succeed in emerging markets?

To succeed in emerging markets, companies must shift from adapting existing products to creating entirely new innovations tailored to the needs of the local market. This involves understanding the unique problems of the target market and designing solutions that are affordable, practical, and scalable.

What risk do American companies face if they do not engage in reverse innovation?

If American companies do not engage in reverse innovation, local companies in developing countries may innovate and disrupt American markets by offering more affordable and effective solutions, as seen with NH Hospital opening a low-cost cardiac hospital in the Cayman Islands to serve American patients at a fraction of the cost.