Reverse Innovation, the term coined by two Dartmouth University Professors Vijay Govindarajan and Chris Trimble refers to any innovation that is first introduced in the Developing countries with an intention to later launch it in the western or developed markets. Reverse Innovation is also popularly known as Trickle-up Innovation. It is so called because generally, all innovations have first been made in developed countries and then bought to developing economies. So far companies have been starting their globalization efforts by removing expensive features from their established product, and attempt to sell these de-featured products in the developing world. This approach, unfortunately, is not very competitive, and targets only the most affluent segments of society in these developing countries.
Reverse innovation, on the other hand, leads to products which are created locally in developing countries, tested in local markets, and, if successful, then upgraded for sale and delivery in the developed world. The Evolution of Reverse Innovation: A Historical Perspective The globalization journey of American multinationals has followed an evolutionary process which can be seen in distinct phases.
Phase 1 — Globalization —Multinationals built unprecedented economies of scale by selling products and services to markets all around the world. Innovation happened at home, and then the new offerings were distributed everywhere.
Phase 2 — Glocalization — In this phase, multinationals recognized that while Phases 1 had minimized costs, they weren’t as competitive in local markets as they needed to be. Therefore, they focused on winning market share by adapting global offerings to meet local needs. Innovation still originated with home-country needs, but products and services were later modified to win in each market. To meet the budgets of customers in poor countries, they sometimes de-featured existing products.
Phase 3 —Local Innovation — In this phase, the first half of the reverse innovation process, multinationals are focusing on developing products “in-country, for country.” They are taking a “market-back” perspective. That is, they are starting with a zero-based assessment of customer’s needs, rather than assuming that they will only make alterations to the products they already have. As teams develop products for the local market, the company enables them to remain connected to, and to benefit from, global resource base.
Phase 4 — Reverse Innovation — If Phase 3 is “in country, for country,” Phase 4 is “in country, for the world.” Multinationals complete the reverse innovation process by taking the innovations originally chartered for poor countries, adapting them, and scaling them up for worldwide use. Of course this is a simplified view of the world, but in essence it holds true. Now, more than ever, success in developing countries is a prerequisite for continued vitality in developed ones.
Why Reverse Innovation is so important
Developing countries like India, today, with their increasing disposable incomes, and the largest and ever surging middle class with higher than before spending capacitates, is now a very lucrative and potent target market for many global companies to venture into and capitalise on or to establish a stronger hold. Though the middle class in India today can afford to spend an extra buck for their added necessities and interests, they still find the products developed in the western economies out of reach, highly priced or unaffordable. Clearly, the products developed in the western or developed economies for their average income families would find very less consumers in countries like India despite having the world’s largest middle class population, simply because Indian Consumers’ price to features requirements of products do not match with that of the products developed in western markets for their average income families. Simply de-featuring the product and...