Essay Preview: Reverse Innovation
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Historically multinational enterprises have geared there product offerings to the developed world. These same products were then often toned down in aspects of quality and or features and offered to emerging economies. However, often these products did not meet the needs, demands or wants of customers in emerging economies. Thus, to prevent a disruption of product offering and market control multinational enterprises need to look to new product ideas developed for emerging economies rather than handed down to these economies. Enter the ideals of reverse innovation and the ways in which multinationals can meet these needs. The paper will focus on the reverse innovation concept, identify “need” gaps within emerging economies and bringing together examples of multinationals and startups that have benefited from reverse innovation.
Keywords: Reverse Innovation, Multinational National Enterprise, Need Gaps
In the early part of 2009 Logitech, a leading manufacturer of wireless computer peripherals was at the top of its game. Offering a variety of wireless input devices ranging from the low-end models to high priced multifunctional models Logitechs marketing team assumed that it had its bases covered across the consumer market. However, Logitech had missed one key component of an effective global business-marketing plan; a complete understanding of how consumers in both the developed and emerging markets would use their products. In emerging markets such as China, the demand for wireless peripherals was focused on low cost and long range, the opposite of the peripherals that Logitech offered to the market. This lack of understanding pushed Logitech out the wireless peripheral market and allowed much smaller competitors, who understood the needs of customer, to take over the market share in China and other emerging markets.
As presented by Trimble (2012), “reverse innovation helps leaders and managers see what it means to develop in emerging markets first, instead of scaling down rich-world products, to unlock a world of opportunity” (para.2).To be truly effective and successful at reverse innovation companies must largely change the way that they think. Instead of inventing new products for developing countries, companies should look to the needs of the country and develop products that fit. Schachter, identifies five “needs” gaps that differentiate emerging markets from rich countries. These gaps include infrastructure gap, performance gap, sustainability gap, regulatory gap and the preference gap (Schachter, 2012).
This paper will focus on these five need gaps, establish how each can potentially benefit a company and how each add to a companys ability to meet the need of its markets. Further each of the needs gap will be referenced to current industry leaders and new start-ups including firms such as John Deere, General Electric, Microsoft, PepsiCo and Diagnostics for All. In addition to the bridging of the needs gaps of emerging countries to major companies this paper will also look at the how companies can benefit from entering a marginalized market
General Electric and Infrastructure Gaps
In the developed world, global business often takes for granted the infrastructure that is in place. New products can be developed in the in rich countries with the assumption that a solid and reliable infrastructure is in place (Govindarajan, 2012). In emerging economies, businesses must not make such assumptions and plan new products to accommodate the different environments. General Electric has made several leaps and bounds in new product development in which they have taken in to consideration the infrastructure in emerging economies.
Two of the key products that General Electric has developed using the strategy of reverse innovation include hand-held electrocardiogram devices and PC-based ultrasound machines (Layne, 2009). Both products are geared towards emerging markets in which the current infrastructure is unable provide suitable alternatives. These products will further reach parts of rural emerging markets that traditional equipment would take many years to reach. Understanding the challenges of infrastructure needs in emerging markets has played out quite well GE. From According to General Electric (GE) (2009), “GEs revenues outside the United States soared from $4.8 billion, or 19% of total revenues, in 1980 to $97 billion, or more than half of the total, in 2008” (Para. 2). Professor Govindarajan, of Harvard School of Business, further relates that while this growth rate is increasing GE is only skimming the surface of potential emerging market growth (General Electric, 2009).
Microsoft Corporation and the Performance Gap
The speed at which technology grows continues to accelerate at an astounding rate. This growth is not limited the developed world, emerging economies are also growing and the need for software to accommodate this growing market is increasing. However, buyers in the developing world cannot demand the sky-high levels of performance that developed countries are accustomed (Govindarajan, 2012). It is for this reason that the Microsoft Corporation has developed “starter software” geared to a demographic that needs certain outcomes from their software but require a price point that is acceptable for the relative income.
To bridge the performance gap in emerging countries, a global business must revamp its attitude concerning product lineups. Rather than managing products with a good-better-best approach, reverse innovation points to the needs of the consumers and develops a product that meets consumer demands. According, to Govindarajan (2012), “it is impossible to design to that radical ratio if you begin with the existing offering. The only way to get to an entirely new price-performance curve is by starting from scratch (Para. 11). Thus, by starting from scratch Microsofts Starter Software created an offering that met the real needs at a realistic price.
John Deere and the Sustainability Gap
One of the major challenges of emerging economies is need to balance the product development and the environmental concerns associated with the products. As noted by Govindarajan (2012), “If the 5.8 billion of the worlds poor consume and produce goods in ways that are environmentally unsound, the results will be catastrophic for poor countries – and for the planet” (Para.20). The John Deere Corporation is a great example of how global business can influence the sustainability