Many more cos will invest in reverse innovation in the future

Written by Sarika Malhotra | Sarika Malhotra | Updated: Oct 25 2010, 04:22am hrs
He is one of the worlds leading experts on strategy and innovation. Vijay Govindarajan, the name almost synonymous with reverse innovation, grabbed global recognition with his path-breaking work, How GE is Disrupting Itself, co-authored with Jeffrey R Immelt, chairman & CEO, General Electric, and Chris Trimble, professor, Tuck School of Business. The Earl C Daum 1924 Professor of International Business and the Founding Director of Tucks Center for Global Leadership tells Sarika Malhotra how the race for the bottom of the pyramid is heating up and how companies will have to step up reverse innovation to keep up the pace. Excerpts:

Do you think the race for the bottom of pyramid is finally really heating up

Absolutely. Today, rich countries and poor countries account for roughly equal shares of the global economy. But for years, growth has been far more robust in poor countries. Now that most rich countries are in a slow-growth recovery, following a truly awful recession, the growth gap looks more like a growth chasm. Emerging economies like India are expected to account for as much as two-thirds of future growth in world GDP. Given that much of that growth will be at the bottom of the pyramid, the stakes for winning with poor customers are enormous.

With an array of low-cost products, are companies redefining the bottom of the pyramid

Indeed, the bottom of the pyramid is getting redefined. The old view was that the bottom of the pyramid is too poor to do business let charity take care of them. But the leading edge view is that it is not only a market opportunity, but a source of innovation. The two biggest emerging markets are India and China. I see big opportunities in both countries in rural and semi-urban areas. There are so many problemshealth, education, housing, clean water, alternative energy that require breakthrough innovations.

You have spelled that reverse innovation is not optional but essential. Do you think that companies are doing enough to cash in on the opportunity

A reverse innovation, simply, is any innovation likely to be adopted first in the developing world. Increasingly, we see companies developing products in countries like India and then distribute them globally. The fundamental driver of reverse innovation is the income gap that exists between emerging markets and the developed countries. There is no way to design a product for the American mass market and then simply adapt it for the Indian mass market. Buyers in poor countries demand solutions on an entirely different price-performance curve. They demand new, high-tech solutions that deliver ultra-low costs and good enough quality. Reverse innovation is not a nice-to-have boost to revenue growth rates. We believe it will power the futurenot just in poor countries, but everywhere.

Many tremendous rich-world business opportunities will arise first in poor countries. To compete, global corporations must be just as nimble innovating abroad as they are at home.

How much of the R&D/products catering to this segment is about finding the right price point and how much is it about reverse innovation

In the first stage, companies should focus on the right price point just like the Tata Nano. In the second stage, they can take these ultra low-cost products to rich countries. Several companies have already started putting emphasis on reverse innovation. Among the multinationals, I will single out P&G, GE, PepsiCo, Nokia, and Siemens as examples. Among Indian companies, I would include Mahindra & Mahindra and the Tata Group. I expect many more companies will invest in reverse innovation in the next few years.