Charting Breakthroughs: Innovation in Developing Nations

The future of innovation lies in emerging markets. Here's what that means for small business owners.
Strategic Facilitation & Ideation, MatthewEMay.com
April 27, 2012

There's a phenomenon that every small business owner needs to be aware of: reverse innovation. Innovations used to flow from developed nations to developing ones. Now, they're increasingly flowing in the opposite direction. Vijay Govindarajan and Chris Trimble, both of the Tuck School of Business at Dartmouth, explore these changing dynamics of the world market in their new book Reverse Innovation: Create Far From Home, Win Everywhere (Harvard Business Review Press)

 "Whether you are a CEO, financier, strategist, marketer, scientist, engineer, national policymaker or even a student forming your career aspirations, reverse innovation is a phenomenon you need to understand," the book claims.

The Path of Breakthroughs

The big idea is this: Innovation is increasingly flowing uphill, and the future of innovation lies in emerging markets. Today's undeveloped countries are being tapped for breakthrough innovations that can unlock new markets in the rest of the world.

So what does this mean for small business owners?

It means that if you're planning to prosper in business now and in the future, the enormous opportunity that lies in innovating for emerging markets is something you simply can't ignore. If you think that poorer countries are irrelevant, and that it's okay to wait for them to develop, Reverse Innovation suggests you may wake up one day in the not-so-distant future to find yourself behind the curve.

Adapting to a Changing Marketplace

According to the authors, U.S. business owners recognize that emerging markets have become today's latest source of growth, but most simply modify and export products that they develop for and in America, essentially relegating emerging markets to a second-tier priority. Tapping into the full potential of emerging markets means innovating specifically for and in developing countries to create breakthroughs that will then be adopted here at home.

That's a shift in mindset for most. But luckily, Reverse Innovation illustrates what works and what doesn't through the wins and missteps of others. For example, the authors detail how PepsiCo drew upon local teams and global resources to develop a new savory cracker created by Indians for the Indian market, but with high global potential. And before employing reverse innovation, Logitech almost lost leadership of computer accessories in China to an unexpected Chinese rival with a better understanding of local needs. Another example from the book is how P&G developed a globally successful feminine hygiene product in Mexico after discovering why its American product was losing market share to rivals there.

These examples show that the biggest hurdles to reverse innovation are not scientific, technical or budgetary. They are managerial and organizational. But with the right mindset and tools, they can be overcome. And the evidence in Reverse Innovation shows that companies can earn the same or even better margins for a low-cost product designed for China or India than for a higher cost product at home.

The result is a win-win at home and abroad.

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