Emerging markets: stop exporting, start innovating!

10 takeaways from Vijay Govindarajan’s book Reverse Innovation

GE is investing in reverse innovation in countries like India. More of that here.

Written by Cecilia Ollero, analyst at IGENERIS

The dominant innovation pattern, the one we are most used to, goes as follows: innovate in the developed world and then export to countries such as India or China. But what if it was reversed? Emerging markets can unlock many opportunities to multinational corporations, but only if they follow the right approach.

Vijay Govindarajan and Chris Trimble are the authors of Reverse Innovation: Create far from home and win everywhere, a book in which they tackle this precise issue. How can companies win in emerging markets? And how can this help them win in the developed world?

What can we learn from the book?

These are the 10 lessons that are in our opinion the most valuable from the book:

1.- Emerging economies are developing differently to how rich countries did at the time

Emerging countries are empowered by technologies that weren’t available for developed countries to address similar needs. We used horses, they use scooters.

Just think about how developing countries are empowered by technology: we would move around in horses, they have tuk tuks and scooters (source)

2.- One person with $10 ≠ Ten people with $1

Firms can tap emerging markets simply by exporting lightly modified versions of global products developed for rich-world countries; this is called “glocalization”. But the set of wants and needs of emerging countries is completely different to ours, so they don’t really need the same products/services.

3.- It’s not their “readiness”, it’s your product

Many companies think that customers in emerging countries are not ready for the product they are offering but that they will eventually catch up. They haven’t considered the possibility of the product not being well fitted for the customers’ needs.

4.- Reverse innovation begins not with inventing, but with forgetting

Emerging markets have different needs, so the dominant logic that has served companies in the rich countries does not apply. Developing countries need a clean-slate approach, they need innovation.

“You must let go of what you’ve learned, what you’ve seen and what has brought you your great success.[…] In fact, it’s best to assume you just landed in Mars” — Vijay Govindarajan

5.- Glocalization and reverse innovation are not enemies

Although they are radically different concepts, a company can do both “glocalization” and reverse innovation at the same time. These two concepts should not only coexist but cooperate.

6.- Keep the emerging giants in your radar

It’s easy to focus on your traditional competition. Companies in the rich world usually follow a “good-better-best” approach, without considering reverse innovation. But this strategy costs more than just a missed opportunity abroad. It can pave the way for companies based in the developing countries.

7.- To find innovation opportunities focus on the following gaps: performance, infrastructure, sustainability, regulation and preference

  • The performance gap: customers in emerging markets look for products with a decent performance but at an ultra low price
  • The infrastructure gap: emerging countries lack of an extensive infrastructure. This means they need products that don’t depend on reliable infrastructure. But it also means they are more flexible when adopting new technologies
  • The sustainability gap: the only way poor countries can sustain economic growth is through “green” solutions, so they are more eager to adopt next-generation environmental solutions
  • The regulation gap: new products can be brought to the market faster in emerging countries, because there are less regulatory constraints
  • The preference gap: each country has distinct tastes and preferences that should be taken into account when innovating
The five gaps mentioned can lead to innovations that would be more difficult to implement in the developed world (source)

8.- Reverse innovations are adopted first in the developing world, but that’s not the end of the story

Just think about how a marginalized market in a rich country could benefit from it. Also, as the gaps mentioned in point 7 close, these innovations may become attractive to the mainstream market in the not-so-distant future.

9.- Move people, power & money to where the growth is, and let them be

Build a reverse innovation mindset within your organization by putting the spotlight on emerging markets. Create local growth teams (LGT) in the country you are trying to enter, and give them independence. They should work as a separate company.

10.- But don’t forget about them!

Although they should be working as an spin-off, LGTs should leverage in the global resource base. Let them borrow assets from other locations and use the equipment from other countries in other to build an optimal solution without spending much.

“Hold LGT leaders accountable for learning, not for results against plan” — Vijay Govindarajan

Final thoughts

While the book and the reverse innovation concept are not new (the book was first published in 2012), many companies face the same struggles today. It is difficult for them to forget the traditional mindset to explore the opportunities offered by developing countries. That is why we think Reverse Innovation is a great playbook for any company interested in seizing these opportunities. We highly recommend it!

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