Reverse innovation - - the process of moving technology from developing to developed countries
By Michael Hennigan, Founder and Editor of Finfacts
Feb 7, 2011 - 7:11 AM

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GE Healthcare’s Mac 400 electrocardiogram machine, seen here being used in rural India, was developed for markets in that country and China. GE Healthcare made further improvements to the breakthrough technology and this year brought the new model, the Mac 800, pictured inset, into the US, where it is finding new applications, such as at accident sites. Source: GE

There is increasing interest among big multinationals in reverse innovation which in contrast with the standard pattern, new technologies with a value-for-money-orientation, are being launched in developing markets and later introduced in developed markets.

Vijay Govindarajan, a professor at the Tuck School of Business at Dartmouth College and the first professor in residence at the US industrial giant, General Electric, wrote last week: "The US and Germany, for instance, have well over 300 Nobel Prize winners in science and technology whereas India and China have a combined total of less than 10. Doesn't it, therefore, stand to reason that developed countries will be the first to adopt the next wave of innovations? Won't the developing world adopts those innovations only when they have 'caught up' economically? No. Not really."

He said: "If established global corporations do not innovate in poor countries, new competitors will seize the opportunity. They will take the lead in innovation - - not just in the poor world, but throughout the world. They will develop into formidable rivals. Already, there is a new generation of global corporations rising from the developing world, including Tata, Mahindra, Lenovo, and Haier.

The emerging giants can make life miserable for Western multinationals. In the IT services industry, for instance, Indian firms (Infosys, Tata consulting services, and WIPRO) have pioneered the concept of 'global delivery model - - serve clients in the developed world from distant India, where talented software engineers earn substantially lower wages  - - thereby challenging IBM and Accenture to rethink their business models. Brazil's Embraer is giving Canada's Bombardier a run for its money in regional jets. Mexico's Cemex has innovated in the cement industry to humble Holcium of Switzerland and LaFarge of France. China's Huawei is challenging global telecommunications companies like Siemens, Ericsson, Alcatel-Lucent, and Cisco."

In the Harvard Business Review in Oct 2009, GE's CEO Jeffrey Immelt co-authored an article with Prof. Govindarajan and a colleague Chris Trimble, in which they outline how in May 2009, General Electric announced that over the following six years it would spend $3bn to create at least 100 health-care innovations that would substantially lower costs, increase access, and improve quality. Two products it highlighted at the time - - a $1,000 handheld electrocardiogram device and a portable, PC-based ultrasound machine that sells for as little as $15,000 - - are revolutionary, and not just because of their small size and low price. They’re also extraordinary because they originally were developed for markets in emerging economies (the ECG device for rural India and the ultrasound machine for rural China) and are now being sold in the United States, where they’re pioneering new uses for such machines.

GE's German rival, Siemens,  is also focusing on reverse innovation.

The Financial Times reported last June how earlier that year, Peter Löscher, Siemen's CEO and colleagues piled into the Tata Nano, the world’s cheapest car - - priced at US$2,000 and drove round New Delhi.

Within months, Löscher had announced more than 80 “base level” products - -  targeted at financially constrained mass markets - - with an investment of €3bn ($4bn) in India, China, Russia and Brazil over the following three years

The FT said Siemens’ Mumbai-based subsidiary, which employs 17,000 people, is working on 42 products that in time will be produced and sold in India and exported to other emerging markets.

The Tata Nano, produced by the Indian industrial giant, Tata, has turned out to be a flop.

It is apparently cheap and cheap rather than what Americans would term "inexpensive" for something of quality but at a bargain price.

That has a lesson for others.

Going forward in reverse: GE Global Research, which is the company’s technology development arm, operates research centers in New York, Germany, China, and Bangalore, India, pictured above. “Why India? It’s very straightforward,” Guillermo Wille, the center’s managing director, tells The Financial Times. “There are few other countries where you can hire such large numbers of engineers so quickly. China is comparable but after that, nothing comes close.”Source: GE

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