Words are funny. To use them, they have to mean something. But, they often take meaning from the way we use them. Sometimes they change with context. Other times, words seem so stuck to one context that it’s hard to think of them differently. We understand “rational” and “efficient” in limited ways from ideas about economics and business (particularly the American varieties). Similarly, “innovation” seems limited to developments in “rich countries” that “later flowed downhill to the developing world.” Developments in poorer countries that flow uphill must then be reverse innovations.
In Reverse Innovation: Create Far From Home, Win Everywhere, Vijay Govindarajan and Chris Trimble look at examples to show how leaders can “stay strong and shape the future.” Take the reverse innovation Gatorade. Rooted in a centuries-old Ayurvedic remedy for cholera (think massive loss of bodily fluids), it became a rehydration sensation here after a Florida doctor read about it and figured it might also work on healthy football players to keep them hydrated.
Successes like this are rare. More likely is the kind of reverse innovation that capitalizes on developing markets (especially big ones like India and China) by tailoring ideas for local realities using the “five paths of reverse innovation.” In sum, the authors’ wisdom is that buyers in developing countries aren’t like us. They have little money in their pockets, poor infrastructure, weak regulatory systems, environmental challenges, and product preferences determined by local culture. Before you point out that they sound an awful lot like us, the difference is in scope. Despite your (and my) empty pockets and the many potholes in neighborhoods north of the Medical Center, consumers here are still better off than those in developing countries. Two principles work in favor of anyone seeking to invest in developing and emerging markets. One is the size of populations in emerging and developing nations. Investing in marginalized populations here isn’t profitable because the “underserved or ignored” are too few. In places like India, however, they are huge. The second principle is that they are still consumers. Previously, businesses thought that exporting to poor, populous countries was the best way to profit. According to Govindarajan and Trimble, a better way is to innovate specifically for consumers in those markets. Big box Walmarts, for example, couldn’t succeed in Central and South America because shoppers don’t have the liquidity to buy in bulk and don’t drive Hummers to haul their groceries. So, the company created a much smaller version of Walmart. Later, it reverse innovated by bringing the “small-mart” idea back home. Since the U.S. big-box market had been saturated (largely by Walmart), and city environments became increasingly dense, Walmart used its innovation abroad to become “a powerful rival to small-box competitors.” Unlike their rivals, the new Walmarts have the same buying clout as their bigger brothers, but operate within the needs of local cultures both here and abroad. By adapting its strategy to capture an emerging market, Walmart also gained a solution to changes in local U.S. markets. Innovating in an emerging market provided the test abroad for an idea that could be applied here.
Cracking the reverse innovation nut has its challenges. The authors note that practices that worked for global corporations in the past “actually get in the way of innovating in emerging markets.” Because they often see the world through “the refracting lens of dominant logic,” they remain rooted in the past. Humans often operate on the theory that what worked before will work in the future. When operating in new markets, especially in developing countries, though, past strategies can be dangerous. Succeeding in these markets means getting to know them. A good solution is to send your people to the places you want to do business and also to hire people with experience in those places. Go in with a clean slate (leave your U.S.-made assumptions at home) and use the emerging markets as incubators for ideas that might also succeed here.
When you think about it, the U.S. emerged as a world power because of the great ideas we imported rather than exported. That’s one great idea from the past we ought to stick with. FBN
Constance DeVereaux writes book reviews each month for Flagstaff Business News