Monday, August 15, 2011

Reverse Innovation

Vijay Govindarajan of Dartmouth's Tuck School of Business gave a terrific presentation yesterday at the Academy of Management conference. He spoke about reverse innovation, a concept he introduced in an HBR article he wrote with GE CEO Jeff Immelt. Vijay described how most multinationals develop innovations in industrialized nations and then try to sell them in emerging markets. Reverse innovation occurs when innovations arise in emerging markets and then multinationals find markets for those products in the developed world. He gave the example of a EKG machine that GE sells in the US for $25,000. Naturally most Indian health care providers cannot afford these machines, particularly in rural areas. Thus, GE developed a simple $500 mobile device well-suited to rural India. Then, they realized a market for those devices exists in the US. Specifically, they have found that ambulances can carry these low cost mobile devices. Vijay argued that reverse innovation represents a huge opportunity for many multinationals. I think it's a fascinating phenomenon to watch.

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