September 15, 2012, 9:27 PM — In his reverse innovation theory, Chris Trimble, an adjunct professor of business administration at Dartmouth College, asserts that companies should target customers in emerging economies to gain competitive advantage in the "rich world." Trimble is co-author, with Vijay Govindarajan, of Reverse Innovation: Create Far from Home, Win Everywhere.
What is reverse innovation?
Any innovation that is adopted first in the developing world. Today, almost all innovations are adopted first in the rich world and only later flow to emerging economies. At most, they make minor customizations for other countries. That worked well enough when two-thirds of the world's economic growth was not in the developing world. But it's not good enough anymore. The needs of customers in emerging markets are far different than those of customers in the rich world.
Why are the needs different?
One example: Although China has the number two economy in the world, most people in China are peasants. There's no way the same products will work in the United States and in China. Corporations have to learn a new trick.
What's the trick?
Getting your mind around how different the needs of customers in emerging markets are. If you fly to India tomorrow, you land with rich-world blinders on. You see what is familiar and overlook what is unfamiliar.
John Deere wanted to develop a tractor customized to the needs of farmers in India. They sent a team to India for two weeks to learn the market and then go back to Iowa to build. Two weeks! They didn't actually understand the market. The second time, they sent a team to do research for two years. They took their tractor apart, laid out all pieces on the table. They did the same with a local tractor that was doing better than theirs in the market. Then they built a new tractor from the ground up, based on what they learned Indian customers value.
Is innovating for the developing world a competitive advantage?
Not at first. At first, when you figure out a breakthrough way to produce a product or a service at drastically reduced cost, you're usually making major sacrifices in quality that the rich world won't buy. But you won't be stuck there forever. Technology improves over time. While that offering you develop in India for India may not be attractive to the rich world when it's launched, five years later, when quality is there, it's very compelling.
The stakes are really, really high because innovations targeted to the developing world can flow uphill.
How can IT help?