Reverse innovation in emerging markets

Gatorade, as American as baseball and apple pie. The drink's origins in the 1960s can be traced back to the sun-baked University of Florida and its school football team, the Gators. The weather in Gainesville is quite hot and humid, so in addition to giving players pure water, team coaches must find better ways to quickly rehydrate their players. So they turned to the school's laboratory for help. The lab developed a drink that contained water, glucose, sodium, potassium, and some flavor enhancers. Not only is this drink delicious, but it also quickly replenishes the electrolytes and carbohydrates lost through sweat and exercise.

But there's an interesting link missing from Gatorade's birth story, which involves events far from Gainesville, Florida.

In the early 1960s, a cholera epidemic broke out in Bangladesh and other parts of South Asia. Keeping those suffering from cholera alive is simple: keep hydrating them.

According to Mehmood Khan, chief scientist at PepsiCo (which bought Gatorade in 2001), Western medical workers who traveled to Bangladesh and elsewhere to help contain the outbreak were astonished. It was found that for centuries, local residents had a traditional treatment for severe diarrhea caused by cholera, which was to drink a mixture of coconut water, carrot juice, rice soup, carob powder and dehydrated bananas. At the time, Western medical opinion held that feeding carbohydrates to patients with diarrhea would lead to a surge in cholera bacteria that would eventually worsen the disease. "However, for thousands of years, this has been a common treatment in Ayurvedic medicine," Khan said. "Add carbohydrates and sugars to a salt solution, and the process of absorption is accelerated, and the patient The body also rehydrates more quickly.”

The successful treatment was reported in the British medical journal The Lancet, and a doctor at the University of Florida became aware of it. effectiveness of a treatment and identified a common problem in the need for rapid rehydration. If the treatment works for people with cholera, it must also work for healthy football players.

What is Reverse Innovation

Gatorade's story was unusual for its era in that it ran counter to the dominant innovation model. Where innovations usually originate in rich, developed countries and then slowly flow down to developing countries, Gatorade bucks the trend. This is reverse innovation. Quite simply, reverse innovation refers to innovations that are first adopted by developing countries. Surprisingly, this kind of innovation can escape the constraints of "gravity" and affect developed countries upwards.

Throughout human history, examples of reverse innovation are particularly rare. In fact, most innovations flow downward rather than upward, and the reasons for this are intuitive. Wealthy consumers in developed countries can afford—and in fact demand—the latest and greatest products. Demand drives technological progress, and the resulting benefits will trickle down to the world in due course. It is natural to think that developing countries are in the midst of a slow evolution to catch up with developed countries economically and technologically; developing countries do not need to innovate, they just have to wait until they can afford to bring in the innovations they want from developed countries. Can.

Under such assumptions, a glocalization strategy makes perfect sense. The strategy of glocalization is practiced by many multinational corporations, which assume that innovative projects have emerged, and only need to slightly modify the global products designed and developed for customers in developed countries, and then export to emerging markets - mainly Some low-end products with less distinctive features.

But this assumption is misleading. Products from developed countries cannot automatically gain widespread acceptance in emerging markets, where customer needs are markedly different. So, reverse innovation has developed rapidly, and this momentum will continue.

On the surface, reverse innovation may seem counterintuitive. After all, we can all understand why a poor man desires what a rich man has, but we cannot understand why a rich man desires what a poor man has. The answer to the question is: Because under certain circumstances, this can lead to entirely new, unexpected, or long-neglected value.

The new fact is that the future is far away. If developed countries and multinational corporations are to survive, the next generation of leaders and innovators must be as curious about the needs and opportunities of developing countries as they are about their own backyards. Whether you're a top executive, financier, strategist, marketer, scientist, engineer, national policy maker, or a student planning a career, reverse innovation is a phenomenon you must understand. Reverse innovation has the potential to redistribute power and wealth to those countries and firms that understand it—and erode power and wealth for those countries and firms that don't. It is conceivable that reverse innovation can accelerate the rise of backward countries and the decline of developed countries. But this is not necessarily the case. In fact, as long as everyone and every place has the ambition to pursue reverse innovation, then reverse innovation is an opportunity for them.

For many companies, especially today's world-class multinationals, ignoring reverse innovation not only means losing an opportunity to grow overseas, but also opening doors for emerging giants.

Reverse innovation is not an option, it is oxygen (a necessity for survival).

Why emerging markets need a zero-and-start approach

Leaders of multinational corporations are well aware that developing economies are large and Incredibly fast growing.

This is a huge opportunity, one that is difficult for companies in developed countries to seize. Winning in emerging markets requires more than simple geographic expansion. Strong curiosity is the first point, first to understand what is the difference between the needs of developing countries and domestic needs.

The reason is simple: developing economies are not the same, not a little bit, but a world of difference. Developed countries have a small population, but each person spends a lot of money; while in developing countries, the total population is large, and each person spends only a little money. In both types, the total amount spent is large. China and India are megamarkets with many microconsumers.

This phenomenon reflects a completely different business challenge. A man with ten dollars has very different needs than ten people with a dollar each. Therefore, it is clearly unrealistic to expect products and services from developed countries to have a huge impact in poor countries. Doing more business in high-growth hotspots—that is, underdeveloped countries—needs not just increasing sales, expanding distribution, or increasing production, but also innovation, reverse innovation.

What are the five major differences between developed and less developed countries

To reap the full benefits of reverse innovation, you must have a deeper understanding of the different needs of developed and less developed countries. understanding. We will illustrate five distinct demand differences that distinguish emerging markets from developed countries. At the same time, we will also show some pathways through which solutions to meet emerging market needs will flow upwards, affecting developed countries.

You can think of five needs gaps as the starting point for reverse innovation opportunities: performance gap, infrastructure gap, sustainability gap, regulation Difference (regulatory gap) and preference gap (preference gap). Let's take a closer look at each difference.

Performance Difference

Buyers in developing countries have little money in their pockets, and they won't have the high-end performance demands that are commonplace in developed countries. In fact, in many cases, they cannot even afford what some developed countries consider low-end products. But that doesn't mean they don't need to innovate.

When you're trying to meet the needs of developing countries, an easy way to do this is to personalize a good product, turn it into a reasonable product, and offer 70% of the price performance. While this is typical, such a product would appeal to a very small segment of the market.

Conversely, developing countries are hungry for new technological breakthroughs that offer decent performance at a considerably lower price—that is, 50 percent performance at 15 percent. If you start by referring to an existing product, you cannot design a new product with such a high contrast ratio. The only way to design a completely new price/performance curve is to start from scratch.

Nokia, for example, managed to capture a 60% market share in India by developing an ultra-cheap phone that was only $5 (the price was already discounted, the original Pricing is $20 to $30, but even the original pricing was apparently insignificant for the retail price of a high-end phone in the developed world).

How did Nokia do it? That's redesigning the phone. When competitors around the world are offering a dozen or more varieties of phones, Nokia only makes a few basic models at a time, which keeps the company's costs down a lot. Nokia also made some personalizations for the phone, such as adding text messages in Hindi. But Nokia did it through innovation in software, not hardware -- a very cheap way. Nokia also added various features to the phone, such as a strong flashlight. Electricity in rural areas is unstable, so rural customers take this feature very seriously. Nokia saw very clearly the difference in demand - especially the difference in performance - and created a product that met real needs at a real price.

Developed countries have a lot of infrastructure, poor countries don't. There is a natural perception that developed countries' well-developed infrastructure is a powerful asset. As long as developed countries have solid and reliable infrastructure, then these countries can develop new products. In the innovation game, however, the lack of infrastructure can be an advantage. Difficult constraints, such as unsecured power supply, spur creative solutions, sometimes in an unexpected direction. The lack of healthcare facilities in India, for example, prompted GE Healthcare to develop a pioneering technology, the portable electrocardiogram machine. This research and development has also had a great impact on developed countries.

Infrastructure markets in developed and poor countries are inherently very different. In fact, opportunities for reverse innovation are particularly robust in this area. First, because developing countries are just starting to build out their infrastructure, there is a strong demand for construction services jobs, unlike developed countries, where investment in new infrastructure is generally delayed until existing infrastructure is too old. Developing countries are strong construction markets; developed countries are sluggish replacement markets.

Additionally, as developed countries adopt innovative infrastructure technologies, they must ensure that these new systems match existing facilities. As a result, developed countries are constrained by choices made decades ago. Developing countries, unencumbered by legacy systems, are more flexible and can adopt pioneering technologies by leaps and bounds.

So we're seeing what seems like a strange state of affairs: developing countries often lack a lot of infrastructure, but when it exists, it's pretty cutting edge.

Sustainability Differences

As the world economy develops, the conflict between economic activity and environmental awareness will become more acute. However, this severity is also uneven across the globe. If you scale this severity from one to ten, some sustainability issues, such as air quality, might be a nine in some parts of the world and a three in others. In some cases, developing countries had the highest severity.

We take China's severe air pollution problem as an example. As a comparison, we scale the air quality evaluation index from 1 to 500 (1 is the best, 500 is the worst), Beijing is often as high as 500; in the United States, 100 is already unacceptable. No wonder China has always encouraged the development of electric vehicles.

The concept of electric vehicles has a history of more than 100 years, but it has never been implemented, because electric vehicles need a cost-effective battery. So Chinese companies rose to the challenge. A previously little-known car company in Shenzhen called BYD announced the development of a rechargeable electric vehicle with a lithium-ion ferrous phosphate battery — a battery whose name is hard to remember Live, but the inventor wanted it to catch the eye. One sign of the company's future: Warren Buffet owns 10% of the company.

If the world's 5.8 billion poor people consume and produce goods in ways that are not good for the environment, the results would be catastrophic for less developed countries, and even for the planet as a whole. The only way for less developed countries to maintain economic growth is to find "green" solutions. Therefore, emerging markets are likely to leapfrog directly to the next generation of environmentally friendly technologies.

Regulatory differences

Regulation is a double-edged sword. In retrospect, in some markets that were considered too free, new rules and regulations always followed disaster or bad behavior. Benefiting from the old economic system and cultural and legal traditions, developed countries have advanced regulatory systems. Such a regulatory system, when applied effectively, can maintain fairness in the market and ensure the safety of consumers in the workplace. But regulatory systems can also become unnecessary roadblocks to innovation, as sometimes they become labyrinthine, or technically outdated, or trapped by vested interests that simply maintain the status quo. Under such circumstances, innovation in developing countries has the advantages of low resistance and fast growth. (This conclusion is not to say that low levels of regulation in emerging markets are a good thing. It's just what it should be and may sometimes be beneficial for some innovation.)

For example, Diagnostics For All, a startup in the Boston area, has developed paper-based diagnostic tests the size of postage stamps. When the chemicals in the test strip react with blood, urine, saliva or sweat, the test strip changes color. This method of testing is fast, simple and inexpensive. Traditional diagnostic machines are not only expensive, but also provide inspection reports that only experts can understand. Despite the popularity of paper-based diagnostic tests in developed countries, Universal Diagnostics chose to commercialize the technology first in developing countries, where Universal Diagnostics could bypass the U.S. Food and Drug Administration (US Food and Drug Administration) slow and grueling approval process, and sidestep resistance to change (and even hostile lobbying) by established companies that charge very high fees for the introduction of expensive equipment.

Different Preferences

One of the more interesting aspects of traveling the world is that you will find that each country has very different tastes, habits and etiquette, and these differences are usually reflected in Common consumer goods, such as fast food. Many nutritious staples in developing countries are virtually absent in developed countries. For example, PepsiCo has developed a new snack food in India that is not based on corn (which is ubiquitous in developed countries), but on lentils - which most Americans have never eaten this kind of food.

These five essential differences suggest that customers in developing countries have problems that have not been solved by developed countries. The five needs differ considerably between emerging and developed economies. If only some adjustments are made in the products of developed countries, the needs of emerging economies will not be met. This is why reverse innovation has to start from scratch.

Our message so far is simple:

1. There are huge opportunities in developing countries;

2. Developing and developed countries is different—not not, but very different;

3. Innovators win, exporters lose.

This is a good start, but it doesn't contain all the information because so far we have ignored the consequences of inaction. Failure to reverse innovation not only means losing an opportunity in foreign markets, but the stakes are even more dangerous. Losses in foreign markets will lead to greater losses in domestic markets.

Why is this? The answer is that although reverse innovation is first adopted by developing countries, it is not the end of the story. The global economy is closely interconnected. Reverse innovation will have a global impact. Ultimately, reverse innovation may also migrate from less developed to developed countries.

Excerpted with permission from the book Reverse Innovation by Vijay Govindarajan, Chris Trimble, translated by Qian Feng, China Power publishing house.