Reverse innovation may be just a short-term fad

In recent years, the concept of reverse innovation has swept the world, and it has been in the limelight for a while. Proponents see reverse innovation as a major advance, arguing that it will have a huge impact on global business and political circles. However, Julian, a global partner of Booz & Company, does not think that reverse innovation will really be the "next stage of globalization framework". He thinks that "reverse innovation" will become a short-lived management term.

"Reverse innovation companies will have to overcome many obstacles, the real challenge is how to systematically and continuously reverse innovation, not just one or occasional innovation, otherwise, it will only be a fascinating Intellectual exercise without practical value," he said with a burst of blood.

Edison said: "Because opportunity often wears work clothes and looks no different from ordinary people, most people tend to pass it by." So, is reverse innovation a market opportunity or a short-lived one? management trend?

CEConline: How do you define reverse innovation?

Julian: The concept of reverse innovation was introduced a few years ago by Professor Vijaj Govindarajan of the Tuck School of Business and refers to the concept of first being adopted in emerging markets and then being introduced Innovation in mature markets. In other words, it is a reversal of the traditional flow of innovation from developed to emerging markets.

CEConline: To many Chinese, the definition of reverse innovation seems discriminatory. Because by definition, only innovations originating in Western countries are called "traditional" innovations, while innovations originating in emerging markets such as China are considered "reverse" innovations. What do you think about this?

Julian: I can understand why the Chinese would interpret it this way, but I'm pretty sure Professor Govindarayan meant nothing to be discriminatory or superior in any way. After all, he comes from an emerging market country himself.

CEConline: Do you think reverse innovation will be the next stage of globalization framework?

Julian: I don't think so. I actually think the concept of reverse innovation has a limited viability, not because it's just a fad, but because once innovation starts to flow evenly in both directions, the concept itself becomes meaningless, and it's starting to take off now . Whether an innovation is first adopted by the emerging markets in which it was born will become irrelevant. So, I very much doubt whether we will continue to talk about the term "reverse innovation" ten years from now.

CEConline: What type of market do you think is suitable for reverse innovation?

Julian: Media hype aside, by definition, reverse innovation has limited potential because it requires a lot of demand for innovations in both emerging and mature markets that must first be adopted by emerging markets . Such preconditions are quite specific and restrictive.

However, in terms of product market type, if the initial demand in emerging markets is equal to or higher than that in mature markets, then reverse innovation may emerge in sunrise industries. In China, this law applies to new energy sectors, such as solar or electric vehicles. Reverse innovation can also occur in industries that have matured at the global level, such as in emerging markets, when it becomes easier to leapfrog to new technology standards without overcoming existing barriers; another example is when mature markets When latent demand for a “good enough” product originally developed for emerging markets begins to emerge in the In fact, some classic reverse innovations, such as General Electric's ultrasound machines and electrocardiographs, are prime examples of the latter.

CEConline: Is this why there are so few reverse innovations so far?

Julian: I think so. I sometimes call this the reverse innovation paradox. In other words, if reverse innovation is a powerful and revolutionary concept, why don't we see more examples? Where have all these reverse innovations gone?

An important reason is that the establishment of reverse innovation requires that there must be a latent demand for such innovation in mature markets, because local companies in mature markets must be unwilling, unable, or insufficient to develop such innovations on their own. Innovation. This latent demand may come from a “good enough” product that is priced low enough to compensate for its lack of performance and quality, or from a market segment that is too small to support a dedicated product offering in a mature market, but It can now be met by excess supply in emerging markets; or from true breakthrough innovation. On the supply side, the problem is simply that few companies are positioning themselves to generate a steady flow of reverse innovation.

CEConline: What hurdles do companies need to overcome if they want to do more reverse innovation?

Julian: The real challenge is how to reverse-innovate systematically and continuously, not just once or occasionally, otherwise it will be just a fascinating intellectual exercise with no real value. For foreign companies, this means developing strong local R&D capabilities, which is not easy in China, for example, but many leading multinationals are already doing it. In addition, companies must be very good at discerning which innovations that enter China's home market first will appeal to consumers in mature markets. At the same time, reverse innovation requires companies to make many other significant changes, not just in the corporate mentality, but also in the organizational structure. For example, for many companies operating around global product divisions, when demand is just emerging, a major challenge is that initiatives from developing countries are often too small to get funding from headquarters, but by the time the market suddenly explodes too late.

CEConline: What about innovations that flow from China to other emerging markets?

Julian: Leveraging innovation in a large emerging market like China to help develop new products in other, smaller emerging markets may be a much more interesting path, because compared to a mature market and an emerging market , consumer demand in the two emerging markets may be more similar. But according to Professor Govindarayan's definition, this is not a reverse innovation.

CEConline: What challenges do Chinese companies face when developing reverse innovation?

Julian: Actually I believe that reverse innovation is not a very useful concept for companies from emerging markets such as China. I mean, as opposed to innovation in general, the whole idea of reverse innovation is really only relevant to foreign companies that innovate locally and export it to other mature or emerging markets. In other words, the current challenge for many Chinese companies is how to have more general innovation capabilities, rather than how to develop more reverse innovation capabilities. Once they do, reverse innovation naturally follows. In fact, as I said before, I think the term reverse innovation will disappear entirely once emerging market companies start to become true innovators themselves.

CEConline: What do you think are the innovation capabilities of Chinese companies today?

Julian: There is no question that Chinese companies need to become more innovative. Indeed, this is crucial if China is to transition from a low-cost economy to a high-value economy. This is why the central government is so concerned about this issue. I think Chinese companies are already much more innovative than they are usually thought to have. According to the 2013 China Innovation Survey conducted by Booz & Company for the second year, about 64% of respondents from non-Chinese companies indicated that the innovation capabilities of some Chinese companies are already comparable to or even stronger than those of their own companies. Last year the figure was only 48%. As a result, Chinese companies are not only more innovative than people realize, but are progressing rapidly and catching up with foreign companies.

CEConline: How long will it take Chinese companies to bring their innovations to mature markets?

Julian: There is still a formidable challenge to be solved. Because it requires high-end product development capabilities and technologies, which are not available to most Chinese companies. Of course "good enough" products are the exception. But even so, developing truly innovative products—I mean products that appeal to emerging market customers first, rather than just cheap versions of existing products in mature markets, which is the opposite—remains a challenge. So far, very few products have truly been as groundbreaking as GE's ultrasound machines. The second challenge is that Chinese companies will have to commercialize their innovative products in mature markets where they may not have a strong foundation and well-developed supporting capabilities, such as distribution; in addition, they may suffer from the State penalties, especially due to the recent milk and lead paint scandals.

CEConline: How can they overcome these difficulties?

Julian: Of course one obvious way is to be a partner of a mature market company. In fact, Booz has just published another study on the potential of this partnership with Tekes, a Finnish government agency focused on technology and innovation. We found that in fact a win-win partnership between Chinese companies and Finnish companies has great potential in both sunrise and more mature industries. Chinese companies can provide cheap labor, production and design capabilities, while Western companies can bring international business experience, valuable brands, and other values.

CEConline: Do you know of companies that are already adopting this strategy?

Julian: The Volvo Group is a good example. They have just recently developed a new BRIC wheel loader with their Chinese partner SDLG. General Motors is also working with Wuling Group on a similar project. So, even though it is still in its infancy, there are already some paradigms that deserve attention and research.

John Jullens, Booz & Company, Global Partner