Microsoft, GE look to emerging markets for reverse innovation and profits

When GE chief executive Jeffrey Immelt wrote in this month’s Harvard Business Review that GE’s “Success in developing countries is a prerequisite for continued vitality in developed ones” and as a result the company was full on adopting the reverse innovation model, he sent shockwaves through the US-based business world. Looking at the numbers though, who could argue. The HBR article explains that “GE’s revenues outside the United States soared from $4.8 billion, or 19% of total revenues, in 1980, to $97 billion, or more than half of the total, in 2008.” all while the global economic crisis surged on.

… (business leaders) are shifting their energies from managing the present—surviving the financial and economic meltdowns—to creating the future. But we worry that too few U.S. business leaders have recognized that the future is far from home. Indeed, many of the innovations that propel global economic growth over the next few decades will originate in the developing world. – BusinessWeek

While the idea of reverse innovation – or trickle up innovation as the business practice is sometimes called – is nothing new, the business climate is ripe for it’s large scale adoption. With the global economy in peril, and waning consumer confidence particularly in the west, multinationals are increasingly seeking alternatives to old revenue and product development models. Reverse innovation – creating entry-level products for developing nations and then repackaging them for sale in richer nations – solves many problems for multinationals including reducing product development costs and increasing revenue by diversifying globally. But to truly see the gains of a reverse innovation business practice companies must make an honest effort to observe what makes it profitable; most importantly, understanding how emerging markets like China, India, Brazil and Africa, have become politically stable, more self reliant, and how innovation is now driven locally.

In a Businessweek article, C.K. Prahalad, author of the newly reissued The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits gave 5 tips for trickle up business innovation:

• Affordable Products – Emerging nations can’t afford goods priced for the U.S. and Western Europe, which pushes companies to find inexpensive materials or manufacturing options.
• ‘Leapfrog’ Technologies – Developing countries lack 20th century infrastructure and so have fast-forwarded to newer technologies such as mobile phones or solar energy.
• Service ‘Ecosystems’ – Entrepreneurs in poor nations often must rely on others for help, creating new partnerships like video-game cafés where gamers test offerings such as online identity verification.
• Robust Systems – Emerging markets require products that work in rugged conditions. A gadget sturdy enough to survive monsoons can handle spilled coffee in Boston or San Diego.
• New Applications – Customers in poor countries have few product choices, providing market openings for add-ons that update and extend the lives of existing merchandise.

More on Reverse Innovation / Trickle Up Innovation

Interview: Microsoft’s Trickle-Up Strategy – (Businessweek audio)
Microsoft is looking to developing-world audiences for inspiration on new products for the U.S. Now it is also increasingly hunting for R&D talent among students in emerging markets. The company’s Amit Mital explains.
[audio:MsftTrickleBusweek.mp3]

Feature: Innovation Trickles in a New Direction – (Businessweek video)