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MIT Community of India > Posts > Reverse Innovation is a Cost-effective Strategy to Achieve Optimal Growth
February 29

Reverse Innovation is a Cost-effective Strategy to Achieve Optimal Growth

By Swati Tiwari and Sharada Prahladrao

The surging middle class with their high disposable incomes has made India a lucrative destination for global companies.  These companies are capitalizing on India’s market potential to expand their footprint; they are adapting to local requirements by customizing services and products. 

The policies and strategies of industrial companies are no longer confined to the US, Europe, Japan and others; the spotlight is on emerging economies – the BRIC countries, Middle East, and Africa. Companies are shifting their focus from innovation to reverse innovation as a strategy for further expansion in emerging markets.

This shift can be attributed to the fact that despite the rise in income levels in emerging countries, they are still below the income levels in developed countries.  They often find it impossible to match the spending of their western counterparts.  Also they often attach value to the product based on price.  All these factors have made companies focus on reverse innovation as a strategy to achieve optimal growth. 

The concept of reverse innovation has emerged as a cost-effective solution in both developed and emerging markets.  Reverse innovation for India brings many advantages, such as stimulating industrial activities and development of infrastructure, which results in increased investments by multinationals for setting up R&D centers to develop cutting edge products at a relatively lower price. This would in turn increase employment opportunities in India’s industrial companies.

Until now, companies followed the practice of developing a new product in a mature economy and then introducing the same product with reduced features in emerging markets such as India.  This practice was largely due to underestimation of the potential of emerging markets such as India.  Companies with major expansion plans are listening to the customers’ wants and demands and have shifted their focus towards developing their products first in developing nations and then adapting it to the western world’s needs.  Few companies such as GE have successfully used the concept of reverse innovation in developing products like portable ultrasound machines.  Indian automobile manufacturer, TATA Motors has also followed GE’s footsteps and is planning to launch an upscale version of their car TATA Nano as TATA Europa.

Reverse innovation has emerged as an effective tool for multinationals to survive and show resilience in the uncertain market conditions.  Unfortunately, despite the presence of abundant opportunities in India, the concept of reverse innovation is underutilized by Indian manufacturers.  Global companies are exploiting this market opportunity, underlining a severe lack of foresight on the part of Indian manufacturers.  Indian manufacturers, such as those in the consumer durable goods sector who had the largest market share in India, seem to have buckled under the tough market demands and global companies like LG and Samsung have overtaken them.  These companies have largely been able to maintain their stronghold on the Indian market due to their ability to change and continuously reinvent themselves, which the Indian companies failed to do.  If Indian manufacturers want to cement their market position, they must awaken to the plethora of opportunities that exist in the domestic market.  The market is poised to grow at a stupendous rate and there is no dearth of opportunities. 

Indian manufacturers have the added advantage of domestic market knowledge and consumer base, which a new entrant lacks.  ARC Advisory Group is organizing its tenth India Forum in Hyderabad from July 5-7, 2012, which will bring together thought leaders from process industries, such as metals and mining, food and beverage, cement and such others to discuss their experiences, perspectives, and disseminate knowledge on new technologies and their impact on the manufacturing sector. 

For further information about ARC's Hyderabad forum please contact stiwari@arcweb.com or sharadap@arcweb.com.

 

 

 

 

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