Reverse innovation – or how to build a $2,000 car
An interview with Prof. Vijay Govindarajan
Vijay Govindarajan is one of the world's leading experts on strategy and innovation. He works with CEOs and top management teams in Global Fortune 500 firms to discuss, challenge and escalate their thinking about strategy.
Dr. Govindarajan teaches at the Tuck School of Business at Dartmouth College where he heads up the Global Leadership Center. He was the first Professor in Residence and Chief Innovation Consultant at General Electric, where he worked with CEO Jeff Immelt to write “How GE is Disrupting Itself,” the Harvard Business Review article that pioneered the concept of reverse innovation.
His most recent book is called Reverse Innovation: Create far from home. Win everywhere.
Q: What do entrepreneurs need to know when it comes to innovation in the emerging markets?
A: Be global, think local, and innovate, innovate, innovate. Take the attitude that you are building a company in India or Vietnam as if you were building a company in Silicon Valley – from the ground up.
Q: Isn't that a big investment?
A: Yes, but making your products or services relevant to the local market gives you a chance to rethink your offering. Better yet, come up with an entirely new one. If Mercedes can learn to sell a $2,000 car in Vietnam, imagine what it could do to reach a whole new audience in the US that never dreamed it could buy a Mercedes.
Q: What about the war for talent? Isn't it hard to find the right people in the emerging markets?
A: Yes, but you must start with the local talent base. The US is about salary, benefits, work-life balance. In the emerging markets, the talent will want to know about your brand, your growth plan, your training programs, even the opportunities around global assignments. You must hire for what your business need is today as well as in the future. The local markets will expect you to offer technical training and higher business standards.
Q: What advice do you have for today's entrepreneurs?
A: When you think about your product – think how to make it less sophisticated. GE, for example, makes a $100,000 ultrasound imaging machine for the developed markets. For China, it figured out a way to make a portable imaging machine for $5,000, and it can serve 90% of the market. What is the point of selling something that you know only 10% of the market can afford? That is the secret behind reverse innovation.
There is a lesson here for both established multinationals and start-ups. This will offer you access to the next three billion consumers in the emerging markets. Do not ignore them, for if you do, they will be on your doorstep tomorrow – outselling you.