Reverse Innovation

Reverse Innovation — Vijay Govindarajan
 Extra Credit — Research Seminar

Vijay Govindarajan, known as VG, a New York Times and Wall Street Journal best-selling author, is widely regarded as one of the world’s leading experts on strategy and innovation. In the latest Thinkers 50 Rankings, Govindarajan is rated the #1 Indian Management Thinker. VG gave his talk about reverse innovation to doctorate in management participants, MBA students, faculty, and other guests, including alumni on March 24 at 12:30 p.m. at the Dively Center. In this lecture, VG defined the concept of reverse innovation by using multiple cases to reveal the opportunities lied behind reverse innovation, pushing us to think from a completely untraditional way.

Historically, corporations innovated in a rich country like the U.S. and sold those products in a poor country like India. Vijay Govindarajan defined “Reverse Innovation” as doing exactly the opposite. Reverse innovation is about innovating in a poor country like India and selling those products in a rich country like the U.S. Reverse innovation has two components. The first step is to constantly export to poor countries or developing economies and innovate there, and the second step is to take those innovations back to rich countries. VG contents that reverse innovation is going to be probably the most significant growth opportunities for American corporations to go forward.

VG compares GDP per capita in the U.S. economy and the Indian economy to address the opportunities and motivation behind reverse innovation. He listed some statistics first. The American mass-market, middle-class, has the average income is $50,000 per year, whereas the Indian mass-market, has $3,000 per year. Thus, although the total consumption amount of one American and one thousand Indians is the same, the individual purchasing power is entirely different. One person in America has one thousand dollars to spend in contrast with one thousand people in Indian each has one dollar to spend. Thus, the fundamental difference between the two countries is the demand structure, where business can capture reverse innovation opportunities.

For example, in the healthcare business, General Electric sells one ECG machine at $50,000. However, there are four problems arise in order to use this machine. First, there are only 10% hospital in India can afford this equipment in contrast to the 90% of the remaining rural area without availabilities of resources, such as doctors. Second, it is nearly impossible for any doctor to use or carry this 200 pounds to visit patients on a daily basis. Third, in the rural areas in India, there is no electricity to operate this machine. Fourth, this sophisticated machine has 500 pages instruction and requires trained doctors to operate. These problems push people to innovate this

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2 machine in order to find a solution that can address these difficulties. A couple years later, a

machine that costs $500 with similar treating effect with much portable size come out. This innovation not only creates a new market in India but also being sold over 150 countries including the United States. If there an accident on highway in the U.S., it is impossible to put the 200 pounds machine in an ambulance. However, this portable machine can solve this challenge easily. Overall, this machine exhibits a complete circle of reverse innovation, which