And I shall sell you sell you
Sell you of course, my dear, and you’ll sell me.
In her regular FT Weekend Magazine article [17/03/2012], Gillian Tett demonstrates again her grasp of the new economic realities with an illustration of the fact that business with emerging and developing markets is a two way street. Referring to the cultural minefield around the contradictions of modern aid, Gillian Tett argues that this has to be seen as a two way exchange which does almost as much – if not more – to help the wealthy nations as well as the poor.
The article is built around the experience of exchange programmes for students but, in highlighting the benefit of challenging western students to rethink their addiction to consumer goods, Gillian Tett introduces a principle that is valid for the wider scope of product and process innovation. Reverse innovation is the term given to products and processes that are “learned” in frontier markets and transferred back to developed economies.
Resourcefulness amid serious constraints is known in India as ‘Jugaad. In other words, “inventing what you need by using only what you have” is an imperative, it also has been the source of breakthroughs that have improved the lives of millions beyond India in the developing world. The lode star has to be the customer and their specific needs. If it is all about survival and a need to earn money then, designing the next MP3 player will not float many boats BUT, integrating this with a phone with multiple address books that allows a woman to operate as THE communications hub for a remote village is different.
Vijay Govindrarajan Professor at the Tuck School of Business highlights the work of GE Healthcare, developer of sophisticated (and expensive) MRI, CAT Scan and Ultrasound machines. For example, GE has a $50,000 Electrocardiogram (EGC) machine that is used to diagnose patients with heart problems. Having reviewed potential in India, GE created a $500 version of the EGC machine called the Mac which runs on battery (electricity is unreliable in rural India) and weighs as much as a can of soda. It’s simple to use and small enough to transport, which is an important feature when those in rural areas can’t get to a hospital. So far so good for the emerging market but what does this mean in the other direction. Simply put, you can’t put a big $50,000 ECG machine inside an ambulance, but – Govindarajan points out – you can put a pocket sized, an iPod sized, $500 ECG machine in an ambulance.
This exercise of frugal inn ovation is about giving value because poor people want value they don’t want cheap products. And then, reverse innovation stretches the envelope further and works to use the ideas from frontier markets to interrogate our assumptions in mature markets. This is the essence of Schumpeterian competition and creative destruction – the notion that no business; product or process can stand on its laurels.
Entrepreneurs can’t wait for full-blown market strategies to be developed and then, monitored over reporting quarters. This used to mean building your own distribution networks but this can be too slow. Instead, there is a real opportunity to explore coopetition ideas of cooperative competition.
Specifically, this means a shift to distribution partnerships to achieve faster commercialization and this may mean hybrid supply chains mixing traditional; low-tech actors with modern; high-tech players. In terms of brand building, this does not mean focus groups. Instead, the entrepreneurial approach in frontier markets is to experiment and pilot in a small shop or street market. This does not come naturally to large Corporations but it is something they are going to have to get used to. Now the same principles can help address issues faced by multinationals whose capacity for breakthroughs has been stifled by rigid internal processes, long R&D cycles, and above all else, multiple layers of complexity.
One last thought. We can observe that reverse innovation adds value back in mature markets but this is no perfect science. Some aspects of the innovation process can be systematized, true creativity can’t. We are back with Gillian Tett’s article. We need to be sending more students; young managers; marketeers and production engineers AND logististicians to experience these markets. This is not about slashing costs; it is a higher ambition to make value added products and processes that solve fundamental customer needs, while working with local economic realities and constraints – driven by livelihoods not western lifestyles.