Why 'trickle-up' innovation may shape the global economy

July 19, 2012 By Jason Kornwitz
Local firms in poor countries may, paradoxically, have an innovation edge over multinationals from developed nations, according to Ramamurti. Credit: Brooks Canaday

The Tata Nano, a city car both man­u­fac­tured and sold in India, retails for $2,500, making it one of the world’s most afford­able four-​​wheeled pas­senger vehicles.

The inex­pen­sive car, said Ravi Rama­murti, a Dis­tin­guished Pro­fessor of Inter­na­tional Busi­ness and Strategy at North­eastern Uni­ver­sity, is but one example of a bur­geoning phe­nom­enon called reverse .

The term, coined in 2009, refers to the process by which com­pa­nies in emerging mar­kets pro­duce inex­pen­sive goods and ser­vices to meet the needs of the poor and then repackage them as cost-​​effective inno­va­tions for Western buyers.

“We are at the cusp of some­thing inter­esting,” Rama­murti explained. “The key con­tri­bu­tion of poor coun­tries will be to make existing prod­ucts and ser­vices incred­ibly inex­pen­sive and easy to use.”

Rama­murti, the director of Northeastern’s Center for Emerging Mar­kets, pub­lished a paper in 2011 in the Global Strategy Journal in which he out­lined the phenomenon’s poten­tial to reshape the globe’s inno­va­tion landscape.

The paper, coau­thored by Vijay Govin­darajan of the Tuck School of Busi­ness at Dart­mouth Col­lege, was selected by Germany’s Euro­pean Busi­ness School as one of three final­ists for the prize for best article on inno­va­tion man­age­ment pub­lished last year.

Rama­murti pre­sented the paper in June to a panel of judges com­prising prac­ti­tioners and aca­d­e­mics, and took the top prize, besting arti­cles penned by pro­fes­sors at uni­ver­si­ties including MIT and Stanford.

“We are using the term ‘inno­va­tion’ in a broad sense,” Rama­murti explained. “It is not tech­no­log­ical inno­va­tion, like cre­ating a new drug, but rather com­bining existing knowl­edge and tech­nology in novel ways to solve the pressing prob­lems of con­sumers in poor countries.”

The cur­rent eco­nomic cli­mate is con­ducive for reverse inno­va­tion to flourish, he said, noting that devel­oping coun­tries such as India, China, and Brazil now account for two-​​thirds of world gross domestic product growth.

Local firms in poor coun­tries may, para­dox­i­cally, have an inno­va­tion edge over multi­na­tionals from devel­oped nations, Rama­murti added, pointing to the example of Kenya’s Safaricom, a pio­neer in the wire­less banking industry.

“Some­times it’s good to be a late­comer, because you can simply leapfrog to using the latest tech­nolo­gies,” he explained. “It’s hard to go wire­less if you have mas­sive invest­ments in legacy technologies.”

By 2013, many of these inno­va­tions will “trickle-​​up” from poor to rich coun­tries, where flag­ging economies, Rama­murti said, have cre­ated a need for inex­pen­sive, easy-​​to-​​use goods.

A portable, low-​​cost ultra­sound machine, for example, designed by China’s Min­dray Med­ical Inter­na­tional Lim­ited, may soon be spotted in doctor’s offices across the United States.

“You would be able to put them in ambu­lances and doctor’s offices at a rate that wouldn’t be pos­sible if the machine cost $150,000,” Rama­murti said. “It is an example of how a new func­tion­ality com­bined with a lower price can open up new demand in rich countries.”

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