Here in America, we're used to the idea that the earnest citizens of poor countries covet our lifestyle, our gizmos, our movie stars, and even our cigarettes.
Maybe. But the self-assured Yank with blinders on is increasingly endangered by his own myopia.
Developing nations like China, India, and Brazil are now growing faster than the mature economies in Europe and the United States, which means that's where big companies are investing and hiring. And now, a popular new book, Reverse Innovation, argues that developing nations and even some very poor ones can be the source of breakthrough innovations that turn out to be game-changers—and big money-makers--in rich countries as well.
The authors, Vijay Govindarajan and Chris Trimble, are both faculty members at Dartmouth's Tuck School of Business, and Govindarajan recently completed a stint as chief innovation consultant for General Electric. Their book contains several case studies explaining how important ideas have migrated from poor countries to rich ones, instead of the other way around. Govindarajan insists this will be "the single biggest trend for U.S. companies over the next decade," as firms seek new ways to get ahead in mature, saturated markets.
I met with Govindarajan recently in New York City and asked him to highlight some products that reflect the way reverse innovation is already playing out. Here are eight products or concepts that originated in poor countries, then went on to make a big impact in rich ones:
Microfinance. In the 1980s, Bangladeshi economist Muhammad Yunus started a novel effort to make "microloans" to poor customers who would never be able to get a conventional bank loan. In 2006, he won a Nobel Prize for his efforts, which helped turn "microfinance" into a global trend. Web entrepreneurs borrowed the idea to create startups like Kiva and Kickstarter that allow ordinary individuals to lend small amounts of money to help people launch businesses. The U.S. government recently endorsed the concept in the 2012 JOBS Act, which included measures meant to support microfinance and make it easier for startups to borrow.
Gatorade. In Bangladesh, the local treatment for cholera has long consisted of a mixture of sugar, carbohydrates, and salt, to aid hydration. Western doctors who discovered the formula in the 1960s were skeptical, because they believed carbohydrates would worsen hydration in sick patients, not improve it. But research into the concoction proved that it worked. Meanwhile, doctors affiliated with the University of Florida were looking for a way to replace carbs and electrolytes lost by overheated football players and came across research on the Bangladeshi potion in medical journals. They mixed their own brew and added flavor enhancers, inventing Gatorade—which is now a huge brand owned by Pepsi and sold in 80 countries.
Wal-Mart Express. The huge retail chain is known for warehouse-sized stores that contain nearly everything you could buy. But Wal-Mart had to downsize when expanding into Latin America, where many shoppers walk to the store, ride bikes, or take buses and can't fill the trunk of an SUV with two months' worth of toilet paper. Now, Wal-Mart is experimenting with bodega-sized stores in underpopulated areas that can't support a full superstore, and in crowded cities like Chicago.
Yoga. This ancient discipline migrated from India to the West over the last century, making it an early example of "reverse innovation." Yoga is now a $6 billion industry (irony alert) with customized gear, professional practitioners, and millions of devoted customers.
The Vscan medical imager. General Electric's healthcare division designed this $7,900 cellphone-sized ultrasound device for rural hospitals in China that couldn't afford traditional ultrasound machines, which cost about $100,000. It doesn't perform as well as top-of-the-line machines, but GE discovered that the reduced cost and portability make it a useful new tool for western paramedics and operating room doctors who don't ordinarily have access to the fancier machines.
An affordable, high-tech computer mouse. When Logitech wanted to sell wireless computer mice in China, it started with three offerings sold in rich, developed markets: a basic $20 model, a fancier one for $50, and a technological marvel for $150. Chinese consumers, it turned out, wanted some of the features in the $50 mouse—but were only willing to pay $20 for it. So Logitech stripped out some of the costly but underused features in its mid-line mouse, while retaining the greater wireless range that Chinese customers wanted. The new mouse quickly became Logitech's biggest seller in China, so the company rolled out a version of it in Europe and the United States as well—where it also became a hit.
Branchless banking. It's a convenience in most U.S. cities to be able to bank entirely through a mobile device, but in Kenya several years ago, it was a necessity—since bank branches were scarce and so was the kind of landline network that supports computerized banking in the developed world. So Telkom Kenya and several partners developed a system for making small payments over cellular networks, instead of withdrawing cash, writing checks, or wiring money. The venture eventually drew big partners such as IBM and Barclays, which are now borrowing ideas from Kenya as they build out mobile banking networks in Europe and the United States.
Discount surgery. As everybody knows, the cost of surgery and other medical procedures in America can be exorbitant, especially if it's not covered by insurance. But some pioneers in India have found ways to do cataract surgery for $30 per eye, and even open-heart surgery for about $2,000—less than one-tenth the cost in the United States. How? Mainly by ramping up the volume of procedures, to create the same sort of scale that makes industrial assembly lines super-efficient. The quality of care at such facilities is high, partly because Indian doctors get more experience than their counterparts elsewhere. That has convinced some Americans to embark on "medical tourism" to get procedures they can't afford in the states. Soon, they'll have an easier trip. An Indian doctor named Devi Shetty—who was Mother Teresa's heart surgeon—is expanding his heart-surgery practice to the Cayman Islands, in a direct appeal to American patients seeking affordable care. Some U.S. insurance companies might even pay for patients to travel there for surgery. Now that's one sunny innovation.
Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success, to be published in May. Follow him on Twitter: @rickjnewman.
04/18/12: An earlier version of this story said the Vscan imager cost $15,000, not $7,900. The error has been corrected.