Reverse innovation – what, how & where

• 1.By Dr. Swatantra Kumar Professor Shri SiddhiVinayaka Institute of Management

2. Developed to Developing world Developed World Developing World 3. Developing to Developed world Developed World Developing World 4. Population 85% of the people (5.8 billion) live in poor countries Total GDP In total GDP China is No. 2; India No. 4 Total GDP of poor countries is roughly $35Trillion (half of World GDP) 5. Projected GDP Growth rates China and India (Double as compared to Rich countries) GDP per capita US 6th; China 94; India - 128 Point is simple In rich countries there are few people who each spend a lot In Developing world there are a lot of people who each spend a little. Either way, total spending is vast 6. One person with 10 Dollars 10 persons with 1 Dollar each It requires innovation Reverse innovation 7. The performance gap 50% solution at 15% price (StrippingVs. radical innovation) The infrastructure gap Opportunity not a constraint (GE Healthcare) The sustainability gap China air pollution (500 on scale of 1-500) Electric Car (BYD) 8. The regulatory gap High regulationVs. low regulation (Under regulation at times provides opportunities to experiment) The preferences gap Different worlds different preferences (CornVs Lentils based products PepsiCo) Innovators win, exporters loose 9. Marginalized market today Mainstream market tomorrow 10. Level one thinking: poor countries are irrelevant Level two thinking: just sit tight Level three thinking: customization is sufficient Level four: winning requires innovation Level five: the stakes are global not local 11. M&M founded in 1945 as a steelmaker, entered agriculture market in around 1965 (partnered with international harvester). 1994 Mahindra entered US market Affordable, fuel efficient tractors In US Deere & Co. was the dominant player. MUSA avoided competing with Deere. Started selling the product to hobby farmers, landscapers, and building contractors Machine was reliable, sturdy and priced to sell, with few modifications such as supersized seats and larger break pedals. 12. It build close relationships with small dealerships, particularly family-run operations. Run on JIT basis. Offering to deliver a tractor within 24- 48 hours. Also facilitated financing, made close relationship with customers (10-15% buyers got calls from its president) MUSA sales growth averaged 40% per year, from 1999 to 2006 13. Deere got baffled by this and started short term cash incentives to lure the buyers. Mahindra fired back with an ad featuring the headline Deere John, I have found someone new Contrary to that Deere has largely been a failure in Indian market. Consequently M&M became the number-one tractor maker worldwide, as measured by units sold. 14. Open heart surgery for just $2,000 US price - $ 20,000 Despite the ultra-low price, NH hospitals new profit margins are slightly higher than USA Quality: its mortality rates within 30 days of bypass surgery is 1.4% as compared to US average of 1.9% The real magic lies in process innovation Standardization, specialization of labour, economies of scale, and assembly line production (just Like Henry Ford) 15. Extensive resource utilization expensive equipments are used five times more as compared to USA. Specialization of doctors in specific type of surgery. Surgeons perform two to three times more procedures. This accelerates learning, improves skills, and increases quality. 16. Now they are building a large 2000 bed hospital in the Cayman islands (close to USA) an hours flight from Miami Reverse Innovation