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Emerging economies cover a significant growing portion of the world's GDP. It is projected that BRIC countries (Brazil, Russia, India and China) are going to account for one third of the global economy in terms of purchasing power parity. For such a growth one of the major factor and which is common to all of the BRIC countries is "INNOVATION".
It is widely known and accepted that majority of wealth is created by innovation. Take an example, if a boy joins a firm and works for five years, deposits a bank balance of 10 Lakhs whereas a boy tries to be innovative and opens his own firm with a turnover of around 1 crore in 5 years which in turn shows he is pushing more money into the economy which in turn increases the country's GDP as well as its employment rate. Hence entrepreneurs create entirely new fountains of capital with unlimited energy and give value to old assets. Out of all the BRIC economies, India has shown the highest traits of entrepreneurship, starting from Dhirubhai Ambani to Ratan Tata. It was followed by a spur of emerging young first generation entrepreneurs in the new economy with their innovative capabilities demonstrated and redefined the very nature of market place, which included new products, processes, customers etc.
An increase in entrepreneur activity would increase in the innovation quotient of a country. An innovation introduces new products to the market which increase efficiency by increasing competition. They also enhance the knowledge quotient of the people that is what is technically feasible or not which in turn can increase the productivity of people. Hence it can increase the GDP of the country.
Thus we see that 'innovativeness' is an indescribable asset that drives existence. The start-ups assault the established giants with an innovation as its 'lethal weapon'.
Bottom of pyramid
BOP (Bottom of Pyramid) customers is another concept relevant to emerging markets. It has been estimated that about four billion people worldwide live on a daily wages of less that $2 a day and such people are categorized under BOP section. Since long this section of people have been assumed of having no purchasing power therefore do not represent viable market.
C.K. Prahalad in his book "Fortune at the bottom of Pyramid", strongly supports that these 4 billion people can be the engine to the next round of Global trade and prosperity. Majority of these people are part of developing countries. Best example in support of this believe is CHINA. China having population of about 1.2 billion and average per capita GDP of $1000, currently represents $1.2 trillion reasonable profit.
There is another assumption which says that BOP customers are not brand conscious, which in reality is not true. The experience of Casas Bahia in Brazil and Elekra in Mexico (two of the largest retailers of consumer durables) suggest that BOP customers are brand conscious. It has also been proven that BOP consumers are value buyers.
BOP customers are the people who are willing to experiment, learn and change. Serving these people demands innovation in technology, products, services and business models. When ITC e-Choupal allowed farmers to check soybean's prices in the local auction houses as well as future prices with Chicago Board of Trade, farmers were able to improve their margins. Many such stories strengthen our believe that Innovation is Imperative to Emerging markets.
C.K. Prahalad rightly said in his book "To convert the BOP into a consumer market, we have to create the capacity to consume. Cash-poor and with a low level of income, the BOP consumer has to be accessed differently." And doing so requires use of innovation.
RFEFERENCE - http://books.google.co.in/books?id=RPSG4JxAZzYCHYPERLINK "#v=onepage&q&f=true"&HYPERLINK "#v=onepage&q&f=true"printsec=frontcover#v=onepageHYPERLINK "#v=onepage&q&f=true"&HYPERLINK "#v=onepage&q&f=true"qHYPERLINK "#v=onepage&q&f=true"&HYPERLINK "#v=onepage&q&f=true"f=true, on 11 Dec 2010.
Frugal innovation, also called constraint based innovation, takes into account the basic needs of the consumers and working backwards rather than just fiddling with existing products. Frugal does not mean second- rated but to rethink the business models so as to have a holistic approach towards the product. It discourages the fact of adding ever more bells and frills to the existing product line but to narrow piece the products down to their bare essentials. Frugal products need to be sturdy and easy to use so that they comply with the needs of target market(rural market in general).Frugal often also means being sparing/thrifty in the use of raw materials. Now a large number of frugal products are available in the market. Take for e.g. Tata motors has launched a $2,200 car, the Nano. Also Anurag Gupta, a telecom entrepreneur, has reduced a bank branch to a smart-phone and a fingerprint scanner that allow ATM machines to be taken to rural customers. So in order to reach to the wider audience, the companies not only have to work towards making more user friendly products but also to squeeze costs and accept thin profit margins to gain volume. Different countries associate the term frugal in different manner, for e.g. Indians give the name JUGAAD and Chinese give the name SHANZAI to what we call as frugal. Indians believe in the Jugaad philosophy i.e. making things do with what we have and never giving up and this approach helps us to look at things from a new perspective and hence bring about innovation.
Reference: http://www.economist.com/node/15879359, accessed on 9th December 2010
To put it simply Reverse innovation is any innovation that is adopted first in the emerging economies and is then made available to the world market. The trickle-up innovation refers to low cost but superior value products developed for emerging economies and eventually graduate to the developed world. The income gap between the rich and the poor countries is the fundamental driving force behind reverse innovation. Consumers in different countries have different needs and also different approach towards a particular product line. Buyers in upcoming economies demand high-tech solutions that deliver ultra low costs and superior quality. Whereas the consumers in developed countries demand superior quality and are not much concerned about the cost. Reverse innovation dates back to late eighties when American multinationals followed an evolutionary process which is divided into four distinct phases.
Phase 1: It talks about Globalization i.e. innovation is conceptualized and implemented at home and is then delivered to the world market.
Phase 2: It talks about Glocalisation i.e. focusing on winning market share by adapting global offerings to meet the needs of the local market.
Phase 3: It talks about Local Innovation i.e. focus is on developing products in country for country. Multinationals are working on market back perspective(zero based assessment).
Phase 4 : It talks about Reverse Innovation i.e. focus in on developing products in country for the world. Multinationals take the innovations originally conceptualized and channeled in the poor countries, scaling them for the world market.
Innovations that are already made and the one which are still in the process are finding their way to the global market. Take for example India, Yoga and aryuveda, what India has invented centuries ago is now finding its footprints on the international platform. People all over the world are now practicing yoga and adopting aryuveda to treat ailments. With this Indian innovations are gradually finding their foothold into the world markets. GE, one of the early practitioners of reverse innovation ,has been making cheaper and very basic versions of its ECG and ultrasound machines in India and taking them to the world markets. Following this is Ford Figo, Toyota Etios, Nokia's learn English application, Tata Swatch, Nestle Maggi masala-ae-magic, Pepsi Kurkure and Nimbooz, Hp's Site On Mobile, McDonald's Aloo Tikki Burger, KFC Krusheres to name a few. All of these products are among the innovated in India ,superior quality and value for money products, that are now being sold to millions of global consumers. Marketing Director of KFC, Unnat Verma, says that "This is the tip of the iceberg, we are going to see a lot of innovations going out to developed markets from India". The reason for the growing trend of reverse innovation is that first the MNC's and global consumers are scouting for value in the immediate aftermath of global recession. Vijay Govindarajan says," slow growth in developed markets after the great recession is encouraging innovation in emerging markets."Second, Indian innovation and frugal engineering are being taken seriously. So reverse innovation is here to stay.