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CEO Blog: ‘Reversing’ Innovation to Win in Emerging Markets

Dinesh Paliwal |Chairman, President, and Chief Executive Officer, HARMAN
Monday, 5 Dec 2011 | 12:19 PM ET

Innovation is critical to the heartbeat of any successful corporation in the industrialized world. But competing in emerging markets where vast differences exist in per-capita incomes, infrastructure, customer preferences and environmental pressures, requires redefining the concept of innovation.

Reverse innovation is an innovation that is first adopted in developing markets and flows uphill to mature markets. This concept directs forward-looking companies to look beyond industrialized nations to draw new ideas, products and processes from emerging economies. It’s a relatively new idea, but one that will prove critical for businesses looking to expand horizons and capitalize on the rapid growth taking place around the globe.

Multinational brands, especially those with successful legacies, often struggle in emerging countries.

They may be superior at moving innovations from home to abroad but not the other way around. These companies, generally known for breaking new ground and creating categories, cling to the same rules and assumptions that led to their success, ignoring the significant differences between consumers in industrialized markets and those in emerging economies.

To continue advancing, one must be open to the possibility that the next great innovations will likely come out of Bangalore or Shanghai and seek talent and ingenuity residing within these regions. Researchers, engineers and scientists in budding markets intuitively understand local consumer preferences, enabling them to create solutions that meet their unique needs. Reverse innovation occurs when these solutions are brought back to the developed world, generating fresh innovations for consumption in industrialized markets.

"The importance of reverse innovation is gaining recognition, but there unfortunately is still a great deal of resistance to fresh ideas and capable individuals coming out of emerging markets."" -Chairman, Harman International, Dinesh Paliwal

The Chinese automobile market provides a good example of a burgeoning breeding ground for reverse innovation. China has taken on the title of the world’s largest car market and will soon play a defining role on the global automotive stage as both consumer and manufacturer. Many analysts expect sales of passenger vehicles in China to grow by 10 to 15 percent annually over the next five years, making it a critical hub for global automakers and domestic manufacturers.

Automakers eyeing China cannot simply push over-engineered vehicles designed for Americans on Chinese consumers. The ”standard options” that many Western car-buyers expect to find in entry or mid-level cars might outprice a vehicle intended for the average first-time Chinese car buyer.

Smart automakers will strip their products of features designed for the Western consumption and re-develop them with the expectations of the Chinese consumer in mind. At the same time, there is also a growing uber-wealthy class that is rapidly propelling sales for luxury class vehicles with the latest in-car electronics, navigation and accessories. China’s dichotomy between the simpler needs of the emerging middle class consumer and the insatiable demands of discriminating luxury goods consumers is the perfect incubator to support the development of new, transformative technologies, some of which will likely spread to developed countries.

The importance of reverse innovation is gaining recognition, but there unfortunately is still a great deal of resistance to fresh ideas and capable individuals coming out of emerging markets. Anxieties over losing power or jobs, or simply an attitude that it’s “not the way we do things around here” remain typical of too many decision-makers. Business leaders interested in turning the tide toward reverse innovation should consider the following strategies:

  • Empower teams in emerging markets by granting them authority to take decisive actions. Engineers in emerging markets frequently meet resistance from established decision-makers. Eliminating this trend will unlock new ideas and growth opportunities.
  • Mine the organization for highly competent leaders in developed markets, and position them as champions of emerging markets teams. Project champions can ensure an unencumbered work environment for emerging markets teams while also lending an understanding of business practices, nuance and teamwork common to the developed world.
  • Eliminate “over engineering.” Product developers in the U.S. and Germany tend to overload new products with advanced features and technologies. Instead, create an “a la carte” menu of feature options that can be added or subtracted depending on the consumer’s preferences and pricing requirements.

Navigating the new global business environment requires the right balance of proven techniques and new ideas. Leaders who can push themselves beyond their comfort zones and understand how to harness the power of reverse innovation have the chance to become the next great visionaries.

Dinesh Paliwal is chairman, president and CEO of Harman International, a leader in audio and multimedia for the car, home and professional stage. He has led several significant change initiatives at HARMAN and instituted numerous programs to simplify and strengthen the company’s operations. These include the formation of a diverse and multi?cultural board, recruitment of a seasoned executive management team, expansion of the company’s footprint and revenue in the high?opportunity emerging markets, propelling HARMAN’s innovation pipeline and dramatically improving its cost structure.

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