This content relates to : EMERGING ECONOMY – INDIA
Emerging economies such as India represent underserved yet attractive opportunities for product innovations.
Successfully developing innovations for emerging economies requires a clean slate approach as well as autonomy for local product development teams.
Such innovations can be subsequently targeted at developed markets via appropriate reverse innovation strategies.
Anand Kumar Jaiswal
Indian Institute of Management Ahmedabad
India’s healthcare infrastructure is poor with a very large underserved or unserved population. For three fourths of the population, spending on healthcare is out of pocket. Against this backdrop several multinational companies (MNCs) such as General Electric (GE) have adopted innovation as a strategy to make healthcare affordable. In India, GE developed more than 25 low-cost healthcare devices including ECG machines, baby warmers, photography devices, X-ray machines and PET CT scanners. It thus successfully created an innovation ecosystem. Based on their research, the authors identified the following factors which led to GE’s success in developing frugal innovations.
The first factor was adopting the clean slate approach. It meant unlearning and forgetting about the current solutions and products available in the market. GE realized that to serve rural markets, it needed to reduce the cost to a dramatically low level. Only then would doctors in rural areas purchase these devices as they serve budget-constrained consumers who can pay very little for healthcare services. The clean slate approach differs from the traditional de-featuring approach of MNCs where they attempt to reduce the cost of products by removing ‘unnecessary’ features from them. GE realised that this approach would not work as this could only reduce the cost to a limited extent. Further, products developed using this approach are often not acceptable to rural consumers as they aspire to have products similar to those available to their affluent counterparts.
GE also realised that it needed to create a new organisational structure to facilitate frugal innovations. Traditionally, product development teams in developing countries are accountable to the global headquarters and country heads are primarily responsible for increasing revenues, not for developing innovations. As part of its ‘In India for India’ strategy, it created a new organisational structure with the local growth team given innovation responsibility.
The next factor was access to GE’s technological resources. While developing medical devices for the local market, teams had full flexibility to use anything they wanted from GE’s technological reservoir. It also meant they were free not to use any technologies that were not relevant.
After successfully developing low-cost medical devices, GE realised that these products also have great market potential in developed countries and thus adopted a reverse innovation strategy. In these countries, cost of healthcare has become a concern lately. GE decided to add functionality to the innovations to make them suitable to the developed country environment. GE could then price these products at a higher level and gain better margins. This also allowed GE to achieve scale advantage by selling these devices in developed countries as well as other developing countries. Initially, GE was apprehensive about exporting these devices to the developed world as it could cannibalise the sale of premium-priced products. However, it realised that it could create entirely new segments and new applications for these devices and thereby expand its customer base in developed countries with the right strategy.
Anand Kumar Jaiswal
Professor of Marketing, Indian Institute of Management Ahmedabad
To learn more, read:
Malodia, Suresh, Shaphali Gupta, and Anand Kumar Jaiswal (2020), “Reverse innovation: a conceptual framework,” Journal of the Academy of Marketing Science, 48, 1009–1029.
Malodia, Suresh and Anand Kumar Jaiswal (2016), GE in India: Changing Healthcare, Harvard Business Publishing.