The idea that innovation originates in other than advanced countries is not new. Neither is the idea that subsidiaries of MNCs can play a significant role in the globalization of innovation. Kenney et al., (2009) already forecast subsidiaries located in emerging countries as giving “…rise to born-global innovations that could never have taken place at home” (p. 8). Almost 20 years before, Bartlett and Ghoshal (1988) also shed light on new products and services originally developed by subsidiaries primarily targeting local needs and subsequently sold at a global scale. More recently, Nokia chose to develop phones in its Beijing R&D lab, first serving the Chinese market before eventually introducing and marketing them in Europe (von Zedtwitz et al., 2015). Chinese engineers of Siemens also gave birth to an inexpensive and easy-to-use computer tomography device, which is now sold on the US market, this market remaining the biggest global market for such a device (Radjou and Prabhu, 2015). Trying to account for this growing trend in MNC innovative practices, the term “reverse innovation” has progressively become popular in managerial discourses and papers (Bloomberg Businessweek, Harvard Business Review…). It describes innovations emanating from developing countries, firstly serving developing countries consumers’ needs and secondly diffusing to markets in advanced countries.
Historically indeed, Vernon (1966) in its well-known International Product Life Cycle Model, explained that innovations were created in rich countries and first commercialized in these countries to serve the wealthiest consumers. When sales on this primary market started decreasing, innovations were sold and diffused in a more basic and less expensive form to consumers in less developed countries. For Govindarajan and Trimble (2012) reverse innovation thus accounts for an opposite international diffusion path: products are originally designed for developing countries and subsequently marketed in advanced countries.
Figure 1. A one-dimensional representation of reverse innovation (source: Govindarajan and Ramamurti, 2011)
If reverse innovation sounds like an easy-to-use concept at first glance, its peculiarity and boundaries remain blurred. First many other concepts seem to overlap partially or even completely with the idea of reverse innovation (von Zedtwitz et al., 2015; Brem and Wolfram, 2014). Among them Jugaad innovation, (Radjou et al., 2012), and frugal innovation (Zeschky et al, 2011) are regularly and indifferently used with reverse innovation to report innovative solutions for and in emerging markets. Second, the very notion of reverse innovation itself is also subject to major criticisms and evolutions due to its initial fuzziness (Radojevic, 2013, 2015; Govidarajan and Ramamurti, 2011). If such a lack of cohesiveness might be expected when a research field is growing, it however hinders reliable theory development and empirical testing of the reverse innovation phenomenon.
At the same time, papers on reverse innovation mostly report success stories at General Electrics (Immelt et al., 2009) or Renault (Laperche and Lefebvre, 2012) for instance. If this literature anchors the more active role played by subsidiaries in MNC innovation, it however fails to explain how successful reverse innovation occurs. However, beyond theoretical interest, understanding how to undertake successful reverse innovation might be valuable to improve MNCs ability to efficiently compete against emerging market MNCs (Govidarajan and Ramamurti, 2011) on global markets.
The present chapter precisely tackles the reverse innovation conceptual ambiguity as a prerequisite to better identify its managerial stakes and its analytical scope. To do so, the first part consists in clearly delineating the phenomenon, by distinguishing it from close notions and limiting its internal fuzziness. In the second part, we refine the concept of reverse innovation. Linking disruptive innovation and international business literatures, we outline two types of reverse innovation and highlight their respective major bottlenecks. Lastly we introduce reverse innovation into the more general debate on global innovation dynamics, in order to question its sustainability.