The Idea in Brief
• The model that GE and other industrial manufacturers have followed for decades—developing high-end products at home and adapting them for other markets around the world—won’t suffice as growth slows in rich nations.
• To tap opportunities in emerging markets and pioneer value segments in wealthy countries, companies must learn reverse innovation: developing products in countries like China and India and then distributing them globally.
• While multinationals need both approaches, there are deep conflicts between the two. But those conflicts can be overcome.
• If GE doesn’t master reverse innovation, the emerging giants could destroy the company.
In May 2009, General Electric announced that over the next six years it would spend $3 billion to create at least 100 health-care innovations that would substantially lower costs, increase access, and improve quality. Two products it highlighted at the time—a $1,000 handheld electrocardiogram device and a portable, PC-based ultrasound machine that sells for as little as $15,000—are revolutionary, and not just because of their small size and low price. They’re also extraordinary because they originally were developed for markets in emerging economies (the ECG device for rural India and the ultrasound machine for rural China) and are now being sold in the United States, where they’re pioneering new uses for such machines.
