Innovation Trickles in a New Direction
Wednesday, March 25, 2009
Products traditionally are created in rich nations and repackaged for emerging ones. But General Electric, Nokia, and others are reversing the process
By Reena Jana
This month, General Electric’s (GE) health-care division will begin marketing a first-of-its-kind electrocardiograph machine in the U.S. Although packed with the latest technology, the battery-powered device weighs just six pounds, half as much as the smallest ECG machine currently for sale. It will retail for a mere $2,500, an 80% markdown from products with similar capabilities. But what really distinguishes the MAC 800 is its lineage. The machine is basically the same field model that GE Healthcare developed for doctors in India and China in 2008.
As such, the diagnostic tool exemplifies a way of thinking that may be ideally suited to dealing with the widening recession: creating entry-level goods for emerging markets and then quickly and cheaply repackaging them for sale in rich nations, where customers are increasingly hungry for bargains. The term for this new approach is trickle-up innovation.
The process turns conventional product development on its head. Over the years, multinationals have prospered by turning out premium-priced products for the world’s affluent. Rather than also designing products for poorer people elsewhere, many businesses found they could simply pass yesteryear’s models down, as if they were unloading fleets of used cars. Lately, big companies such as Microsoft (MSFT), Nokia (NOK), and Procter & Gamble (PG) are discovering that they can profit by targeting the world’s masses first. And they can score again by selling these low-priced products elsewhere.
“The dominant logic holds that innovation comes from the U.S., goes to Europe and Japan, then gravitates to poor countries,” says C.K. Prahalad, a strategy professor at the University of Michigan’s Ross School of Business and author of The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits. “But now we’re starting to see a reversal of that flow.”
This topsy-turvy approach could even stir demand in markets that seem tapped out. GE Healthcare dominates the market for big-ticket diagnostic machines, selling 34% of ECG machines now used in hospitals and clinics in the U.S. While some of these customers may also buy a MAC 800, the smaller, cheaper machine will be pitched to a new set of medical professionals-primary-care doctors, rural clinics, and visiting nurses-who need a device they can easily tote or simply can’t afford the pricier models. The company projects first-year sales of $2.5 million in the U.S.