A new globalization mantra

A new globalization mantra

With the global recession bleeding developed countries but leaving emerging markets relatively unscathed, managements at multinationals are surely wondering where their priorities should lie. So far, globalization for multinationals has often meant that products and ideas spread from the home market to developing ones; management gurus call this “glocalization"—think global, act local. Now, a conceptual transition in this could benefit emerging economies such as India.

An article published on Tuesday in the Harvard Business Review co-authored by General Electric (GE) CEO Jeff Immelt, discusses a strategy GE has put in place: “reverse innovation", where ideas flow from emerging economies to developed ones.

GE is hardly the first multinational to hit upon this concept, though it may well be the first to formalize it. But considering how such formalization—not to mention catchy phrases—moves business thinking, this may make all the difference.

First, “glocalization" has never meant that markets are on an equal footing. Inherent in the way innovations originate from the home market, usually in the West, is the primacy of that home market itself. For instance, McDonald’s designs a hamburger for the US, and only tweaks it for India by doing away with beef.

This isn’t to say that ideas imported from the West can’t work with small modifications. Rather, some products—the article discusses an X-ray machine that just didn’t sell in India—demand a major overhaul. That’s where “reverse innovation" can come in. A cheaper X-ray machine developed for India can surely sell in the US, too.

Second, as Immelt and his co-authors note, “glocalization" arrogantly assumes that emerging markets will take the same growth trajectory that developed ones did earlier. But this mindset—of simply viewing India and China on an earlier phase of one-directional development— never takes into account that development in the 21st century, rife with issues such as climate change, could be different.

Multinationals will debate such strategies in the years ahead. “Reverse innovation", if it becomes more of a catchword in board meetings, needn’t mean that all ideas can be reverse-engineered from China or India to the West—or that all companies can do it. Rather, it should mean that emerging countries be on an equal footing.

Is reverse innovation a new theme for global success? Tell us at views@livemint.com