On September 22, Harvard Business Review published “How GE is Disrupting Itself,” which dives into the radical way in which GE is using what the company calls “reverse innovation” to rapidly accelerate growth in global and emerging markets. Co-authored by GE chairman and CEO Jeff Immelt; GE’s chief innovation consultant Vijay Govindarajan, who is Professor of International Business and director of the Center for Global Leadership at the Tuck School of Business at Dartmouth; and Chris Trimble, who is also on the faculty of Tuck and a consultant with GE; the in-depth analysis explains how GE is literally reversing its traditional business model. Rather than follow its historical path of developing high-end products and adapting them for emerging markets, GE is developing local technologies in these regions and then distributing them globally. To kick-off a three-part series, GE Reports presents the first of two podcasts by Vijay Govindarajan — as well as a full copy of the Harvard Business Review article, which is available via a free download in the middle of this page.
Coming home: GE Healthcare’s Mac 400 electrocardiogram machine, seen here being used in rural India, was developed for markets in that country and China. GE Healthcare made further improvements to the breakthrough technology and this year brought the new model, the Mac 800, pictured inset, into the U.S, where it is finding new applications, such as at accident sites.
Vijay Govindarajan
As Professor Govindarajan, or VG as he is widely known, makes clear in his podcast, for decades, GE and other large industrial players based in developed countries grew by making performance-rich products at home and then distributing them with some adaptations based on local conditions and needs. That process is what’s termed “glocalization” — a strategy, they note, that is “so dominant today because it has delivered.” They continue: “Largely because of glocalization, GE’s revenues outside the United States soared from $4.8 billion, or 19% of total revenues, in 1980 to $97 billion, or more than half of the total, in 2008.” However, as VG explains, despite past and current successes, companies such as GE are now doing an about-face since the strategy is only skimming the surface of potential emerging market growth.
The “disruption” that is at the center of their article can strain companies because reverse innovation requires a decentralized, local-market focus that fundamentally clashes with the centralized, product-focused structure that multinationals have evolved for glocalization. For example, GE’s new handheld electrocardiogram developed for India sells for around $1,000 and the portable, PC-based ultrasound that was designed for China sells for as little as $15,000. The authors note that with these kinds of products, companies like GE are “establishing lower price points, and even using the innovations to cannibalize higher-margin products in rich countries” — which is “antithetical to the glocalization model.”
When it came to ultrasound technology, GE found that “in wealthy countries, performance mattered the most, followed by features; in China, price mattered most, followed by portability and ease of use.” As a result, a new portable technology was developed for that market — and it’s now being marketed in the U.S. GE’s China team succeeded, in part, because it gave its local team unprecedented autonomy to develop the technology. GE has since set up more than a dozen similar operations in an effort to expand beyond the premium segments in developing countries and to preempt local companies from disrupting GE’s sales, in both developed and emerging markets.
As the authors explain, embarking on the new business model isn’t a choice. So-called emerging giants in local markets have the technical know-how, low-cost strategies, and a deep understanding of local needs that will also allow them to create market-specific technologies that they can then use “to disrupt GE in rich countries” if no action is taken.
In Part 2 of VG’s podcast, he’ll explain why companies pursuing reverse innovation need a different organizational architecture if they are going to successfully shift power to where the growth is and build new products from the ground up.
* Read “GE’s Immelt Says ‘Reverse Innovation’ Needed for Global Growth” from Bloomberg
* Learn more about VG’s work at vg-tuck.com
* Read GE Reports’ recent story with VG, “Winning micro customers in mega markets”
* Read our follow-up story with VG, “Localized breakthroughs go global”
* Learn more about GE’s Mac 800 portable ultrasound
* Watch a humorous commercial from GE’s team in India advertising the Mac 400
Anyone interested in globalization and innovation — from business executives, to students, to general audiences — can sign up for VG’s newsletter, Vijay Govindarajan’s Innovation Quarterly, and read his blog at: vijaygovindarajan.com
