Reverse innovation: when developing countries have the answers

Author: Henrique Barbosa
Published: 2015-03-15

What used to be a sharp distinction between central and peripheral markets in the global economy has become blurred by a worldwide restructuring of sourcing and the hyper-connectivity of businesses. As a result, while innovation is still regarded by some as a phenomenon of developed countries and high-end markets, this is no longer true.

Developing countries which were once seen as recipients of technology and business models developed in the US, Japan and Western Europe, have become drivers of innovation in their own right. This is thanks to burgeoning middle classes, heavy investments in R&D and a growing share of international trade and production chains. A driver for innovation in the developing world is the growing purchasing power of lower-income groups. There is an enormous, rapidly-growing class of underserved consumers unable to afford expensive products but with the will to consume.

The answer to this is reverse innovation. Reverse innovation emphasizes a decentralized approach to innovation and business development with the focus on catering to the unique needs of these underserved, low-income consumers.

Researchers are increasingly highlighting the large number of developing country-led production, distribution, technology, and strategy innovations shaping both emerging and industrialized markets—using terminology such as clean-slate innovation, disruptive innovation, social innovation and reverse innovation.

UK-based mobile operator Vodafone’s 2013 annual report stated: “Almost all of the 1.5 billion new mobile phone users by 2015 are expected to come from emerging markets.” The group’s president, Vittorio Colao, declared: “We are an emerging markets company.” To be sure, Vodafone still does a lot of innovation in Europe—but it understands that in order for it to thrive in a world where developing countries mean growth, it is necessary to adopt a developing-country-based innovation strategy.

Mobile money services in Africa are a prime case of reverse innovation. The pioneering service, M-Pesa, was launched in Kenya in 2007 by Vodafone affiliate SafariCom and in Tanzania by subsidiary Vodacom a few months later. Today the money transfer and microfinancing service has 19 million clients in several markets including South Africa, the DRC, Mozambique, Lesotho and Egypt in Africa, as well as India, Romania and Fiji. In February 2014, Vodafone partnered with Texas-based MoneyGram to enable global mobile money transfers to M-Pesa accounts from MoneyGram agents in over 200 countries.

Other operators such as Orange, MTN and Airtel Africa soon launched competing mobile money services in Africa, and according to the GSMA there were 61 million mobile money customers in sub-Saharan Africa as of the end of 2013, up from 37 million a year earlier. In many African countries there are now far more mobile money accounts than there are bank accounts, with customers using their “mobile wallets” to pay for groceries, buy bus tickets, pay taxi fares and receive money from clients. Mobile money empowers people who cannot get to a bank branch or ATM to access previously unavailable financial services, and has changed the life of many rural Africans.

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