The world is witnessing something extraordinary: Innovations are happening first in the poor countries and then they are migrating to advanced nations, says one of the world's most influential business thinkers.
Vijay Govindarajan, Earl C Daum 1924 Professor of International Business at the Tuck School of Business, Dartmouth College, says the word jugaad has distracted India from the real issues.
Govindarajan, who has been ranked number three on the Thinkers 50 list of the world's most influential business thinkers, tells Faisal Kidwai in an interview that strong America and Europe are good for India.
Here are the excerpts:
You have written an article, How GE is Disrupting Itself, that pioneered the concept of reverse innovation. Harvard Business Review has rated reverse innovation as one of the 10 big ideas of the decade. What is reverse innovation?
Historically, innovations happened in rich countries, such as the US, and then they moved to a poor countries like India. That's why most Nobel-prize winners are in the US or a rich country like Germany. People had money and they were willing to pay, so innovations happened there.
But now we are seeing something extraordinary: Innovations are flowing the other way. They are happening in the poor countries first and then they are migrating to advanced nations. This is what reverse innovation is all about.
Could you cite any examples?
There are lots of examples. John Deere, a major manufacturer of tractors in the US, is now producing utility tractors that are more suited to farming in India, where farmers don't have acres of farm land. John Deere now considers its Indian operations a centre of excellence.
Second example is Narayana Hrudayalaya Hospital in Bangalore, which is doing open-heart surgery for as little as $2,000, while the same operation costs as much as $50,000 in the US.
They are offering world-class technology for such complicated procedures as heart surgery for such a low price only because they want to serve the masses.
Now, they are opening a 2,000-bed hospital in Cayman Islands, which is a 50-minute flight from Miami, to serve the Americans. That's a classic case of reverse innovation.
Third is General Electric. They have made an ECG machine in India that sells for $500, while the same machine costs anywhere from $3,000 to $5,000 in the US. This is an ultra-low-cost ECG machine primarily meant for rural India. It's creating exciting opportunities for GE, but it's also helping Indians and the machine is now being sold in several countries.
You have said that Indian companies should not dumb-down technology and that innovation doesn't mean just products. What is innovation?
Innovation is about using latest technology, not yesterday's technology. In India, we use the word jugaad a lot, which means improvisation, and that has distracted us from the real issue. Jugaad is not innovation.
Narayana Hrudayalaya is not doing jugaad at heart surgery. It's using the same technology that's used at Mayo Clinic, a famous medical facility in New York. If you want to drive the cost down, then you will have to use the latest technology.
Innovation is not attaching bullock cart to a tractor. Innovation is using latest technology to solve India's problems.
Then we have to go beyond product innovation. Tata Nano is a great example. They have a car that works but, somehow, it hasn't reached the same level of success it was hyped to.
Part of the problem is that business-model innovation hasn't taken place. Product is just one part. Business-model innovation means marketing strategy, branding, distribution, etc. These areas all important and innovation is lacking there.
Sometimes, there is no need of a new product at all. The business model of an existing product can be innovated. Apple's iPod is a perfect case. People had been listening to music long before Apple came, but it innovated the business model and launched the iPod. That's a great example of using latest technology.
Indians should not stop at product but also focus on business-model innovation. Again, Narayana Hrudayalaya is the best example.
The global economy, especially Europe and US, is going through some tough economic times. How do you see the global economic scenario playing out?
The overall growth, both in the United States and more so in Europe, had been dramatically reset after the 2008 financial crisis and, although there is a recovery, but it's a very slow recovery and it's going to take a long time before we see the good old days.
This has put the spotlight on companies from the US and Europe to seek avenues of growth, which happens to be in the so-called emerging markets. That is the reason why my latest book, Reverse Innovation, has touched such a nerve and has been a bestseller.
Indian economy is facing its own difficult period. Are you optimistic about India?
Absolutely. Firstly, strong America and Europe are good for India and a strong India is good for America and Europe. If the US is strong, it will buy more products from India, it will invest more in India and it will develop more business ties with India.
A competitive US or Europe is very important for India because we are in a global world and interconnections between countries is very high.
After every recession there is a boom. Are we seeing signs of markets picking up?
I'm always an optimist and things are improving but we are some ways away from the boom. In the US, there are signs of improvement, but it's like two steps forward, one step backward and five steps sideways. The recovery isn't consistent and there's uncertainty.
What are your thoughts on political and economic impasse in India?
I'm an optimist but, of late, I've been worried and the worry is coming from the political gridlock. While it's true that, unlike China, India's growth is based on private sector and Indian entrepreneurs are doing a fantastic job worldwide, but the country cannot grow until it has a good political system and a strong leader. Recent regional elections show that a strong and leading party is unlikely to emerge any time soon.
What happens without strong leadership is that reforms get stalled, technology development doesn't receive focus and other such important areas take a back seat.
I hope in the next elections Indians are able to create the strong leadership that is needed.
We are hearing a lot of talk about increasing protectionism in the US? Do you think the US is headed towards more protectionism?
The greatness of America is its openness. The founders of this country knew that to make a nation strong they needed to be as open to immigrants as possible. It's a fact that immigrants make the pie bigger. They create jobs and opportunities.
But recently there has been some talk of reducing this openness. Some of it has to do with the slowdown in the economy. When the economy is not working well and when jobs are in short supply, 'outsiders' get blamed.
That's a very wrong way to look at things. Those who come from the outside create jobs. America should focus on the global economy and also continue the policy of freedom.
But, all said and done, America is still the most welcoming and the most open country in the world.