The process of reverse innovation begins by focusing on needs and requirements for low-cost products in countries like India and China. Once products are developed for these markets, they are then sold elsewhere - even in the West - at low prices which creates new markets and uses for these innovations.
Typically, companies start their globalization efforts by removing expensive features from their established product, and attempt to sell these de-featured products in the developing world. This approach, unfortunately, is not very competitive, and targets only the most affluent segments of society in these developing countries. Reverse innovation, on the other hand, leads to products which are created locally in developing countries, tested in local markets, and, if successful, then upgraded for sale and delivery in the developed world.
The phenomenon of reverse innovation was originally described using a different term - innovation blowback - by John Hagel and John Seely Brown in their 2005 McKinsey Quarterly article titled Innovation blowback: Disruptive management practices from Asia. In essence, their message warns that "the periphery of today's global business environment is where innovation potential is the highest... Edges define and describe the borders of companies, markets, industries, geographies, intellectual disciplines, and generations. They are the places where unmet customer needs find unexpected solutions, where disruptive innovations and blue oceans get birthed, and where edge capabilities transform the core competencies of the corporation."
C.K. Prahalad explains that there are five ways in which resource-starved developing countries lead rich nations:
- Leapfrog technologies
- Service ecosystems
- Robust systems
- Add-on applications.