GE bucks 'glocalization' trend, seeks more home-grown innovation

The days of glocalization -- when rich countries accounted for most of the market and other countries were afterthoughts -- are over. Instead of creating products here and retrofitting them later for local markets, consider moving innovation out to those markets.
Written by Joe McKendrick, Contributing Writer

Here's a mashup term to ponder: "glocalization."  Glocalization, as defined in Investopedia,  describes "a product or service that is developed and distributed globally, but is also fashioned to accommodate the user or consumer in a local market."  In other words, developed domestically, then retrofitted later on to meet local laws, requirements, and preferences.

However, some corporate leaders say glocalization is not the best strategy for the growing global marketplace, and that a new approach is needed. A far more effective way to reach global markets, they say, is through "reverse innovation." That is, develop and market new products in local markets, then bring them back to North America.

GE is an example of a company that is employing reverse innovation as a strategy for developing its next generation of products. Jeffrey Immelt, CEO of GE, along with Harvard professors Vijay Govindarajan and Chris Trimble, have just published an article, appropriately titled "How GE is Disrupting Itself," that describes the company's approach to  reverse innovation:

"In May 2009, General Electric announced that over the next six years it would spend $3 billion to create at least 100 health-care innovations that would substantially lower costs, increase access, and improve quality. Two products it highlighted at the time—a $1,000 handheld electrocardiogram device and a portable, PC-based ultrasound machine that sells for as little as $15,000—are revolutionary, and not just because of their small size and low price. They’re also extraordinary because they originally were developed for markets in emerging economies (the ECG device for rural India and the ultrasound machine for rural China) and are now being sold in the United States, where they’re pioneering new uses for such machines."

The authors observe that the days of glocalization -- when rich countries accounted for most of the market and other countries were afterthoughts -- are over. Witness the booming growth of Asian countries such as China and India, which just a couple of decades ago were mired in stifling poverty. Until recently, "it made sense for multinational manufacturers to simply offer them modifications of products for developed countries," the authors write. "Initially, GE, like other multinationals, was satisfied with the 15% to 20% growth rates its businesses enjoyed in developing countries, thanks to glocalization."

But rising competition from companies based within emerging markets have changed this dynamic. GE recognizes that it's future growth lies in its ability to grow stronger roots within local markets. As the authors put it, "GE badly needs innovations like the low-cost ECG and ultrasound machines, not only to expand beyond high-end segments in places like China and India but also to preempt local companies in those countries—the emerging giants—from creating similar products and then using them to disrupt GE in rich countries."

Reverse innovation encourages greater innovation at the grass roots level -- especially within emerging markets where new thought processes can be put to work.  The author's statements about reverse innovation also suggest a movement toward decentralizing innovation as well. Not only local markets in China may play a greater role in new innovation, but there may also be more impetus for innovation from employees and divisions on the domestic scene as well. Casting as wide a net as possible for new ideas and initiatives is always smart business.

This post was originally published on Smartplanet.com

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