«A Typology of Reverse Innovation»

Max von Zedtwitz, Simone Corsi, Peder Veng Søberg, and Romeo Frega. Journal of Product Innovation Management, n. 32(1), June 2014. See the references in the original publication of this text.


»Strengths and Merits of the Typology

»“Reverse innovation” is just one of many recent additions to the jungle of innovation terms that have come to be used in the context of developing countries and emerging markets. Concepts such as frugal innovation, cost innovation, innovation for the bottom of the pyramid, etc. (see Table 1) often have overlapping characteristics and create terminology confusion. Common to all of them is that they describe innovation in developing countries, from developing countries, and sometimes even for developing countries.

»The proposed model provides clarity at least with respect to reverse innovation. Building on Rogers’s (1962) concept of a flow of innovation and Vernon’s (1966) four main phases of international innovation, it distinguishes between advanced and developing countries both as markets and creators of global innovation flows. The global innovation model has expanded the notion of reverse innovation beyond a reintroduction of products successful in developing countries to markets in advanced countries. Knowledge is created, codified, and embodied in new products and services before launch, and the model captures the innovative value added in developing economies (e.g., Christensen et al., 2010; Hang, Chen, and Subramanian, 2010).

»This model appears to be one of very few to explicitly differentiate along the geographical locus of innovation; most international models of innovation map a flow between headquarter and subsidiaries (e.g., Ghoshal and Bartlett, 1988). For instance, reverse innovation and reverse knowledge transfer differ also in the sense that reverse knowledge transfer is simply knowledge flow back to the headquarters (Buckley et al., 2003).

»Previous research has assumed that innovation activities are ideally colocated; even Vernon’s hypothesis builds on the premise that the advanced country inventor is physically close to available technology, customers, and expressed needs. While the differentiation into only two location categories may be crude, it enables a clearer organization of future analysis along previously established patterns of research.

»Research that has emphasized the organizational locus of innovation—for example, offshoring, collaborative product development, reverse knowledge transfer, and outsourcing—can now be recast with potentially new insights.

»The definition of a “reversed” vis-à-vis a “normal” flow of innovation might raise concerns of ethnocentrism. Innovation is not a new concept for developing countries, even though they may not have the industrial sophistication of high-tech innovation found in advanced countries, and their innovations are generally diffused only within geographically limited regions, in contrast to the international innovation flows from advanced countries.

»For this purpose, the term “reverse” is no more than a tool for describing an empirical phenomenon seen against the current paradigm. Moreover, the reverse direction of the flow of innovation is not defined by any particular country (e.g., from a Chinese point of view, any innovation first launched somewhere else before it is launched in China could rightfully be considered a reverse innovation); it is the classification of the involved countries at the time of the flow that determines whether the innovation is reverse or not. For instance, a thousand years ago, Europe’s economy would have been classified as developing, whereas China’s and the Middle East’s would have been classified as advanced.

»The model thus also challenges our understanding of temporal continuity in innovation. Even though the model seems to impose a strict sequential straightjacket on innovation, it does not designate how much time may elapse in each phase or, equally important, between two phases. How much delay can there be in a process of innovation before it is no longer identifiable as a flow? How long can the innovation process be suspended?

»Rogers (1962) puts no upper limit on the time innovation may take to disseminate to new adopters. Related questions to resolve in this context involve the definition of the origin of an innovation (an identifiable source of a new idea or technology) and the extent to which the innovation can be internalized.

»Finally, the new model also introduces six new innovation flows that have not yet been identified as reverse flows in the literature. On the basis of the earlier marketbased definition, only xxDA flows (i.e., AADA, ADDA, DADA, and DDDA) have been recognized as reverse innovations. On the basis of the new model, six more innovation flows are reverse: ADAA, ADAD, DAAA, DAAD, DDAA, and DDAD. Two of these are reverse innovations in the strong sense.

»Weaknesses and Implications for Future Research

»While the relative simplicity of the model is useful for creating a cogent conceptual framework, the phases of an innovation flow may not always be as clearly delineated as the model would suggest, neither across time as part of a continuous flow nor across a multicountry geography. Any shortcomings of the model’s applicability need to be addressed in future research.

»With four distinct phases, the innovation flow is linear and gives the impression of being deterministic. The model, which follows the four generic phases of Vernon’s product life-cycle theory, could be expanded beyond primary and secondary markets (the final two innovation phases) toward tertiary markets, for instance when an innovation is first introduced in China as the home country, and next in other BRIC countries, before the company is sufficiently confident or resourceful to enter markets in advanced countries. Simultaneous market launches, especially those that immediately target both advanced and developing markets, also stretch the model.

»The notion of flow could also be more refined for the earlier innovation phases, but this would not fundamentally change the sequential logic of concept and product creation. This issue is more pronounced in mixedinnovation use of the model. For instance, it is often difficult, and sometimes impossible, to separate product from technology development. Is the Tata Nano a DDDx or an ADDx innovation? The case for DDDx is that the product was conceived in India; the case forADDx is that the automobile concept, on the basis of which the Tata Nano was later developed, was developed in the West.

»Drawing a clear boundary is also difficult when we have research-intensive products such as medicines (Oncovin, for example) where the first innovation phase is science rather than product focused. If the model is used for technology innovation, then questions about transitioning ownership and temporal distance between phases are likely to arise; if the model is used for product innovation, these issues are less acute.

»More research on innovation conducted concurrently in different countries is also necessary. This was hardly an issue during Vernon’s time, but with the arrival of modern telecommunication and information technologies and more lateral business structures, innovation is increasingly performed simultaneously in multiple locations. Most new product development projects are still conducted in one location or in one country only (Li and Vanhaverbeke, 2009), and even when several countries are involved, the leadership and the lion’s share of the work usually reside in one location. Still, there are always a few cases of innovation that are truly multinational in nature and that may be more difficult to map with the present simplified scheme. Given the multilateral collaboration in such innovation projects, we suspect they would not qualify as reverse innovations.

»It may be worthwhile to note that an innovation can only be called reverse after a reversal of the flow has actually occurred. What exactly triggers those reversals, that is, the antecedents of reverse innovation, remains largely unexplored, and would require a reclassification of push and pull factors in global R&D and innovation literature.

»Another expansion of the model concerns the relatively simple distinction between “advanced” and “developing” economies. A more nuanced model could include fast-follower countries such as China, India, and Turkey; least-developed countries, which make up the majority of “markets at the bottom of the pyramid” (Prahalad, 2004); and newly industrialized countries. Such countries are aggregated in the model under the term “developing country”; future research should utilize the categorization scheme best suited to the chosen reference framework and intended application.

»The model allows researchers to conceptualize, capture, and analyze areas of global innovation thus far neglected because of few actual observed innovation cases (e.g., a DADAflow of innovation) but of potentially important future application and theoretical interest. The model also seems to map a generational timeline from the top (AAAA) to the bottom (DDDD), implying that, historically, the majority of global innovation flows first took place in ways identified by Vernon (AAAA or AAAD) but gradually started to include flow types located immediately below, such as those that targeted developing countries as primary markets, as well as flow types emerging later, such as those that describe product development in developing countries.

»Research Propositions

»While the majority of global innovation still seems to be of Vernon’s original type, future innovation flows will likely be more evenly distributed among the types outlined here. As described earlier, there is a trend, driven in part by the global ascendency of MNCs [multinational companies] from developing countries, in part by MNCs worldwide, and especially by advanced countries, to locate R&D centers in developing countries while continuing to serve markets in their home countries. Thus:

»Proposition 1: In the future, there will be more reverse innovation of both weak and strong types.

»MNCs aim to leverage local advantages in global innovation, although these advantages may differ between advanced and developing countries. Reverse innovations in the strong sense are originating mostly from developing countries, according to the model, while weak reverse innovation originates from advanced countries.

»Six of the 10 reverse innovation flows, and four of the five strong reverse innovation flows, have their earliest ideation stage in a developing country, and only one (weak) reverse innovation flow does not pass through a developing country in either concept development or new product development. Hence:

»Proposition 2: Developing country MNCs will engage more in strong reverse innovation than will advanced country MNCs, and advanced country MNCs will engage more in weak reverse innovation.

»Failing to leverage local home country advantages would be as damaging as failing to exploit market opportunities abroad. Several cases of reverse innovation reported in this paper were motivated by the failure to successfully innovate the original technology along traditional global innovation flows.

»Competing firms who master the art of leveraging countries as sources of both know-how and markets, wherever they may be and at whatever level of development, will have an advantage over those firms that stagnate in their global innovation capability (Chen, Huang, and Lin, 2012). Therefore:

»Proposition 3: MNCs that engage in reverse innovation will improve their overall innovation productivity.

»Access to host country advantages has been a strong driver for globalization of innovation (von Zedtwitz and Gassmann, 2002). Findlay (1978) argues that countries with large development differences have a stronger need to catch up, while Cohen and Levinthal (1990) suggest that countries with lowcognitive and institutional distance find it easier to do so.

»Intellectual property regimes are of particular importance in this context, as they have positive bearing on both foreign inbound direct investment and overall domestic innovative capacity and stock of knowledge, improving overall conditions for innovation in a country (D’Agostino and Santangelo, 2010). Thus:

»Proposition 4: In the future, there will be more reverse innovation (both weak and strong) from developing countries with improved institutional frameworks.»

Innovation Typologies
Thematic Readings

«A Business Model Innovation Typology»

Yariv Taran, Harry Boer and Peter Lindgren. Decision Sciences, , vol. 46, n. 2, April 2015. See the references in the original publication of this text.

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Innovation Typologies
Thematic Readings

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