Dimension to Disruptive Innovation Theory

Disruptive Innovation . . . in Reverse:
Adding a Geographical Dimension to
Disruptive Innovation Theory
Simone Corsi and Alberto Di Minin
Based on a literature review on disruptive innovation and innovation from emerging economies, we offer an interpretation of a subset of reverse innovation within the disruptive
innovation theory. We argue that the combination of these two theories provides a useful
framework to look at emerging economies as sources of new products and technological
solutions. Finally, we provide a new categorization of disruptive innovation considering a
geographical dimension and future research directions.
Introduction
I
n a fast-changing world, where emerging
economies are constantly increasing their
importance in the global economy and where
innovation assumes an international dimension, an increasing number of scholars have
looked at the phenomenon of innovation in
emerging economies. Several authors are
investigating in what way these countries are
not only recipients (Vernon, 1966) but also
sources of innovation (Hart & Christensen,
2002; Immelt, Govindarajan & Trimble,
2009; Kenney, Massini & Murtha, 2009;
Govindarajan & Trimble, 2012).
Scholars refer to this trend in different ways,
depending on the aspect they focus on, such as
‘disruptive innovation from emerging economies’ (Hart & Christensen, 2002), ‘innovation
at the bottom of the pyramid’ (Prahalad, 2004),
‘cost-innovation’ (Zeng & Williamson, 2007) or
‘reverse innovation’ (Immelt, Govindarajan &
Trimble, 2009). However, the managerial literature is still lacking both a clear and solid
theoretical position and a strong theoretical
framework within which a new innovation
trend from emerging economies can be read
and interpreted (Govindarajan & Ramamurti,
2011). Hence, the aim of this paper is firstly to
critically review the literature concerning
innovation from emerging economies, and secondly to contribute a rationalization of the
related concepts, attempting a reinterpretation
of the concept of ‘reverse innovation’ (Immelt,
Govindarajan & Trimble, 2009; Govindarajan
& Trimble, 2012), defined as a type of ‘disruptive innovation’ (Christensen, 1997).
Building on our review of the existing work
(see Appendix A and Table 1), we suggest that
the combination of these two frameworks provides a useful scheme to look at emerging
economies as sources of new products and
technological solutions.
In the last ten years, scholars have started to
look at companies that serve those markets in a
different way. Glocalization – adapting to
emerging markets products developed for
advanced ones – is in fact assumed to be partially ‘blind’ or ineffective for the purpose of
serving emerging market needs, given its
ability to reach only the wealthier part of the
population. The new challenge of the twentyfirst century has been identified in the profitable development and sale of new products for
the mass markets of less affluent populations
of emerging economies that are currently not,
or only partially, served by multinational corporations (MNCs). The innovation management literature has produced a limited
number of studies (Hart & Christensen, 2002;
Prahalad, 2004; Immelt, Govindarajan &
Trimble, 2009; Hang, Chen & Subramanian,
2010; Govindarajan & Trimble, 2012), largely
based on anecdotal evidence, trying to identify
new ways of pursuing innovation in emerging
economies. Most of these studies build their
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10.1111/caim.12043
© 2013 John Wiley & Sons Ltd
argument, more or less implicitly, on the wellknown ‘disruptive innovation’ paradigm as
defined by Christensen (1997) and Christensen
and Raynor (2003), further derived as disruptive innovation in emerging economies in
Prahalad’s seminal work on innovation for the
‘bottom of the pyramid’ (BOP) (Prahalad,
2004).
Given the specificity of the context for and
in which these innovations need to be develTable 1. Main Innovation Concepts Related to Emerging Economies (Literature and Examples)
Concept Literature Examples
Disruptive
Innovation
Acee (2001); Anthony et al. (2006); Bower &
Christensen (1995); Cefis & Marsili (2006);
Charitou & Markides (2003); Christensen
(1997, 2006); Christensen & Overdorf
(2000); Christensen & Raynor (2003);
Christensen et al. (2000, 2006); Chesbrough
(2002); Corso & Pellegrini (2007); Danneels
(2004); Gilbert (2003); Gilbert & Bower
(2002); Glazer (2007); Govindarajan (2012);
Govindarajan & Kopalle (2006a, 2006b);
Govindarajan et al. (2011); Henderson
(2006); Johnson et al. (2008); Johnson
(2012); Kanter (2010); Kassicieh et al.
(2002); Mangelsdorf (2009); Markides
(2006); O’Reilly & Tushman (2004); Rafii &
Kampas (2002); Sandström, Magnusson &
Jörnmark (2009); Schmidt & Druehl (2008);
Simanis & Hart (2009); Suzuki & Kodama
(2004); Utterback & Acee (2005); Yu &
Hang (2010, 2011)
Hard disk drive; digital
photography; mobile
phone
Disruptive
Innovation
from Emerging
Economies
Hang et al. (2010); London & Hart (2004);
Markides (2012); Ray & Ray (2011); Schanz
et al. (2011)
Galanz’s microwave;
Suzlon’s windmills;
Haier’s washing
machine
Innovation for
the Bottom of
the Pyramid
Akula (2008); Anderson et al. (2010); Ansari
et al. (2012); Garrette & Karnani (2010);
Gino & Staats (2012); Hart & Christensen
(2002); Karamchandani et al. (2011);
Karnani (2007); Olsen & Boxembaum
(2009); Prahalad (2004, 2012); Prahalad &
Hammond (2002); Prahalad & Hart (2002);
Rangan et al. (2011); Simanis (2012); Wood
& Hamel (2002)
Aravind Eye Care’s
hospitals; ICICI Bank’s
microcredit; Casas
Bahia’s retailers
Cost Innovation Williamson (2010); Williamson & Zeng (2004,
2009); Zeng & Williamson (2007)
China International
Marine Containers
Group’s shipping
service; Dawning’s high
performance computers
Reverse
Innovation
Govindarajan and Trimble (2012); Immelt,
Govindarajan & Trimble (2009)
GE Healthcare’s ECG
machine; P&G’s
honey-based cold
remedy; P&G’s
feminine hygiene
product; Tata Nano
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oped, domestic companies seem to be best
placed to pursue them. By virtue of their
embeddedness, local market knowledge and
low cost approach, domestic companies
develop new product solutions for emerging
markets that challenge the activities of foreign
MNCs. This phenomenon has mostly been
referred to as ‘cost innovation’ (Zeng &
Williamson, 2007). Indeed, growing attention
has been paid to companies from emerging
economies and how in going global they
threaten western MNCs in the home markets
that they have dominated for decades.
Responding to this threat is a new challenge
for incumbent MNCs and, in our opinion, ‘disruptive innovation’ is a useful way to describe
the new trend that has recently been defined
as ‘reverse innovation’ (Immelt, Govindarajan
& Trimble, 2009). According to Immelt,
Govindarajan and Trimble (2009) and
Govindarajan and Trimble (2012), since most
current and future global economic growth is
likely to take place in emerging economies,
innovation specifically aimed at responding to
these markets is crucial. Indeed, new products
developed entirely in emerging markets for
emerging markets are likely to disrupt developed markets and open new business opportunities, as shown, for example, by Zeng and
Williamson (2007). This phenomenon thus
configures a process of innovation that no
longer sees developed economies as the locus
where new products are conceived, designed
and commercialized, but instead takes on the
role of the last recipient of innovations developed in and for emerging economies.
This paper builds on the disruptive innovation literature and contrasts its analysis with
the concept of reverse innovation. We believe
we bring two theoretical contributions:
1. Adding a geographical dimension to disruptive
innovation. The original specification of
disruptive innovation is a theory that seeks
to explain dynamics within established
markets. However, a geographical dimension needs to be considered to make disruptive innovation useful for interpreting
situations where the disruptors originate
from emerging markets.
2. A new look at disruptive and reverse innovation
side by side. Consistent with Govindarajan
and Trimble (2012), we emphasize that the
concepts of disruptive and reverse innovation have an overlapping, though not a oneto-one, relationship. By looking at these two
theories side by side, we are able to better
clarify similarities and differences. We distance ourselves from the claim that disruptive innovation in reverse stems only from
an income gap. On the contrary, disruptive
in reverse rests not only on cost advantage
in the market segment but also on new
characteristics and features of the disruptive product originated and tested in a
developing country and appreciated in
advanced countries.
This paper is organized as follows. In the
next section, we lay the foundations of our
analysis by reviewing disruptive innovation
theory. This will be used as our framework to
interpret the other sections that take into
account disruptive innovation as considered in
the different streams of literature related to
innovation in emerging economies. The third
section explores the dynamics of innovation at
the Bottom of the Pyramid (BOP), while the
fourth section investigates the conceptualization of disruptive innovation from emerging
economies. The concept of reverse innovation
is introduced in the fifth section and interpreted within the Disruptive Innovation
framework in the sixth section. The seventh
section provides a new categorization of Disruptive Innovation, considering a geographical dimension. Finally, conclusions and future
research directions are presented together
with selected research propositions.
Disruptive Innovation
Introduced in 1995 by Bower and Christensen,
the concept of disruptive innovation was
refined by Christensen in 1997 with his ‘Innovator’s Dilemma’, asking why great companies pursuing innovation in mainstream
markets suffer from market myopia and are
overtaken by entrant firms introducing products based on new, disruptive technologies.
To explain this phenomenon, Christensen
distinguishes between sustaining and disruptive technologies. The former are technologies
that respond to an improvement, radical or
incremental, of ‘established products, along
the dimensions of performance that mainstream customers in major markets have historically valued’ (Christensen, 1997, p. xv).
Disruptive technologies, on the other hand,
are innovations for existing products but on
attributes that differ from those that are mainly
valued by mainstream customers. These innovations, which initially underperform with
respect to the main attributes of sustaining
technologies, become disruptive when they
reach the same performance as the sustaining
innovations on the attributes valued by mainstream customers. At this point, they displace
existing technologies and cause, in most cases,
the failure of incumbent firms. Christensen
describes as an example the evolution of the
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hard disk drive industry between 1976 and
1992. In this market, mainstream customers
constantly required improvements in two
attributes, total capacity and recording density.
The industry and incumbent firms were led by
this trend until an emerging segment asked for
improvements on different attributes, in particular, the size of drivers. At the beginning,
this segment remained marginal and was
mainly covered by small entrant firms that
could afford to do so by virtue of their relatively limited cost structure, but while the
products offered gained improved performance, including the mainstream segment
attributes, the market based on sustaining
technologies was progressively displaced,
causing the failure of incumbents.
In earlier works, Christensen (Bower &
Christensen, 1995; Christensen, 1997) refers to
disruptive technology only as an ‘innovation
that results in worse product performance in
mainstream markets’. It is also described as a
‘typically cheaper, simpler, smaller and frequently more convenient to use’ version of an
existing product.
In an updated version of the concept,
Christensen and Raynor (2003) distinguish
between ‘low-end disruptions’ and ‘(newmarket) high-end disruptions’. The former are
those offering lower performance at a cheaper
price but no other performance improvements, while the latter are described as products and services that offer better performance
on attributes that differ from those valued by
mainstream customers (e.g., the mobile phone,
initially low performing in reception, which
disrupted the market for home phones).
Christensen also asserts that disruptive
technologies should be framed as a marketing, and not a technological, challenge
(Christensen, 2006; Glazer, 2007). Firms succeeding in disruptive innovations have a
strong attitude in interpreting and addressing
needs expressed by a market niche or a new
market segment. Thus, the challenge that
incumbent firms should overcome in developing and responding to disruptive innovations
relates to the development of capabilities to
forecast market trends and attitudes as well as
‘riding’ new technological trajectories (Rafii &
Kampas, 2002; Charitou & Markides, 2003;
Suzuki & Kodama, 2004; Corso & Pellegrini,
2007).
Disruptive innovation has been used from
the very beginning to discuss innovation
dynamics taking place with the entry of new
companies in established and developed
markets (Chesbrough, 2002). One of the most
convincing responses provided by researchers, albeit widely discussed and doubted
(Danneels, 2004), is that these companies
should promote the creation of spin-off enterprises in order to better serve and interpret
emerging markets (O’Reilly & Tushman, 2004;
Kanter, 2010; Johnson, 2012). The creation of a
separate organization of a smaller dimension
with large autonomy allows the problem of
resource allocation that is too mainstream customer oriented to be overcome. Matching the
initially small market size to the size of
the investment potentially enables the new
company to be profitable (Kassicieh et al.,
2002; Anthony, Eyring & Gibson, 2006; Cefis &
Marsili, 2006; Sandström, Magnusson &
Jörnmark, 2009).
Since its coinage, the concept of disruptive
innovation has been widely discussed from
different perspectives (Christensen, Bohmer &
Kenagy, 2000; Christensen, Johnson & Rigby,
2002; Gilbert & Bower, 2002; Gilbert, 2003;
Danneels, 2004; Christensen et al., 2006;
Henderson, 2006; Johnson, Christensen &
Kagermann, 2008; Schmidt & Druehl, 2008;
Yu & Hang, 2010, 2011). In particular,
Govindarajan and Kopalle (2006a, 2006b)
make a clear distinction between low-end and
high-end disruptions based on the level of
radicalness of disruptive innovations (technologically more radical in high-end disruptions,
technologically less radical in low-end disruptions). The authors also make a clear distinction between innovations that are radical and
disruptive and merely radical, stating that
radicalness is a technology-based concept
while disruptiveness is a market-based
concept. Analogously, Markides (2006) draws a
clear distinction between different kinds of
disruptive innovations: technological, business
model and new-to-the-world product innovations. From this distinction and from the work
of Utterback (2004), Acee (2001) and Utterback
and Acee (2005), who recognized the importance of disruptive technologies not in the fact
that they displace existing products but in
their ability to enlarge existing markets and
provide new functionalities, Govindarajan and
Kopalle add rigour to an expanded view of
disruptive innovation, including both highend and low-end disruptions and define the
concept as follow (2006a, p. 190):
A disruptive innovation introduces a different set of features, performance and price
attributes relative to the existing product, an
unattractive combination for mainstream
customers at the time of product introduction because of inferior performance on the
attributes these customers value and/or a
high price – although a different customer
segment may value the new attributes. Subsequent developments over time, however,
raise the new product’s attributes to a level
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sufficient to satisfy mainstream customers,
thus attracting more of the mainstream
market.
In the examples of disruptive technologies
provided by Christensen (1997) and
Christensen and Raynor (2003), the new
market segment that adopts the disruptive
solution belongs to the same market where
incumbent companies operate. The emergence
of new technologies triggers interest within
the mainstream segment where these incumbents operate, hence rendering access to the
disruptive offering (initially not desired)
also possible to mainstream customers
(Govindarajan, Kopalle & Danneels, 2011).
In conclusion, we can argue that disruptive
innovation is a theory that seeks to explain
changes and new entries into established
markets. The result of disruptive innovation is
visible when mainstream customers switch to
the new disruptive product that is gaining
market share on established markets.
What if the new disruptive solution has
been brought to maturity and has triggered
interest in markets that are geographically
distant and disconnected from established
markets? Disruptive innovation theory was
not developed, and is as yet too unrefined, to
explain this phenomenon.
Innovation at the Bottom of the
Pyramid (BOP)
While the disruptive innovation paradigm
explores the dynamics originating within the
hub of an industry, a new approach was developed to understand what was taking place in
emerging economies and their markets
(Karnani, 2007; Akula, 2008; Gino & Staats,
2012). This orientation brought scholars to
thinking of emerging economies as focal
markets to which companies should pay
increasing attention and develop a new R&D
orientation (Prahalad & Hart, 2002).
Traditionally, MNCs delocalized their R&Doriented foreign direct investment (FDI) in
emerging economies for two main reasons
(Gassmann & Han, 2004; Von Zedtwitz, 2004):
• access to local markets,
• access to high-skilled research personnel at
a lower cost.
Following these two drivers, most R&D
carried out by foreign MNCs in emerging
countries consisted in the adaptation of global
products to the specific needs of the local
market. R&D, crucial for the development of
new products, has traditionally been undisclosed by headquarters (Patel & Pavitt, 1991; Di
Minin & Bianchi, 2011), and this is particularly
true of R&D internationalization in emerging
economies.
The new perspective in the early 2000s was
that emerging market potential was not
exploited with the previous approach and that
a new type of innovation management had to
be developed. Companies noted that responding to local market needs with a simple local
adaptation of global products developed in
their (mainly) western headquarters (glocalization) was ineffective in exploiting the entire
potential of these growing markets (London &
Hart, 2004; Rangan, Chu & Petkoski, 2011).
Prahalad and Hart (2002), and later on
Prahalad (2004), introduced the new approach
to emerging economies as a source of significant profit generation through the development and commercialization of ad hoc products
and services for the markets of the poor
(Garrette & Karnani, 2010; Simanis, 2012).
Prahalad’s approach is expressed in the title of
his 2004 book The Fortune at the Bottom of the
Pyramid: Eradicating Poverty through Profits. The
author identifies a large opportunity both for
local and MNCs operating in emerging economies and provides examples such as ICICI
Bank, which provides Indian rural populations
with bank credit for small projects (which in
turn become profitable and make them able to
return the loan with low interest), or Voxiva,
which developed a text message-based platform for favouring communication between
urban and health centres in Peru. Both projects,
based on low cost and pricing strategies, faced
an experimental stage for the purpose of validating their economic feasibility and soon
moved forward, replicating their model in
other emerging countries and contexts.
According to Prahalad’s perspective, MNCs
serving only the top of the pyramid (the
wealthier part of the population) in emerging
economies suffer from business myopia in a
way that closely recalls the marketing challenge that Christensen’s incumbent firms
faced in developing disruptive innovation for
new or emerging market niches.
What is of great interest to us is that,
although there is no direct and explicit link
between these theories, the BOP concept
shares some similarities with the disruptive
innovation theory (Hart & Christensen, 2002;
Prahalad & Hammond, 2002; Prahalad, 2012).
It suggests developing products and services
for a market segment requesting different
attributes than those of mainstream customers
(Wood & Hamel 2002; Seelos & Mair, 2007;
Anderson, Markides & Kupp, 2010) and, in
particular, access to the same technology at a
much lower price. In reality, it addresses a
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market that does not yet exist, seemingly configuring what Govindarajan and Kopalle
(2006a, 2006b) identify as disruptive innovation that creates a new market. In our opinion,
innovation at the BOP cannot be easily, or
entirely, assimilated with disruptive innovation theory. We will explain why in the next
section, explicitly linking the BOP to the disruptive innovation paradigm.
Disruptive Innovations from
Emerging Economies
Parallel to the work on ‘Serving the Bottom of
the Pyramid’, a further wave of exploration
was initiated by scholars linking the disruptive
innovation theory and Prahalad’s non-served
markets of the poorest in emerging economies
(Hart & Christensen, 2002; London & Hart,
2004).
The argument of scholars applying disruptive innovation to explain the success of new
products originating from emerging economies is as follows: foreign MNCs develop
products for emerging markets and later use
them to penetrate the low-end segment of
developed markets in the US and Europe, and
domestic firms leverage on their cost structure
and knowledge of the domestic context to
serve local, and later developed, markets (Ray
& Ray, 2011; Schanz et al., 2011; Markides,
2012).
To the best of our knowledge, Hart and
Christensen (2002) for the first time introduced
the link between disruptive innovation theory
and emerging economies. Their argument is
clearly in line with Prahalad’s work referring
to ‘innovation from the base of the pyramid’.
The authors propose examples of Asian companies that succeeded in introducing disruptive innovations in low-income countries,
enabling poor people to afford certain types of
technological products and generating profits
for themselves.
Recently, Hang, Chen and Subramanian
(2010) demonstrated four cases of Asian companies that, starting from their low-income
markets (China and India), developed disruptive products. Galanz and Haier, for example,
developed ad hoc products for penetrating the
Chinese domestic market and responding to
specific local needs (a microwave for Galanz
and a washing machine for Haier). Once they
succeeded in China, they were able to export
their product to developed countries serving a
market segment that was ignored by incumbents due to its size, a market segment that
was eager for low-cost products with strong
energy and room-saving attributes and that
did not care about traditional attributes for
those items such as capacity. After a few years
of internal and external R&D investment, both
companies were able to penetrate also the
high-end of advanced economies’ markets,
disrupting local incumbents. The success
pursued in these markets brought them performance improvements on attributes that had
at first been neglected and valued by mainstream customers in developed economies.
This pushed them to invest globally and to
steadily grow in developed economies.
We believe that in both works cited above,
the disruptive innovation concept is used in a
way that differs from the traditional application of the concept within established markets
in developed economies. The traditionally
defined disruptive innovation paradigm
(Bower & Christensen, 1995; Christensen,
1997) claims that new products (or services)
are considered disruptive when they respond
to an ignored and new market segment that is
usually small, unprofitable for incumbents and
has differentiated needs in terms of product
attributes. Could we say that the idea of innovation originating in emerging markets presented by Hart and Christensen (2002) is
indeed a disruptive innovation? We think this
is true only in part, and that three limitations
need to be considered in relation to the characteristics of disruptiveness mentioned above.
In particular, we need to consider (1) the
categorization of mainstream and nonmainstream customers, (2) market size, and (3)
disruptive innovators (see Table 2):
1. Companies operating in emerging economies have traditionally served those
markets adopting a glocalization approach
to market segmentation, thus serving customers that correspond and share similar
characteristics to those segments served
back in their country of origin or in developed markets. These are their mainstream
customers, who might represent the great
majority at home but in emerging economies represent only the top of the pyramid.
Adopting a marketing perspective instead,
as the disruptive challenge requires us to
(Christensen, 1997; Danneels, 2004), mainstream customers in emerging markets
should be defined as the large part of the
population (be it individuals or companies)
that cannot afford expensive state-of-the-art
technology and that are partly served by
local companies that can interpret their
needs and respond to them thanks to their
cost structure.
2. One of the main challenges that incumbent
firms face when developing or responding
to disruptive innovations in their markets is
that the size of the emerging market with
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different requirements is too small to cover
the development costs of new products
(Christensen, 1997; Christensen & Raynor,
2003). Indeed, the size of the market does
not match the size of the company and its
related cost structure as it does in the case
of small entrants or spin-off companies.
This is not true in emerging economies,
where the market served by innovations, as
in the cases presented in Hart and
Christensen (2002) and Hang, Chen and
Subramanian (2010), is much bigger than
that served by glocal products, so that the
market size is potentially huge, assuming
that access to these market segments is
feasible.
3. Disruptive innovations in developed economies generally come from a small entrant
firm (e.g., a start-up company) that is generated by either a new entrepreneurial
activity or a spin-off company from an
incumbent firm (Bower & Christensen,
1995; Christensen, 1997; Walsh, Kirchhoff &
Newbert, 2002; Christensen & Raynor,
2003). The generation of disruptive innovations in emerging economies could be
developed by domestic companies that
naturally have a cost structure and a market
orientation that fits the local environment
and by subsidiaries of MNCs that have
evolved and gained enough autonomy to
develop new products. The case of companies from emerging markets is well
described by Zeng and Williamson (2007)
who report on how innovations developed
by Chinese companies are disrupting global
markets by primarily leveraging on new,
low cost based, business models. The innovative approach of these companies is
defined by the authors as ‘cost innovation’.
Reverse Innovation
In the previous sections, we showed how disruptive innovation theory does not adequately
fit the description of innovations developed
for emerging economies and afterwards
‘exported’ back to developed economies.
‘Reverse innovation’ (Govindarajan, 2009;
Immelt, Govindarajan & Trimble, 2009;
Govindarajan & Trimble, 2012) is a more suitable framework that helps us understand this
trend. This new line of research emphasizes
the role of emerging economies as the new
laboratory in the global economy and argues
that innovation is less likely to come from, and
is adopted in, developed countries first, but is
conceived and adopted in emerging economies first to then be introduced to developed
markets. It is then ‘exported’ to the developed
economies. These dynamics reverse the innovation process as intended in the prior literature and managerial practice. The reasons that
support such an inverted process lie in the
market growth of the developing countries
that are supporting and leading the global
economy.
In their 2009 article ‘How GE is Disrupting
Itself’, Immelt, Govindarajan and Trimble
show how GE is benefiting from its presence
in the markets of emerging economies, specifically China and India, to develop breakthrough innovations that are introduced and
successfully commercialized first in developing countries and later, when performance
improvements are acceptable, in developed
countries. They provide clear examples for GE
Healthcare developing and perfecting products in both China (Immelt, Govindarajan &
Trimble, 2009) and India (Govindarajan &
Trimble, 2012) before selling them in those
markets first and in advanced ones later on,
disrupting existing products in some markets
as a result of performance improvements
on the attributes most valued by mainstream
customers.
The authors stress the importance of local
growth teams (LGTs) as new units, independent from their MNC headquarters (HQ), built
from scratch in emerging economies. They are
responsible for the complete development and
commercialization of products leveraging HQ
technology but developing completely new
offerings that match the market they operate
in. While GE Healthcare is a well-known
example, there are other cases that present
similar innovation paths. Esaote, an Italian
medium-sized company that designs and
manufactures medical diagnostic systems, is
currently sourcing product ideas for the global
market from its R&D laboratory located in
Shenzhen (Corsi & Di Minin, 2012).
These cases explain how in order to
compete in emerging economies, foreign
MNCs have to rely on LGTs in order to
develop innovations that fit local needs and
overcome local constraints. At the same time,
they do not neglect the glocalization paradigm
in line with which MNCs have to continue to
operate to serve high-end markets and build
part of the technological knowledge that is
essential for the activities of LGTs in emerging
economies.
Overlapping Areas between
Disruptive and Reverse Innovation
Given the above considerations, the disruptive
innovation theory can provide a useful tool for
interpreting the phenomenon of innovation
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from emerging economies. As we showed in
the above sections, scholars have already identified this opportunity, but we think it needs to
be refined and integrated with reverse innovation to effectively frame a reversed cycle of
innovation. The characteristics that Immelt,
Govindarajan and Trimble (2009) and
Govindarajan and Trimble (2012) list and illustrate to describe reverse innovation partly
match those described in the previous sections
of this paper recalling disruptive innovation theory as illustrated by Bower and
Christensen (1995), Christensen (1997), Acee
(2001), Christensen and Raynor (2003),
Utterback and Acee (2005) and Govindarajan
and Kopalle (2006a, 2006b). In particular,
under specific circumstances reverse innovation shares great similarities with the idea of
disruptive innovation from emerging economies as illustrated by Hart and Christensen
(2002), Zeng and Williamson (2007) and Hang,
Chen and Subramanian (2010).
Govindarajan and Trimble (2009) responded
to this parallelism themselves following the
requests of some readers of their paper who
asked for clarification between disruptive
innovation and reverse innovation. In one of
Govindarajan’s blog posts (30 September
20091
), they list a set of conditions that reverse
innovation can originate from, stating that the
one concerning a lower price offer is the only
one configuring it also as a disruptive innovation. The same issue is addressed by
Govindarajan and Trimble (2012). They thus
consider disruptive innovation only from a
price/performance point of view, and not as a
market widener or as a provider of new
functionalities, implicitly stating that disruptive innovation can only have a lower price.
We do not believe this is completely true.
Referring back to Govindarajan’s works
on disruptive innovation, we note that
Govindarajan and Kopalle (2006b) define disruptive innovation as ‘a powerful means for
broadening and developing new markets and
providing new functionality, which, in turn,
disrupt existing market linkages’.
Therefore, the focus now lies in the alternative attributes that are offered by the innovation in relation to an existing product. These
new products are able to penetrate the market
starting from early adopters and improve performance in the ‘mainstream’ thanks to the
experience accumulated in serving the new
segment. In line with Christensen and Raynor
(2003) and Utterback and Acee (2005),
Govindarajan and Kopalle (2006a) define disruptive innovation in the way presented in the
second section of this paper and include both
new, low-end and high-end attributes to existing products that initially are tempting only to
new customers (thus not necessarily pricefocused) or the most price-sensitive mainstream customers, but in developing over time
they also gain the attention of mainstream customers and the market.
In summary, Govindarajan and Trimble
(2012) state that reverse innovation has five
drivers, named ‘gaps’ (performance, infrastructure, sustainability, regulatory, preferences), but the examples they provide in
their work (Immelt, Govindarajan & Trimble,
2009; Govindarajan & Ramamurti, 2011;
Govindarajan & Trimble, 2012) stress fundamentally the income (or performance) gap
(Logitech Mouse in China, P&G feminine
hygiene product in Mexico, Deere Tractor in
India, Harman infotainment system in India
and China), and indirectly lead us to understand that reverse innovation takes the direction of a potential disruptive effect only when
an equivalent income gap can be found isolating a segment of the market in an advanced
economy. While we acknowledge that indeed
the income gap is a key driver, the emphasis of
Christensen’s low-end disruptive innovation is
on new markets being created, and new value
networks displacing the old ones. Such dynamics in reverse-disruptive innovation happen
not only when a company from emerging countries enters advanced ones to serve the needs of
a less affluent market segment, but indeed disruption occurs when the technological evolution and market experience lead this offering to
go from the niche to the main market. In these
situations of reverse-disruptive innovations,
we indeed identify the following common
elements between reverse innovation and disruptive innovation: the same risks of
cannibalizations for companies that have previously invested in the same industries for mainstream customers (Govindarajan & Kopalle,
2006a, 2006b; Immelt, Govindarajan & Trimble,
2009), which is also a tool for measuring the
potentiality of firms to develop disruptive
innovations (Govindarajan & Kopalle, 2006b).
As anticipated by Williamson and Zeng
(2004, 2009), Seely Brown and Hagel (2005),
Williamson (2010) and Zeng and Williamson
(2007) with reference to business models, disruptive innovations are a tool to pre-empt
giants from emerging economies that are
going global with a new price-performance
offering, which is exactly the same purpose of
reverse innovation (Immelt, Govindarajan &
Trimble, 2009).
LGTs that Immelt, Govindarajan and
Trimble (2009) and Govindarajan and Trimble
(2012) explain as crucial for the development of
innovations for emerging economies mirror the
spin-off companies described by Christensen
and Overdorf (2000), Christensen, Bohmer and
DISRUPTIVE INNOVATION . . . IN REVERSE 83
Volume 23 Number 1 2014 © 2013 John Wiley & Sons Ltd
Kenagy (2000), Christensen and Raynor (2003)
and Danneels (2004, 2006), as the best solution
for incumbents that want to compete with or
develop disruptive innovations.
We therefore believe that disruptive innovation theory can be a rich tool for interpreting a
subset of reverse innovation as defined by
Immelt, Govindarajan and Trimble (2009) and
Govindarajan and Trimble (2012). Adopting
this perspective, we believe we can enrich the
disruptive innovation theory from an emerging country perspective.
Geographic Dimension of
Disruptive Innovation
As discussed in the previous section, it is possible to interpret a subset of reverse innovation, and the considerations that follow are
limited to this subset, as a particular manifestation of disruptive innovation. In fact,
Govindarajan and Trimble seem to suggest the
same by proposing an uphill flow of reverse
innovation to marginalized first and, often,
mainstream markets in advanced economies
(2012: 22). Can we thus simply generalize the
findings and implications of disruptive innovation originating from developed countries to
situations of reverse innovation?
The answer is no. Such a generalization does
not work, since success stories of disruptive
innovation originating from developed
markets differ substantially from success
stories that export successful products back to
developed markets that were first introduced
in emerging economies. Table 2 summarizes
the main differences discussed below:
• Early market: in disruptive innovation
theory, the market segment served by the
new technology is characterized by early
adopters. In reverse innovation, the early
market is instead represented by the large
part of the population, or BOP, that has no
access to the established technology because
it is either too expensive or too complex.
This is hardly the case with early adopters
and developed markets. These differences
should lead to completely different marketing strategies.
• Actors: the small size of the early market in
disruptive innovation theory makes spin-off
companies or small new entrants the only
actors able to serve this market profitably.
On the other hand, the vast size of the new
market segment to be served in emerging
economies allows both local start-ups,
foreign MNC subsidiaries and large local
companies to make profit from it by exploiting economies of scale. The key question is
whether local start-ups will find the complementary assets to reach international
markets. Conversely, there are examples
(see the case of Aravind Eye Care in
Prahalad, 2004) of successful disruptors in
emerging economies which were not able to
expand internationally.
• Expansion: the evolution of disruptive products conceived in and for developed
markets brings innovative technologies to
commercialization in the same markets as
the established ones, while disruptive products introduced in and for developing
economies allow foreign MNCs and domestic companies to export their evolved
disruptions to mainstream markets in
developed countries, configuring a process
of reverse innovation.
• Maturation of technology: the technological
evolution of disruptive innovations is the
same in both cases, but while in disruptive
innovation theory this occurs in the same
country market, in reverse innovation we
see it happening in developing economies
and brought to developed economies once
the technology has evolved.
• Challenges: the development of a technology
on a new trajectory puts new entrants in
established markets in competition to reach
new technological standards. In emerging
economies, the main challenge is the difficulty of reaching a vast market that often
lacks adequate complementary assets (such
as distribution and logistics infrastructures). Furthermore, cultural and institutional differences make it difficult for
foreign firms to understand and properly
respond to market needs.
• Basis of competition/success: in traditional disruptive innovation theory, the ‘battle’ is won
by the company that develops the new technology better and faster, satisfying at first
the request for new attributes and, along
within technological evolution, catching up
on the mainstream attributes. In reverse
innovation, competition is instead based on
the ability to develop a new business model
that allows companies to serve a large
portion of the market in order to achieve
large sales volumes and economies of scale.
Research Propositions and a
Research Agenda
In light of the discussion presented in this
paper, we can conclude that reverse innovation
has the potential to take the form of disruptive
innovation that originates not from the same
geographical market that incumbent companies dominate, but rather from the markets of
84 CREATIVITY AND INNOVATION MANAGEMENT
Volume 23 Number 1 2014 © 2013 John Wiley & Sons Ltd
Table 2. Differences between Disruptive Innovation in Emerging and Developed Economies
Characteristics/
Location
Early Market Actors Expansion Maturation of
Technology
Challenges Compete/Succeed
based on
Disruptive
Innovation in
Developed
Countries
• Advanced/
Innovative early
adopters
seeking to be
“educated” and
to try the new
technology.
• Typically small,
advanced niche
Spin offs or new
entrants able to
be flexible
enough to serve
the niche
Into mainstream
market of the
same country
through a
process of
upgrading
“mainstream
technological
attributes”
Profits from early
markets are
invested (driven
by early market
requests) into the
development of
technology that is
improved with
respect to that
from incumbents
through path
dependence
Standard battle
amongst
start-ups
• Speed of
development
• High margins
once the
incumbents
have been
disrupted
Disruptive
Innovation in and
from Emerging
Economies
• Large majority
of population
with no means
to get to
established
technologies
• Typically large
BOP
Subsidiaries of
MNCs and
large local
companies that
are able to
exploit
economies of
scale
Into mainstream
market of
emerged
countries
through a
process of
reverse
innovation
Same process of
maturation
• Distribution in
vast markets
• Requirement to
access market
needs
• Requirement to
understand and
respond to
market needs
• Volume
• Costs and
reorganization
of products/
services
DISRUPTIVE INNOVATION . . . IN REVERSE 85
Volume 23 Number 1 2014 © 2013 John Wiley & Sons Ltd
emerging economies, where a technology/
product has been commercialized to fit the
characteristics of those markets, particularly
serving the vast bottom of the pyramid.
The disruptive innovation framework provides us with the dynamics to look at innovation that originates for emerging economies.
However, the challenges, evolution and
factors leading to success or failure of reverse
innovation are different from those that are
relevant when disruptive innovation originates
from a developed market. We therefore argue
that instead of simply generalizing the findings of disruptive innovation to emerging
economies, future studies should take into
consideration innovations that originate for
those markets. We have thus added a geographical dimension to the disruptive innovation paradigm, explaining the variables that
should be taken into account when considering such an innovation emerging in developing economies.
Given the above considerations we develop
four research propositions that we believe may
be of inspiration for innovation management
scholars and thus fuel future research.
Christensen and Raynor (2003) have illustrated the importance of spin-out companies as
a way to overcome the innovator’s dilemma.
Incumbents are often disrupted by new
entrants because they are not able to see
emerging technologies entering the market
and to address new needs while improving
also on attributes of the technologies adopted
by the mainstream market. The establishment
of a new autonomous company that rises from
an incumbent firm has the potential to
respond to the marketing challenge posed by
disruptive technologies and to address a new
emerging market. Market myopia can also be
found in the case of advanced MNCs that
operate in emerging markets, often trying
to commercialize only small adaptations of
their products previously developed for the
advanced markets. Hence, the ordination of a
subsidiary operating in emerging markets
with autonomy regarding product development can be an important source of reverse
innovation with disruptive potential also in
advanced markets.
RP1: Subsidiaries of ‘advanced’ MNCs in
emerging economies can act as the spin-off companies theorized by Christensen as a way to
overcome the innovator’s dilemma.
Scholars should thus focus on organizational and host country factors that may affect
subsidiary autonomy as well as its ability to
trigger processes of reverse knowledge transfer (Ambos, Ambos & Schlegelmilch, 2006). Of
particular importance is the role of people
appointed to manage the subsidiary. These
managers are in fact vectors of innovation
stimuli coming from emerging markets. They
thus need to know well both the company
culture and its technological endowment in
order to optimally interpret the best means for
product development. At the same time, they
need to have enough authority with their
headquarters for the ideas they propose that
may diverge from the traditional technological
path their company follows to be taken into
appropriate consideration.
In order for companies to be able to trigger
reverse innovation processes, two essential
conditions need to be present: a strong knowledge of emerging market needs and business
environment and a good technological base.
This is not always the case for a single
company. Very often an ‘advanced’ MNC has a
strong technological base (given by its experience and the quality of its R&D engineers), but
lacks a deep knowledge of emerging markets.
On the other hand, ‘emerging’ companies
know very well their home market but often
lack an appropriate technological base given
their relatively short history.
RP2: Despite a liberalization trend of emerging
economies which allows foreign companies to
operate more freely, we will see a new
technology-focused generation of joint ventures
between ‘advanced’ and ‘emerging’ MNCs.
As in the past, the creation of joint ventures
and other forms of interaction between foreign
and local firms seem to be relevant. But while
in the past foreign companies were legally
obligated by host country FDI policies to
engage in joint ventures in order to get access
to the emerging economies’ markets (see, for
example, the case of China described by Long,
2005), this need for cooperation may increasingly emerge with the aim of merging complementary competences for developing products
that are globally marketable. This potential
trend suggests a focus on new drivers of
cooperation between foreign MNCs and local
firms in emerging economies, as they may
diverge from previous ones. In particular, we
believe it would be interesting to see how
R&D teams of such joint ventures are composed and what the dynamics occurring
between foreign and local engineers are.
This intensification of interaction between
foreign and local firms in emerging economies
can be read and extended from an open innovation perspective.
RP3: Open innovation dynamics will facilitate
the triggering of reverse innovation processes.
Future research should try to understand
whether and how open innovation dynamics
86 CREATIVITY AND INNOVATION MANAGEMENT
Volume 23 Number 1 2014 © 2013 John Wiley & Sons Ltd
are different in an emerging economy context.
Intuitively, ‘advanced’ MNCs operating in
emerging markets can benefit from outbound
open innovation performed by local companies that are willing to share or sell their
product ideas or nascent technologies for
developing and selling them worldwide. This
could lead to inbound open innovation performed by foreign MNCs which source technologies from local firms or universities and
research institutions.
Strong intellectual property regimes are
required to implement an innovation strategy
that is based on an open model. This may be a
problem in developing countries since they
are shown to have weak intellectual property
regimes (IPR) (Zhao, 2006).
RP4: As emerging economies will strengthen
their intellectual property regimes, we will see
more reverse innovation processes.
Despite the fact that foreign MNCs are
worried about their IP protection in emerging
economies, recent contributions show how this
problem can be overcome in developing economies such as China (Keupp, Beckenbauer &
Gassmann, 2009; Quan & Chesbrough, 2010),
presenting successful cases of foreign companies that implement R&D activities in China,
providing useful tools for overcoming the risk
of IP violation. Future research has the opportunity to study how IP strategies of companies
operating in emerging markets will evolve
along with the evolution of these countries and
how these will probably change, passing from
having a local perspective to a more international or global breadth. An evolved patent
system would help researchers to investigate
even further the reverse innovation processes
by using patents to identify innovations originating from emerging economies which are
potentially disruptive, as has already been
done for disruptive technologies (Pilkington,
Dyerson & Tissier, 2002).
In terms of managerial implications, this
paper provides companies with a set of basic
attributes of reverse innovation with disruptive potential. Managers of ‘advanced’ MNCs
can thus use these insights to both trigger
innovation processes for their own companies,
leveraging on their technological basis, or
interpret actions underpinned by competitors
from emerging economies who are trying to
enter foreign advanced markets. Managers of
‘emerging’ MNCs can identify patterns of
technology and market development which
occurred from an emerging to an advanced
market.
As reverse innovation dynamics unfold, we
expect to see new business models evolve,
new forms of interaction between MNCs and
local partners, as well as new opportunities for
entrepreneurs trying to adapt technologies
across distant markets and to explore the role
of emerging markets as the new laboratory of
the global economy.
Note
1. We are aware that an author’s blog is not a strong
source but, given the novelty of the topic, the
explanation provided in this post is crucial for
understanding the concept.
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DISRUPTIVE INNOVATION . . . IN REVERSE 89
Volume 23 Number 1 2014 © 2013 John Wiley & Sons Ltd
Simone Corsi ([email protected]) is a postdoctoral researcher at the Institute of Management at the Scuola Superiore Sant’Anna,
Pisa, Italy. He has a PhD in Management
from the same institution. His research
focuses on foreign R&D investment in
emerging economies and reverse innovation. Simone was one of the 2009 recipients
of the Associazione Toscana Cina Insieme
Fellowship for his Masters dissertation
(‘Relationship Marketing in Chinese Business to Business’) on Italian investment in
China, and he has been Visiting Doctoral
student at the Research Center for Global
R&D Management at Tongji University,
Shanghai. His research interests also
include open innovation and disruptive
innovation.
Alberto Di Minin is an assistant professor
at Scuola Superiore Sant’Anna, Pisa, Italy,
and Research Fellow at the Berkeley
Roundtable on the International Economy
(BRIE). He has a PhD from University of
California Berkeley. Alberto works with the
Istituto di Management at Sant’Anna, and
he is an instructor at the Executive School,
International School of Advanced Education (SIAF). His research deals with the
appropriability of innovation. He focuses
on open innovation, business models, technology transfer, intellectual property and
R&D management. On these topics he has
published widely in international journals
such as Research Policy, California Management Review, R&D Management and Journal
of International Business Studies.
Appendix A
For our literature review, we used the following procedure. Relying on the Academic Journal
Quality Guide (Version 4, 2010) of the Association of Business Schools (Morris, Harvey & Kelly,
2009), we selected Grade Four and Three journals from the following management fields: General
Management, International Business, and Innovation (see below for a list of the selected journals).
We searched over these journals for papers whose abstracts contained at least one of the following
keywords: disruptive innovation, reverse innovation, cost innovation, bottom of the pyramid. We
excluded from the resulting articles book reviews and articles whose abstracts contained words
composing the keywords put in a different order (hence meaning a different thing).
General Management International Business Innovation
Academy of Management Review, Academy
of Management Journal, Administrative
Science Quarterly, Journal of
Management, Journal of Management
Studies, Harvard Business Review,
British Journal of Management,
California Management Review, MIT
Sloan Management Review,
International Journal of Management
Reviews, Academy of Management
Perspectives, Journal of Management
Inquiry
Journal of International
Business Studies,
International Business
Review, Management
International Review
Journal of Product
Innovation Management,
R&D Management,
Technovation
The search resulted in 44 total papers.
Given the novelty of the topic of innovation from emerging economies, such a low number and
concentration of papers in a very limited number of journals is not a surprise. (The papers
appeared mainly in practitioner-oriented journals and two innovation management journals.
Furthermore, the majority of papers refer to disruptive innovation.) As a further effort, we ran a
search using the same keywords over Google Scholar to increase our literature base and especially
looking for practical examples. The number of papers grew to 65. The literature we relied on for
this paper is schematized in Table 1.
90 CREATIVITY AND INNOVATION MANAGEMENT
Volume 23 Number 1 2014 © 2013 John Wiley & Sons Ltd
Copyright of Creativity & Innovation Management is the property of Wiley-Blackwell and its
content may not be copied or emailed to multiple sites or posted to a listserv without the
copyright holder’s express written permission. However, users may print, download, or email
articles for individual use.

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