24 March 2021
Article

Transferring Technology from the East. How Reverse Innovation is Changing the Global Economy

It is safe to say that the maxim “China just copies everything” is now only a myth. More and more often, emerging economies develop technologies that find successful application in the West or reimagine the concepts behind existing products, basically creating new goods and even markets. J.T. Li, Chair Professor of Management at HKUST Business School and Academic Director of the HKUST-SKOLKOVO Executive MBA Program for Eurasia, shares the advantages of reverse innovation.
Transferring Technology from the East. How Reverse Innovation is Changing the Global Economy
Content source: Shutterstock

What is Reverse Innovation 

The world has grown accustomed to benefiting from the technological advances that originate in the USA, Western Europe, or Japan, with that technology linked to everything from automobiles to computers. This is where these technologies usually emerge to later enter other markets — basically, innovation takes a top-down approach.

At the same time over the last decades, my colleagues and I have observed that some technologies are exported from China or India. This process was termed reverse innovation. It is based on simple and efficient solutions developed in the field to factor in local specifics. Occasionally, these solutions are so successful that they become the global standard. Thus, innovation is transferred from the bottom up: developed economies borrow innovation from countries that until recently were referred to by a rather offensive term “third world countries.” A group of researchers from India has pointed out that reverse innovation can be leveraged in management to develop competitive products.

Business School SKOLKOVO
Business School SKOLKOVO

Reverse Innovation for Life 

One classic example of reverse innovation is GE Mac 400, an ECG machine developed by General Electric's subsidiary in India. The firm realized that India’s rural doctors needed a compact device they could use even in small clinics. The engineers from the Indian branch adapted a printer used to print tickets on buses for the ECG device to avoid using costly imported parts. In the end, they came up with a light-weight portable design that found demand in developed countries as well. The new device costs 10 times less than conventional machines and offers scans at less than 10 cents per procedure. They ended up generating more value using available resources.

Another example of reverse innovation in healthcare is the affordable off-road wheelchair Freedom Chair designed by MIT engineers for use on the rough uneven roads that are widespread in developing countries. The wheelchair was 80% faster and 40% more efficient to propel than a conventional wheelchair, selling for approximately 250 dollars. A sophisticated solution at an affordable price is now available to people with disabilities in India and other countries. The design found demand in the West as well, for example, in rural USA where it sells for 3295 dollars — half the price of competing products.

Shutterstock
Shutterstock

Fostering Reverse Innovation

It was not that long ago that China was thought capable only of copying technologies developed by others in all areas from space to electronics. Today, tech innovations are transferred in both directions. Just over the last five years alone Chinese companies launched the first ever passenger drone and opened the first bank branch operated exclusively by robots. 

A colleague and I published an article in 2019 where we illustrated how American companies adopt Chinese technologies. For example, Quanfeng Holdings Ltd. developed a laser alignment device for drills and patented it in China and the US. The idea was soon adopted by Black & Decker in the US that patented their own version of the technology developed in China.

There are several reasons that explain how China has become a center for innovation export. First of all, decades of sustained economic growth made China’s entrepreneurs more self-confident. Unlike their parents, they did not live through any crises. This confidence translated into new solutions and start-ups. This in turn boosted the status of local business. The percentage of students in China who aspire to work in a foreign company dropped from 70% to 18% from 2008 to 2017.

The second reason has to do with the rapid pace of innovation. China has a complete ecosystem with everything needed for innovation from universities to factories, so developing a new product often takes just a few weeks. It would take six months in the Silicon Valley and up to two years in Germany.

Third, for a long time, the philosophy in China was first to invent something and only then to think about regulating it. This incentivized innovation, in contrast to the US and EU with their regulatory hurdles. At the same time, China’s government toughened intellectual property laws. As a result, China became a world leader in the number of patents granted.

The combination of these three factors ensures the success of reverse innovation in other countries: Russia could also benefit from China’s experience.

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