Oxygen

I recently participated in a webcast that dealt with the goings on in the auto industry (representing Automotive Design & Production—autofieldguide.com). The Chinese auto industry came up in a variety of ways, ranging from the seemingly locked-in purchase of Volvo by Geely to the possibility of sales channels being established in the U.S. market by Chinese vehicle manufacturers. Someone asked whether the Chinese market would influence the products we drive here, and while at least one of the participants essentially pooh-poohed it, there is the fact that the interior design of the 2010 Buick LaCrosse, Buick’s effort to make itself relevant in the U.S. market, was performed at the Pan Asia Technical Automotive Center, which GM operates with its partner Shanghai Automotive Industry Corp., because Buick is a huge brand in China and the car is being offered in Beijing as well as Boston.

With 1.3-billion people in China versus about 307 million in the U.S., if you’re developing global products, which country becomes more significant going forward? Then there’s India, with a population of 1.1-billion people. Once again, a lot of people with their own set of needs. Who do you develop for? Or maybe the more fundamental question is: How do you develop, because the status quo may become something different?

A new approach being taken at General Electric (ge.com) is telling in this regard. It is described in a Harvard Business Review piece by Jeffrey R. Immelt, chairman and CEO of GE; and Vijay Govindarajan and Chris Trimble, both of whom are with the Tuck School of Business at Dartmouth and consultants to GE. The article, “How GE Is Disrupting Itself” (Oct. ‘09), contains a passage that needs to be clearly understood by product developers at all levels of any organization that plans to be successful for the foreseeable future. The authors write: “Ten years ago when GE senior managers discussed the global marketplace, they talked about ‘the U.S., Europe, Japan, and the rest of the world.’ Now they talk about ‘resource-rich regions,’ such as the Middle East, Brazil, Canada, Australia, and Russia, and ‘people-rich regions,’ such as China and India. The ‘rest of the world’ now means the U.S., Europe, and Japan.” Read that last sentence again. Do you think that product development going forward is what it’s always been?

GE is undertaking an approach called “reverse innovation.” Heretofore GE, like many multinationals, performed “glocalization,” which the authors define as the approach in which companies like GE would “develop great products at home and then distribute them worldwide, with some adaptations to local conditions.” That was then. Reverse innovation is now. Products are developed for markets like China and India—low-cost products, like a $1,000-handheld electrocardiogram unit and a $15,000-portable ultrasound machine—and then sold in the U.S. and elsewhere, used for new applications. The authors acknowledge that in developing countries they are “more than happy with high-tech solutions that deliver decent performance at an ultralow cost—a 50% solution at a 15% price.” Know, for example, that a conventional ultrasound unit has a price tag of $100,000 or more.

“Reverse innovation isn’t optional; it’s oxygen,” they write.