How to Design for Emerging Markets

Growing up in a lower middle class family in India, he had to learn how to solve problems with innovation rather than the sheer force of money. He got to apply those skills on a much larger scale in 2008, when he became the chief innovation consultant for GE, helping them design and market a low-cost, high-performance electrocardiogram (ECG) machine for India. Using principles Govindarajan introduced in his 2012 New York Times bestseller Reverse Innovation, he advised GE how to adapt that ECG machine for 200 other countries, including the U.S.

In his latest book—Global By Design: How to Create Innovations that Scale, Travel, and Transform—Govindarajan has teamed up with MIT engineering professor Amos Winter to meld engineering and business strategy and clearly explain how to design for rapidly-growing emerging markets. Firms that follow their model have the potential to achieve the elusive win-win of doing good while doing well. 

How did this book come about?

It was a strange coincidence. I got an invitation from MIT School of Engineering to give a keynote on reverse innovation. The person who sent the invitation was Amos Winter, my co-author on this book. Amos told me how he used engineering principles to create a high-performance, ultra-low-cost wheelchair in Africa. And then he used the principle of reverse innovation to bring that wheelchair to the U.S. When I heard his story, I realized he is coming at reverse innovation from engineering science, while I come at it from business strategy, and I thought, Why don‘t we join and write a book about engineering principles behind reverse innovation?

You say in the book that emerging markets are forecast to increase their share of global market capital from 27 percent in 2023 to 55 percent in 2075. What’s driving that trend and how should businesses be responding to it?

The trend is really driven by two countries, India and China. Historically, in those markets, only the top 10 to 20 percent of the people were consumers. And as these countries opened and the per capita income grows, more of the population have become consumers. To tap into that growth, multinationals must change their strategy. They need to create high-performance products at ultra-low cost, because while the per capita income has grown, it is still not at the same level as developed countries.

What is the biggest challenge for firms to offer high-performance, low-cost products for emerging markets?

I think the biggest problem is a mindset, because most multinationals think they can simply take a product that they created in the U.S. and strip some features and lower the cost. That strategy never works because, first, even if you strip some features from a rich country‘s product, the price is still very high. But the other problem is when you strip the features, you make the product highly inferior and poor quality. Customers in poor countries don‘t want cheap products. They don‘t want inferior quality products. They want high-quality products at ultra-low cost.

You state in the book that finding global-by-design opportunities begins with the three-merit test. Can you explain that?

The three merits are around the problem, the innovation, and the value created. The problem merit asks if this problem is solved, will it benefit people in a meaningful way. Innovation merit asks whether breakthrough innovation can solve the problem. There are some problems, even though they have merit, that can’t be solved because we don‘t have the technology or the price is too high. Finally, the value merit is that if we solve the problem through innovation, it will create value to the stakeholders.

What is the difference between primary and secondary design requirements?

The Tata Nano is a great example of this. In India, the Tata group wanted to create a $2,000 car for the poor. They solved all the primary design requirements and actually created a five-seat car which can drive for a price of $2000. So the primary requirements were met. Yet the Tata Nano was a fiasco because they forgot the secondary requirements when they had to build the business model. One aspect of the business model was how they communicate the value proposition of that car to the masses in India. They marketed it as a cheap car. And Indians didn‘t like that label because only cheap people will buy cheap products.

When you look at the global market today, have you noticed any opportunities that can pass that three merits test?

I think there are three sectors where the three merits test would be a low-hanging fruit: education, health care, and energy. We have humongous gaps in all these three sectors, where we must create ultra-low-cost solutions which deliver high quality to the masses. And affordability is a central issue not just in poor countries, but it is also a central issue in the U.S., which is the richest country in the world.

Do you have any words of advice for innovators who want to serve emerging markets?

Whether you are an engineer or a businessperson or a liberal arts major, designing for emerging markets begins with humility. When you are humble, you know what you don‘t know, and you begin to empathize with the problems of others.

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