Reversal Strategy Dynamic in Emerging Markets

Reversal Strategy Dynamic in Emerging Markets:  Case of Nordic Companies’ Strategy in India

With the liberalization of trade due to globalization, unlimited opportunities as well as new threats keep arising almost every day for business organizations. In regard to the threats, it has been observed that increased competition and market stagnation are key challenges that multinational corporations face in the developed economies (Malodia, Gupta & Jaiswal, 2019). As stated by Govindarajan, Trimble and Nooyi (2012, p.ix), “home markets are mature and saturated”.  Thankfully, emerging markets seem to provide the solution to these and other challenges; emerging markets have a huge customer base, hence offering lucrative growth opportunities for MNCs (Malodia et al., 2019). In fact, it is reported that the largest percentage of untapped purchasing power lies in emerging markets (Govindarajan et al., 2012). Nevertheless, this creates new challenges for companies, precisely because they have to face it off with big companies possessing advantages such as advanced technology, financial resources, management skills and powerful brands (Dawar & Frost, 1999).  A solution to these challenges is the reverse strategy, popularly known as reverse innovation.

The reverse strategy is considered an effective strategy for MNCs to operate competitively and sustainably in emerging markets. According to the Information Resources Management Association (2020, p.2055), reverse innovation makes it possible for companies to “scale up growth in emerging markets” where costs are relatively lower as compared to developed markets. In practice, reverse innovation works as follows: innovation processes and activities are conducted in emerging economies and are later sold in developed markets where prices are competitive (Patel, 2018). The rationale behind this practice is that emerging markets provide a low-cost advantage to firms.

Other than the low cost advantages associated with reverse innovation, the heterogeneity of customers, even amid globalization, make the reverse strategy important to firms. The theory of convergence as applied to globalization is misleading: it is not possible for customers to exhibit similar preferences and tastes. The truth, according to Trimble (2012), is that customers in different markets differ in terms of tastes, preferences, purchasing power, etc.  For consumers in emerging markets who tend to be price sensitive, the reverse innovation strategy would be an effective way of competing whilst ensuring that customers are satisfied.

As mentioned earlier, emerging markets are becoming more appealing to investors because they have a large untapped base of customers.  Because of this, the notion that innovation is for the rich no longer holds. It is very dangerous for companies to ignore customers in emerging markets in their innovation decisions on the grounds that these customers have lower purchasing power (Trimble, 2012). In order to compete effectively and remain relevant in emerging markets, companies need to take into consideration the fact that customers, whether from developed or emerging economies, have unique tastes and needs. It is only with such realization that companies doing business in emerging markets will succeed. Again, proper response to these unique needs is facilitated by reverse innovation.

Lastly, a reverse strategy is most suitable for companies entering emerging markets as it helps to uphold the local culture, thereby enhancing a company’s brand image. Having highlighted the concept of heterogeneity, it is worth mentioning that successful companies are those that tailor products to suit local tastes and values. Govindarajan et al. (2012) use PepsiCo to illustrate this fact. From experience, the company has learnt that it pays for firms to reflect the local culture and values in the product it offers to customers. This translates to mean that reverse innovation is highly suitable for emerging markets because it makes companies more relevant.

 References

Dawar, N., & Frost, T. (1999). Competing with giants: Survival strategies for local companies in emerging markets. Harvard Business Review, 77, 119-132.

Govindarajan, V., Trimble, C., & Nooyi, I. K. (2012). Reverse Innovation: Create Far From Home, Win Everywhere. Boston Harvard Business Review Press.

Information Resources Management Association. (2020). Disruptive technology: Concepts, methodologies, tools, and applications. IGI Global.

Malodia, S., Gupta, S., & Jaiswal, A. K. (2019). Reverse innovation: a conceptual framework. Journal of the Academy of Marketing Science, 48, 1-21.

Patel, M. (2018). Reverse innovation in India: a specific study on Indian paint industry. RED’SHINE Publication Pvt. Ltd.

Trimble, C. (2012). Reverse innovation and the emerging-market growth imperative. Ivey Business Journal, 76(2), 19-21.