Recognising the growing role that emerging economies play in the global innovation landscape, the article provides a measure for the extent of the phenomenon identifying Asia as the main source of a new threat – and opportunity – for Western companies: reverse innovation.
With production and the supply chain increasingly moving to low-cost countries in Asia-Pacific, and local markets in China and India expanding at three to four times faster than in the US and Europe, creativity and innovation were among the few advantages global managers thought that could be retained in the West.
It appears that even this domain is being taken over by competitors from the Far East.
“Reverse Innovations”, i.e. innovations that are “adopted first in a poor country before being adopted in rich countries” (Immelt et al., 2009, and later Govindarajan and Ramamurti, 20111), or also innovations that were explicitly designed and invented in such developing markets and later spilled over into advanced country markets (von Zedtwitz et al., 20152), are more and more capturing our attention… and our fears: Are established companies in Europe and the US finally losing their last remaining edge, their fundamental source of long-term competitiveness, to new upstarts from Asia? Will Chinese and Indian companies start to out-innovate us now? How serious is this threat?
The Threat of Insignificance
Of course, firms from Asia-Pacific have out-innovated us in the West already for decades. Japanese firms have done so since the 1970s, and Korean firms since the 1990s. As significant their contribution to global R&D and innovation was at the time (and still is), it pales to the rise of China and India that is supported by the even more impactful growth in their local markets. This has, for a time, redirected innovation to domestic needs and markets, and misdirected Western companies to believe that they retained an upper hand in their own R&D and innovation effort.