Frugal Innovation

A pair of new books make the case that “frugal innovation” is a force to be reckoned with, reports the Economist (3/24/12). Reverse Innovation by Vijay Govindarajan and Chris Trimble, and Jugaad Innovation by Navi Radjou, Jaideep Prabhu and Simone Ahuja “show that frugal innovation,” or creating greater value at lower cost, is not only “flourishing across the emerging world” but “will change rich countries, too.” This is despite the struggles of the Tata Nano, which promised a $2,000 car — “sales failed to catch fire, but some of the cars did, literally.” Evidence suggests that global companies are, in fact, “beginning to take ideas developed in (and for) the emerging world and deploy them in the West.”

For example: “Harman, an American company that makes infotainment systems for cars, developed a new system for emerging markets … using a simpler design and Indian and Chinese engineers.” Harman is now providing the system to Toyota. “Walmart, which created ‘small mart stores’ to compete in Argentina, Brazil and Mexico, is reimporting the idea to the United States.” Meanwhile, Mahindra & Mahindra, an Indian company, “sells lots of small tractors to American hobby farmers, filling John Deere with fear. China’s Haier has undercut Western competitors in a wide range of products, from air conditioners and washing machines to wine coolers.”

Western firms worry that frugal innovation “will cannibalize the existing market for expensive technology.” However, General Electric “opened up a new market among doctors for its cheap electrocardiograms; previously only hospitals could afford the things. Besides, standing still is not an option. Whether or not Western firms sell frugal products in the West, Asian firms will.” John Deere is now competing against Mahindra with its own line of small tractors — in India. PepsiCo has established an innovation center in India and Renault asked its engineers in “France, India and Japan to compete to come up with new ideas for cutting costs. The Indians won.” Given the economic climate in the US, the market for frugal innovation would appear to be robust, indeed.

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