Innovation Trickles in a New Direction

Products traditionally are created in rich nations and repackaged for emerging ones. But General Electric, Nokia, and others are reversing the process

By Reena Jana

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This month, General Electric's (GE) health-care division will begin marketing a first-of-its-kind electrocardiograph machine in the U.S. Although packed with the latest technology, the battery-powered device weighs just six pounds, half as much as the smallest ECG machine currently for sale. It will retail for a mere $2,500, an 80% markdown from products with similar capabilities. But what really distinguishes the MAC 800 is its lineage. The machine is basically the same field model that GE Healthcare developed for doctors in India and China in 2008.

As such, the diagnostic tool exemplifies a way of thinking that may be ideally suited to dealing with the widening recession: creating entry-level goods for emerging markets and then quickly and cheaply repackaging them for sale in rich nations, where customers are increasingly hungry for bargains. The term for this new approach is trickle-up innovation.

The process turns conventional product development on its head. Over the years, multinationals have prospered by turning out premium-priced products for the world's affluent. Rather than also designing products for poorer people elsewhere, many businesses found they could simply pass yesteryear's models down, as if they were unloading fleets of used cars. Lately, big companies such as Microsoft (MSFT), Nokia (NOK), and Procter & Gamble (PG) are discovering that they can profit by targeting the world's masses first. And they can score again by selling these low-priced products elsewhere.

Topsy-Turvy Tack

"The dominant logic holds that innovation comes from the U.S., goes to Europe and Japan, then gravitates to poor countries," says C.K. Prahalad, a strategy professor at the University of Michigan's Ross School of Business and author of The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits. "But now we're starting to see a reversal of that flow."

This topsy-turvy approach could even stir demand in markets that seem tapped out. GE Healthcare dominates the market for big-ticket diagnostic machines, selling 34% of ECG machines now used in hospitals and clinics in the U.S. While some of these customers may also buy a MAC 800, the smaller, cheaper machine will be pitched to a new set of medical professionals—primary-care doctors, rural clinics, and visiting nurses—who need a device they can easily tote or simply can't afford the pricier models. The company projects first-year sales of $2.5 million in the U.S.

That's a revenue rivulet for GE, which boasted a record $182.5 billion in sales in 2008. But the company needs every extra dime to meet Chief Executive Jeffrey R. Immelt's pledge to return to double-digit growth by 2010 and rescue GE's shredded stock, which has fallen 80% from its 52-week high. To conserve cash, the company just slashed its dividend by two-thirds, the first reduction since the Great Depression.

The idea to bring the MAC 800 to the U.S. trickled up from inside GE Healthcare. Last June, Veronica Chew, a GE Healthcare global project manager, had just finished doing market testing in China for the MAC 800. After returning to Waukesha, Wis., where GE Healthcare's U.S. operation is based, she started telling her customers about the new device. After a nurse at a clinic in nearby Menomonee Falls said she could use such a machine, Chew tipped off the executive team of GE Healthcare Clinical Systems. The company began holding focus groups across the U.S. last fall to help it decide whether it made sense to adapt the MAC 800 for the U.S.