Recently I was reviewing the April 17-23, 2010 edition of “The Economist”.  There within is a series of articles on innovation and emerging markets. You may ask why is this important to companies in the United States, Germany, and Industrialized nations.   Here’s why.  Our third world neighbors are now as good (and in some cases better) at innovation than we of the G8 nations. Reverse innovation, aka frugal innovation, is not the development of a cheap product, it is the development of a great and reasonably priced product. Characteristics of frugal innovation include:

 An innovation focus that is driven by customer needs, ease of use, simplification, and environmental concerns.

 Uses existing technology and science in new and creative ways.

 Incorporates mass production techniques with high volume and low margins.

 Contracts work to business partners using new business models.

 Often starts with the needs of low income customer and works backwards to develop a low cost innovative product through reduced costs and increased flexibility.

 Recognizes that solving the needs of low income and third world consumers “lifts” all boats.

Reverse innovation is solving many of our biggest global problems. Where are best practices and dramatic new products showing up under the influence of reverse innovation? Primarily in emerging markets (Bangalore, China, Chennai according to “The Economis”t) – not in the good ole USA.

What does this mean for us, our companies, and our country? To compete at home and abroad we have to once again work hard to become a nation that leads in producing relevant innovated products driven by customer needs. Reverse innovation can provide game changing new products and substantial competitive advantage. And maybe it can be a catalyst to assist us in regaining a place at the top of the innovation ladder.