Logitech and the mouse that roared

LOGITECH AND THE MOUSE THAT ROARED

By Prof.Priyanka.P.V 

INTRODUCTION 
The gaps between the rich and emerging economies are closing. As a result, the global dynamics of innovation are changing. No longer will innovation transverse the globe in only one direction i.e. from developed nations to developing ones. There will be a few which will adopt the reverse methodology of creating something new for the market.
Reverse innovation shows leaders and senior manager how to make innovation in emerging markets happen and how such innovation can unlock opportunities throughout the world. The world is now seeking explosive growth in emerging economies.
Most of the world’s untapped buying power is in the emerging markets of Asia, South Asia, Eastern Europe and Latin America.
Multi-national companies now understand that a truly global strategy must include smart pathways along with strong positions in emerging economies. It is a powerful tool to add to the innovation capabilities.

Reverse Innovation – Creating New Markets
Multi-national companies have traditionally centered their innovation efforts on the needs of developed markets and then exported modified versions of their products around the world. Now, many are reversing the process of innovation in emerging markets and taking them back to developed nations.
Business leaders from around the world are re-thinking their strategy and company structure to realize the potential of reverse innovation.
In the past, western corporations have typically divided the world’s 7 billion population into two:
a.Two billion people were rich enough to afford their products
b.Five billion people who were poor and do not have the affordability for products

With the slowing of growth in developed countries and accelerating growth in emerging markets, the challenge was to being the five billion poor into the consuming population.
That requires innovation because the world’s poor cannot consume the products of business models that are required and designed to meet the needs of two billion rich.

But interesting thing about reverse innovation is that it is not just about bringing the poor into the consuming population: but it puts the multi-nationals that adopt it at the forefront of innovation. Well run multi-national companies which have been successful in Western markets had struggled to sell their products in India.

Reverse Innovation Challenge

“Innovating from emerging markets rather than simply exporting can unlock the world of opportunities for multi-national companies.”

Developing economies are different. In the rich world, there are a few people who spend a lot; in the developing world, there are a lot of people who spend little. Either way, the spending is vast. China and India are mega markets with micro-consumers.
Doing more business on high growth, hot spots-aka developing nations – requires much more than ramping up sales, distribution and production. It requires reverse innovation.

HOW MANY STEALTH COMPETITORS DOES IT TAKE TO UPEND A STATEGY?
This is the cautionary tale of how Logitech, the pioneer maker of computer peripherals, including input devices such as keyboard and mice, used principles of reverse innovation to avert potential disaster. It also re-enforces how crucial it is for a multi-national to pay close attention to the local competitors in emerging markets.

Logitech a thirty plus year old California based multi-national, had done business in China ever since its first manufacturing joint venture in 1993. The company believed it had a winning strategy in China. The strategy, classic glocalization, assumed the innovations flow downhill- that the same products made it for Western consumers would eventually succeed in emerging markets, with small notifications at the best.

In China, Logitech had been pushing wireless mice priced at about $50 and up. Logitech believed that it could command a premium price for premium features. Its top model priced at $149, required no hard surface. It could operate in thin air. Though Logitech’s result in China lacked sparkle, the company was content to wait for the Chinese market to catch up with the rich world.

Strategic patience- the temperamental opposite of fast twitch strategic restlessness- is often an admirable business asset. But a product strategy that treats poor markets as though they are evolving into markets just like today’s rich ones can lead to missed opportunities. It can be dangerous in the home markets.

WHAT MAKES A MOUSE MIGHTY?

To the average undemanding Western computer user, mouse is a mouse – a commodity piece of the computing experience that gets noticed only when there is a malfunction. Someone who mouses sedately while working at a computer on a desk will happily settle for a low-end corded model. Corded mice however are a vanishing species. Furthermore, many users – gamers, designers and developers, and consumers of graphics-rich content- want the BMW wireless mouse, not the corded Civic.

WHY CHINA NEEDED MIGHTIER MOUSE?

Logitech’s approach did not work well in China, however. Why? Because Chinese customers are different.

First, the population densities in Chinese cities are extremely high. Interference from a mouse in the next apartment could inadvertly jam your own mouse signals, slowing or stopping its action. Consequently, robust shielding wasn’t a luxury option in urban settings; it was a necessity. Another distinctive characteristic of the Chinese market is that consumers favour free internet video content over cable television. A lot of motivation in China is driven by economics.

Logitech was grounded in a Western worldview. As a result, these were easy differences to overlook. Although Chinese consumers – eager to get the lowest possible price- might willingly comprise on certain dimensions of performance, they absolutely needed a “better” wireless chip to get sufficient range and shielding.

HARD EVIDENCE.

Those who practice reverse innovation must sometimes contend with potent internal opposition- frequently cloaked in devotion to the status quo. Reverse innovators who are unprepared to face such resistance are in for a rough ride.
Logitech had access to multiple sources of credible independent information- the perfect antidote to retrograde impulses. There were two types of data: one on product sales and market share and the other on the extent of customer’s enthusiasm about Logitech and its products. The latter research showed clear discontent with Logitech’s 27-MHz mice and helped reveal a dimension of Logitech’s strategic problem that otherwise might have been hidden. The instinctive assumption among Logitech executives was that if Chinese customers were unsatisfied, the problem must be price alone. But the data showed otherwise. It was the performance of the wireless technology that created dissatisfaction.
Both sources of input confirmed the existence of a serious problem and shortened the lifecycle of denial.

GOLIAATH STRIKES BACK

Crafting a new strategy is one thing, but making it happen is another matter. Even after the decision makers reached consensus, there was still plenty of inertia to overcome. There was a need to accept, as a business unit, that the world has shifted. There came a moment of truth where the company should no longer ignore “that there was lot of products that no longer at the level that we should be reasonable for the market”

Logitech now confronted an inconvenient truth. In high tech companies, there is a tendency to fall in love with particular technologies. Within Logitech there were partisans enamored of each of the technologies and features included in the three product tiers.

After a considerable research, Logitech settled on a price of $19.99; it is a more modest premium over the competitor’s price but it nonetheless increased margins and placated the reluctant sales staff. That same cannibalization battle waged in China was also waged whether to launch the new mouse worldwide.

In less than a year, the company had shipped more than 4.5 million units of the new mouse. Of all the Logitech new product launches, this was the first product to break $ 10 million in sales in China within just twelve months.

A NEW STRATEGIC ALETERNESS

What happened to Logitech was a simple myopia, induced by the company’s practice of glocalization. Logitech had segmented the market and developed its products in the ways it believed made sense for a unified set of global technology users. Initially, the lack of an appetite among Chinese users for Logitech’s high end offerings simply re-enforced the view that the company needed to remain patient. Chinese users hadn’t yet evolved to the point that they demanded a premium for Western goods. In China, everyone is a basic user, from an economic affordability point of view. But that is only one piece of the picture. The reality to Logitech that was given is that the computing needs of Chinese customers did not lag those in the rich world. They were in fact quite distinct.

BEYOND CHINA

When Logitech battled with its competitor, there weren’t too many rich world consumers connecting their PCs to their TVs to watch internet video, but Logitech knew that this could change. The popularity of content aggregators was rapidly growing. Thus, China’s lack of cable and satellite television infrastructure may have actually put the nation ahead of the curve on living high room entertainment.
Local markets can be sources of strategic insight that ripples across borders and around the globe. Local threats can have global implications. Even a small new competitor in an emerging nation can grow to threaten multi-national and even the home markets.

This article has been adapted from Reverse Innovation: Creating Far From Home , Win Everywhere,- Vijay Govindarajan,Chris Trimble, (2012), Harvard Business Review Press

Author Brief: 
Priyanka P.V is presently working as an assistant professor at M.P.Birla Institute of Management – Associate of Bharatiya Vidya Bhavan.
She has completed her Master in Business Administration under Bangalore University. She has also done another Post graduation from Mudra Institute of Communication in Advertising and Public Relations. Presently, she is pursuing her Ph.D in Management under Jain University, Bangalore. She has a rich and diverse research experience and has presented research papers in top institutes like Harvard University,USA, Indian Institute of Management, Calcutta, Indian School of Business Hyderabad and Symbiosis University, Pune. Being well read and exposed to different cultures and environment by traveling across the world, she has interests in writing management articles for college magazines.