The New York Times
By: Jim Witkin
August 4, 2010
The clean-tech innovations that will solve the world's most urgent environmental problems might come from where we least expect it: by first serving the needs of consumers at the base of the economic pyramid, says Stuart Hart, a professor of management at Cornell's Johnson Graduate School of Management and chairman of the university's Center for Sustainable Global Enterprise.
Mr. Hart suggests that new advances in clean technologies can quickly take hold in developing markets like India and China because large parts of these countries provide a setting of "nonconsumption" in which basic needs like energy, transportation, health care and clean water go unmet or are badly served by existing products and services.
Working in such low-income markets can force innovators and entrepreneurs to drive complexity and cost from their products and the business models they create to sell them. Once these new solutions are tested and proven in the poorest communities, the theory goes, many can "trickle up" to the developed world, where features can be added for more affluent markets.
"In fact, the farther down the income pyramid the technology begins, the more upside growth potential exists over the life of the innovation," Mr. Hart said in a telephone interview.
Last year around this time, Mr. Hart's "trickle-up" theory was one of the key topics of the three-day Global Forum on Sustainable Enterprise forum in New York. Since then, he has continued to promote this model of combining economic development with clean-tech innovation - what he calls "The Great Convergence" - in his latest book, the third edition of "Capitalism at the Crossroads: Next Generation Business Strategies for a Post-Crisis World," published last month.
General Electric has already met with some success with this approach, described as "reverse innovation" by its chief executive, Jeffrey Immelt, in a 2009 Harvard Business Review article. The company has developed a hand-held electrocardiogram device for rural clinics in India and a portable ultrasound machine for China. Both of these low-cost simplified versions are now being successfully sold in the United States.
Beyond health care, Mr. Hart sees companies that are gaining traction in industries like small-scale solar energy, LED lighting, and point-of-use water purification. After building strong businesses among the poorest consumers, many of these companies, like India's Selco Solar are well positioned to move up the economic pyramid.
Selco designs simple, low-cost systems that combine solar panels and storage batteries, an aggressive financing package and comprehensive installation and service support, Mr. Hart said. For instance, after installation, Selco visits customers every three months during the one-year warranty period to ensure that the system is operating properly. It also collects depleted batteries and returns them to the manufacturers for recycling.
Solutions that thrive at the base of the pyramid also advance new business models like microfinance that then take hold in developed countries. Two of the best-known microlending institutions, Grameen Bank and Kiva, now operate in the United States and have seen demand grow as the recession has made it tougher to get small loans.
Serving the base of the pyramid can also teach entrepreneurs how to survive in the absence of favorable government policies and incentives. In the United States, for example, renewable energy industries like wind and solar depend on public policy and government incentives, Mr. Hart said, and if these policies stall (think cap and trade) or incentives end, the industries suffer.
He points to the success of companies like Selco and d.light in India, which have thrived even in the face of contrary government policies that subsidize kerosene prices and tax solar energy use. Kerosene is the primary source of energy in the rural areas of many developing countries but is dangerous and dirty. Both companies offer small-scale solar and lighting products at ultra-low cost that allow them to compete with subsidized kerosene.
Mr. Hart admits that this "trickle-up" approach is suited to small-scale, distributed clean tech solutions, especially when it comes to energy. In a distributed energy system, electricity is generated at the household or neighborhood level rather than from large centralized power plants, and long-distance transmission is minimized. Most renewable energy advocates expect some portion of our future clean energy portfolio to come from these distributed technologies.
The United States will ignore these types of reverse innovations and distributed solutions at its peril, he concludes. "If we don't figure out how we create the incentive to get some of our better entrepreneurs and technologists out of this country and into places where these new markets are going to be created, like China and India, we'll miss it, which in the long run will not be good for this country," he said.