Frugal innovation (FI) has emerged as a strategic response to resource constraints, enabling firms to develop cost-effective solutions that address essential needs in emerging markets. At the same time, reverse innovation (RI) has gained increasing attention as a mechanism through which such solutions diffuse into developed economies. Despite their conceptual proximity, existing literature has largely treated FI and RI as separate domains, leaving underexplored the mechanisms that enable frugal innovations to transition successfully across contexts. This study addresses this gap, drawing on the knowledge-based view (KBV) and dynamic capabilities (DC) perspective. We conceptualise the transition from FI to RI as dependent on two sequential mechanisms: knowledge transformation (transfer readiness) and market validation and translation. A five stages framework is proposed, which allows reframing reverse innovation as a knowledge transformation and validation challenge rather than merely a cost or design issue. A clear processual link between FI capabilities and RI outcomes is established, while introducing the concept of transfer readiness as a key construct explaining why some innovations remain locally embedded while others achieve cross-context diffusion. At the same time, institutional and ecosystem-level factors are integrated into the explanation of adoption outcomes, providing a structured and nuanced understanding of upstream diffusion, offering implications for both theory and practice, and opening avenues for future empirical research.