Outlook 2009
The rising tide of India’s robust economy has become a given, with a GDP that has expanded by more than 7 percent annually for a decade. Many companies, both Indian and multinationals, have profited handsomely from this sustained growth.
But like any dynamic emerging economy, India is in the throes of transformation. And huge new opportunities await companies that successfully use innovation to fulfill the burgeoning needs of a market being redefined dramatically by demographic and social change.
On the ground in India today, there are hints of what’s already happening—relatively small shifts that, taken together, herald a sea change in the country overall.
Consider this: Thanks to New Delhi–based Hole-in-the-Wall Education, a child in a poor urban neighborhood can use a rugged PC built into the exterior wall of a building to browse the Internet, play games, create documents, paint pictures and access educational software for learning mathematics, science and other subjects, all without the need of a teacher. Or a farmer in the province of Uttar Pradesh can go online at a kiosk, thousands of which have been installed in rural villages by the Indian conglomerate ITC, to get up-to-the-minute market information that will help him sell his products at the best possible price.
These and other innovations are helping to propel many in India’s vast lower classes into the middle class, a group that is expected to balloon from its current 50 million to more than 10 times that by 2025. And with a population boasting the lowest median age of any major economy (half of Indians are 25 or younger), India also has a huge pool of young talent to drive this transformation forward.
India’s future depends on this emerging young middle class. Its members will be agents of change, both as a workforce and as consumers.
Unmet needs
Innovative companies will find a ready market among this group for the right products and services, particularly in those areas that have been traditionally underserved by the government: education, health care and communications. Companies that get it right in meeting these critical needs will not only reap rewards—they will also be helping to narrow the knowledge gap and grow industrial wealth for the country overall, effectively creating a virtuous circle as quality of life improves and a new class of affluent consumers transforms the Indian market.
What’s at stake for business? The World Bank estimates that increasing the proportion of economically active, working-age Indians from three in five to three in four will contribute $3.7 trillion to the country’s GDP by 2020. A number of companies have already gotten the message.
To be successful in the Indian market, organizations must customize their services and products. Any offering should provide value in terms of both convenience and cost.
Typically, successful players in the Indian market use a high-volume, low-margin business model, finding fresh and inexpensive ways to deliver existing technologies to more people and places. Take cell phones. The millions-per-month sales numbers in India are eye-popping. That level of success is attributable in part to product tailoring. Low-end handsets are inexpensive, and the cost of plans continues to drop—some are now available for less than $5 per month.
For some cell phone customers, cost is secondary to considerations like Internet access. Mango Technologies in Bangalore is a startup aiming to sell applications to the lower end of the mobile phone market. The company is launching a platform designed to accommodate a variety of Internet applications on handsets with limited memory, lower processing capability, slower data download and smaller screens. The goal is to wring maximum functionality out of a modest phone.
A variety of practical considerations also factor into what will make a product successful in India. Many cell phone users are less concerned with fancy color graphics, high texting speeds or the latest cameras than with whether their phones will survive the challenges of climate extremes that range from arid to tropical. In a country where power outages are endemic in rural areas, Nokia launched its 1100 series of phones with a built-in flashlight. The product was a major success, helping Nokia gain market share.
Power concerns have themselves engendered creative solutions. It was the brainstorm of then 24-year-old Ankit Mehta, one of the founders and the managing director of Mumbai-based ideaForge Technology, to produce a mechanical mobile phone charger (one minute of cranking powers about three minutes of talking time or 30 standby minutes). The device is a highly practical update of a nearly forgotten technology, and its success has led ideaForge to market other chargers designed for use with motorcycles, automobiles and laptops.
With the mobile phone market maturing in other parts of the world, purveyors have recognized that India’s diverse population makes it highly suitable for test marketing. For example, potential customers with disabilities such as poor hearing or limited vision, or who are illiterate, have been largely unserved in most markets. So attempts to meet the needs of this market, as well as to make affordable phones available in multiple languages to more of India’s rural population, have helped make India, as Nokia president and CEO Olli-Pekka Kallasvuo has noted, “a hub for innovation.”
National symbol
Homegrown innovation is also on display in the manufacturing sector.
The Nano has been called the people’s car, and with a price tag just over $2,000, it shows signs of living up to its billing. The maker, Tata Motors, took some 200,000 orders in barely two weeks after the Nano’s launch in March of this year, and at least one report claims the number has hit 1 million.
The subcompact Nano is designed to be a four-passenger urban vehicle. Although the car is powered by a 624-cc fuel-injected gasoline engine, company chairman Ratan Tata has promised that an electric version is forthcoming. Reportedly, still another model will be powered by a revolutionary compressed-air fuel system.
But the Nano’s importance goes beyond providing cheap, efficient transportation, and it represents more than simply an exciting new consumer product. Its production will create many new jobs in the manufacturing sector, advancing India’s gradual shift from an agricultural economy.
Moreover, the Nano is in many ways emblematic of the kind of innovation that is underpinning successful new business in India. It has become a national symbol for the country’s emerging technical and manufacturing capabilities.
Producing a desirable car for the lowest price in the world is a remarkable achievement, both in cost-cutting and engineering terms. The Nano is not a variation on another vehicle; from bumper to bumper, it had to be imagined as more efficient, lighter, cheaper and smaller. Tata Motors has reportedly filed for more than 36 patents for the car’s components.
Entrepreneurial health care
Innovations by private concerns in the health care arena are also playing an important role in India’s transformation.
In the absence of adequate government funding—per capita annual spending on health care is less than $20—Indian medical professionals and health care entrepreneurs are finding ways to help fill the gap. Their efforts have demonstrated that well-conceived products and services can save lives—and be profitable.
At Wockhardt Hospital and Heart Institute in Bangalore, heart bypass procedures are routinely done as awake surgeries (as the term suggests, patients are conscious). Such operations are significantly less expensive, since general anesthesia is usually not required and recovery times are shorter.
The cost-efficient Indian approach to health care has drawn the attention of Americans facing expensive medical procedures. A growing number of US health insurers will now at least partially pay for surgeries and treatments in India, which often bill out at less than half the cost of equivalent care in America while providing a high quality of care.
One result is a growing business in so-called medical tourism, in which patients come to India for care ranging from dental and cosmetic surgeries to heart procedures and joint replacements, often including visits to tourist destinations as part of their itineraries. Medical tourism to India is expected to grow at an annual rate of 30 percent in 2009 and 2010.
India has also been at the forefront in establishing electronic health record systems. The eHealth-Care Foundation, based in New Delhi, has created web-based data storage for health care networks, hospitals, physicians and patients. The information stored ranges from blood type and allergies to medical history. This easy-to-access data enables better monitoring of medications and facilitates emergency care, all at a fraction of the cost of traditional paper records.
The health records systems developed by Chennai-based Apollo Hospitals combine back-office functions and patient information. Those systems are now being marketed by Apollo Health Street in the United States, where the software is used at hospitals from California to Florida.
Often need begets invention. Just ask Aswin Chandrasekaran, cofounder of Invention Labs, also in Chennai, which invented the Kavi, a handheld communication device for children with cerebral palsy.
Or consider the award-winning inventors of the AnaeMedia, an inexpensive, non-invasive scanner that can measure and monitor hemoglobin, enabling rural health workers to screen for anemia. Currently undergoing clinical trials, the device is rugged and dustproof, and it comes equipped with both a rechargeable battery and a hand crank to charge the battery in areas without electricity.
AnaeMedia is demonstrating that health care startups can be good business. Established in 2007, this medical diagnostic product company has projected a 2010 profit of $1 million—as well as 45,000 lives saved.
Flexibility and adaptation
Of course, innovation in India has not been limited to these three underserved spheres. And not all successful innovators have been homegrown. For examples, look to the consumer goods sector.
When US-based Tupperware launched its Indian operation, its signature space-saving rectangular storage containers failed to appeal to traditional Indian cooks accustomed to a large, round tin with smaller containers nestled inside. This led the company to create a round spice box—designed and manufactured in India. Today, Tupperware is a household name in India, with an all-woman network of 40,000 sales representatives and 80 distributors.
The needs of India’s emerging middle class, including the immense tech-savvy next generation, resemble those elsewhere. But the limitations of the country’s infrastructure require adaptation, and the wisest business plans will seek to find a balance between the desire for Western products and India’s unique requirements.
The Indian arm of Philips has sought to find such a balance. Although the company sells televisions and cutting-edge MRI technology in India, it has also created water purifiers designed specifically for the Indian market, where freshwater is far from a given. That is just one piece of a larger plan for Philips India to double its revenues by 2011.
As India modernizes, customized, innovative products and services can support the nation’s communications, education and health care goals, enabling the next generation to become more worldly and better connected. For those companies with flexibility and foresight, the opportunities are there.
Whether Indian-owned or multinational, success will come to those companies that offer products that aim not to create new needs or anticipate some future desire. Rather, the end-use applications need to be clearly stated, the price structure must be sound and the support systems must be in place. But most important of all, the products in a transforming India need to address diverse and current needs.
About the authors
Chairman and Managing Director Harsh Manglik is Accenture’s senior executive in India. In addition, Mr. Manglik is vice chairman of the Executive Council of NASSCOM and an invited member of the National Council of the Confederation of Indian Industry. He has received the Distinguished Alumnus Award, the highest award The Indian Institute of Technology Kanpur confers on its alumni. Mr. Manglik is based in Bangalore.
Svenja Falk leads Accenture Research for the Asia Pacific region. Dr. Falk holds an adjunct professorship for communication and management at the International University in Bruchsal, Germany. She is also on the board of the Accenture Foundation in Germany, a spokeswoman for a group on political consulting in the German Association for Political Science and the editor of the Magazine of Political Consulting & Policy Advice. Dr. Falk is based in Bangalore.
Raghav Narsalay, who is based in New Delhi, leads the Accenture Institute for High Performance in India. Prior to joining Accenture, Mr. Narsalay was a chief economist with an India-based law firm.
Sidebar 1
Underwriting the knowledge economy
In the wake of India’s embrace of a market economy in 1991, the country has become a notable source of innovations in biotechnology, pharmaceuticals, automotive components, software and information technology, as well as a major exporter of scientific and engineering expertise. Continued success in these areas and, more generally, of India’s innovation-driven market transformation (see story), will require a major new commitment to education and research and development.
There’s much to be done. Despite its position as a major emerging economy, India has a literacy rate of just 65 percent, one of the lowest in Asia. Only about one in eight Indians pursues higher education. In response, the government has set a target of raising public expenditures on education to 6 percent of GDP.
The government has also carved out an ambitious plan to increase an already robust commitment to R&D. The Planning Commission has tripled the R&D allocation in the Eleventh Five Year Plan (2007–2012) over the previous plan. For the first time, it has made innovation and technology an economic centerpiece, calling for an investment in these areas of $15.6 billion, which will double R&D to 2 percent of GNP, bringing it close to the average for developed countries of approximately 2.5 percent.
The public sector accounts for three-quarters of India’s total R&D investment, or roughly 0.8 percent of GDP. The bulk of the applied public research has been industrial research, which the government has supported for nearly 70 years through the 38 labs that make up the Council of Scientific and Industrial Research. With more than 5,000 researchers, the CSIR is among the world’s largest industrial-oriented public research institutions and India’s main producer of scientific and technical publications and patents.
Sidebar 2
LifeSpring Hospitals: Low-cost, high-quality health care
LifeSpring Hospitals, with its innovative, entrepreneurial business plan, is demonstrating that even small fees can be the basis of a scalable economic model with the potential to deliver a profit and serve an important public need (see story).
The Hyderabad-based chain is a co-venture of India’s largest condom manufacturer, HHL Lifecare, and the Acumen Fund, a global nonprofit venture fund that takes an entrepreneurial approach to world poverty. LifeSpring aims to serve women and children in a country where 78,000 women die each year from pregnancy-related complications, many from the lack of basic care.
At a LifeSpring facility, the charge for a normal birth is about $40, roughly one-fifth the charge at neighboring public hospitals in southern India. Anant Kumar, chief executive officer of LifeSpring, aspires to ramp up his company’s delivery of low-cost, high-quality health care at a rapid rate.
The concept of LifeSpring’s small private hospitals (20 to 25 beds) depends upon a sustainable business plan that focuses on maternal and pediatric health. That means lower overall costs than at larger rivals that offer a wider range of specialties.
LifeSpring also takes a no-frills approach to facilities, as the company outsources lab tests, cleaning and pharmacy services. The marketing and customer relationship management team has developed customer service modules that include videos for new staff on protocols to assure customer service excellence across hospitals.
LifeSpring already serves nearly half the women giving birth in some districts, and the company expects to employ 1,200 people by the end of next year. One hospital has become six, and the plan is for the chain to expand to as many as 140 hospitals by 2012.
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