HBR calls it Gandhian innovation, the BusinessWeek refers to it as jugaad, and Carlos Ghosn (Renault/Nissan CEO) calls it frugal engineering. These are just some of the buzzwords used to describe a uniquely Indian model of innovation, one that builds global quality products at price points that are affordable for the Indian masses. While the Indian IT Services story is very well known (Infosys/Wipro/TCS and dozens of Indian out-sourcers charge a fraction of their global competitors and still have higher margins), there are many other equally impressive examples:
- Bharti Airtel which charges 1cent/minute (vs. 8 cent/minute in the US), has an ARPU of $ 5 (vs. $50 in the US) and is still the one of the largest and most profitable carriers in the world.
- Narayana Hrudayalaya (NH) Heart Hospital in Bangalore charges less than $ 2000 for open heart surgery (vs. $ 100,000 in the US) and has mortality rates that are comparable with or better than the US/UK. If you like details, this case study on Indian innovation in healthcare is worth a read.
- The Tata Nano, India’s $ 2000 car, attracted a lot of publicity when it was launched last year.
- Nirma’s success against Unilever in the 70s is less well known but no less important. It re-defined the detergents market by launching a product that was priced at ~1/5th of Surf, the market leader. Today, Nirma is a $ 1 B company (in revenues) and has led the way for many other Indian multi-nationals in the CPG space.
My personal favorite is EMRI, an emergency response management (medical 911) service. EMRI was initially set up by the Satyam foundation and is now supported by the GVK Group. It offers emergency response (think ambulances) services to almost 400 million people across 7 states. EMRI handles 60,000-80,000 calls a day, has a fleet of 2,600 ambulances and responds to 7000 emergencies/day. Its average response time in urban areas is 14 minutes and ~30 minutes in rural India. And it has achieved these amazing statistics within 6 years of being set up, with Indian traffic and after spending 1/200 of what it would cost to build similar infrastructure in the US. And off-course the cost per emergency is ~ 1/50th of the cost in the US.
This is just the beginning. Over the next decade, there will be 100s of such success stories. 100s of Indian innovation led companies will become global market leaders in pharmaceuticals/healthcare, software (products), infrastructure, telecom, consumer packaged products (CPG), automobiles, and energy services. These companies will leverage:
- The exploding domestic market to develop and perfect their products/offerings and then roll them out globally. Bharti, Tata Motors, Bajaj and Godrej are all global companies today, but none of these would have been possible without a substantial domestic market.
- The Indian talent pool with its associated cost structures and their willingness to travel/live abroad for extended periods of time. While costs are rising in India, especially for software engineers, it is still possible to hire skilled functional talent (think designer, teacher, lab technician) for less than 1/5th of what they cost in the US.
- Access to venture capital and private equity that has deep pockets, patience, and a global perspective
- Access to global skills/expertise via acquisition and/or partnerships. The Nano is a great example of this – Germany’s Bosch designed the engine management system, Italy’s IDEA and Trilix did its styling, America’s Johnson Controls built its seating system, and Japan’s Toyo created its engine cooling module. Other Indian companies like Fortis (acquired Parkway) and Godrej are making global acquisitions to acquire brands and/expertise. Godrej has leveraged acquisitions (e.g. Tura in Nigeria, Megasari in Indonesia and Issue group and Argencos in Argentina) to acquire distribution and critical mass. As a result, it doubled its CPG business to roughly $ 1 B in the last 2 years
While the opportunity is immense and there is a lot of momentum, there are a few challenges ahead.
- Management talent. India lacks great product managers; people like Girish Wagh who built the Nano. CEOs are also in short supply, especially CEOs who have the experience of building substantial businesses and yet are willing to bet on a start-up (and all that it involves). More broadly, even when you can find them, seasoned India based executives are now as expensive as the Bay Area, and much more risk averse.
- Angel investors/super angels. For start-ups, the first source of capital is friends and family and then angel investors. There is lots of annectodal evidence and now even an HBS study to show that angels play a critical role in the supporting start-ups through their earliest years.
- Lack of a supportive ecosystem for young companies. Start-ups depend on cheap real estate (one can’t imagine the Bay Area without its $1-2 /sq ft/month sub-leases), an easy to do business environment, and board members/advisors who will invest time in return for the joy of mentoring and a modest amount of equity. Getting off the ground is so hard in India that it puts an undue premium on a certain type of operational/execution skills, and often deters innovators
All of these are solvable challenges, and Indian jugaad will have a role to play in crafting uniquely Indian solutions. If you have ideas or know companies that you believe are stepping out, do drop me a line.