Monday, March 4, 2013

Innovation Indianised

Entrepreneurship is on the rise these days. People are increasingly getting out of their comfort zone and diving into the rigors of starting a business. Doing business is no longer the cup of tea of only the wealthy or those with political connections. A business idea and the right attitude is all you need to make it big. Entrepreneurs are leaders – they bring about change, innovation. And innovation is THE thing for economic growth.

As this New York Times article explains, there are three types of innovations – empowering, sustaining and efficiency. Empowering innovations or those more popularly known as disruptive innovations are those that revolutionize industries – they create altogether new markets for themselves. Facebook, which brought about a whole new dimension to advertising or the iPad, which made access to computers a lot easier, are examples of empowering innovations. They are the ones that create the maximum jobs, expand capacity and make products available to those consumers who did not have access to them before. They give the maximum boost to growth. Sustaining innovations replace old products with new ones with small improvements here and there, for example replacing LCDs with LED TVs. They, sort of, keep the innovation engine running. They fill up the demand-supply gap in developing economies but have a more or less neutral effect in developed economies. Lastly, efficiency innovations enable us to do more with less. They help in reducing costs by making better use of resources. For example, e-commerce companies have brought around a new way to distribute retail products and the comparable cost advantage that they have allows them to provide attractive discounts. However, these innovations tend to automate processes and hence sometimes even lead to loss of jobs. They work best in mature markets.

So, what sort of innovation does India need? Generally, all three types would only do good and bring about positive change in a growth hungry country. However, let us dig a bit deeper see what type of innovations would most benefit low-income, middle-income and high-income consumers. We’ll worry about the low and middle income consumers only because they form, in terms of population, more than 90% of the total market.

The middle-income group presents the largest business opportunity because it is increasing both in size and in per capita spending power. It is what is attracting many foreign business houses to India. Consulting firms would be doing a lot of “India Entry strategy” projects these days! Sustaining innovations would work best for this market. Better mobile phones, better cars, easy finance, affordable housing, exotic food would sell a lot! The burgeoning middle-income population has almost created a situation of excess demand. Thus, their hungry stomach pretty quickly gulps down any excess capacity created.

The low-income group has been greatly under served because it seems to have hardly any purchasing power. This consumer group traditionally did not appear lucrative enough for businesses. However, times have changed and a number of social enterprises have sprung up, both for-profit and not-for-profit. They have been engaging with sectors of agriculture, agriculture support, health care, sanitation, education and clean energy. A lot more can be done in the areas of agricultural technology, logistics, rural banking, rural tourism etc. Organising the unorganised sector presents a huge business opportunity in itself! Amul Dairy is the best case study here – a fascinating story of how a group of milkmen came together to create a Co-operative which is today one of India’s largest dairy product manufacturers. These are empowering innovations indeed!

Thus, the Indian market has huge potential! And to tap this market, our Gujju and Marwari businessmen have their own home-grown way to innovate! This stems from the fact that we Indians always have had limited resources on hand. We have large families living together in small houses, we love small hatchback cars and Nokia still manages to sell millions of low cost handsets. We learn to adjust, and that’s how was born – “Jugaad” innovation! It translates into an innovative fix for a business problem born from ingenuity and cleverness. Navi Radjou, Jaideep Prabhu and Simone Ahuja have in fact co-authored an entire book on the subject – “Jugaad Innovation: Think Frugal, Be Flexible, Generate Breakthrough Growth”.

How much Jugaad can our entrepreneurs do? And how far will it take us? Only time will tell.


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