Reimagining India: Unlocking the Potential of Asia’s Next Superpower (18 page)

Japanese companies first demonstrated the opportunity to create value through steady improvements in efficiency in the early 1970s and 1980s. Sony and Toyota shocked American competitors by introducing low-priced, high-quality consumer electronics and automobiles. Inspired by Japan’s success, businesses in Taiwan and South Korea soon emerged to challenge the dominance of American manufacturers. U.S. firms eventually responded to that challenge. Many embraced Japanese manufacturing methods. A free-trade pact with Mexico enabled many American firms to lower their labor costs by moving production to Mexico. That shift, in turn, helped manufacturers in other Latin American countries learn to become more efficient by cutting labor costs.

India entered the fray in the 1990s, shortly after China did. Economic reforms set in motion by Deng Xiaoping quickly transformed China into the dominant global force in low-cost manufacturing. India backed into similar reforms only after a 1991 balance of payments crisis forced the country to beg for help from the International Monetary Fund. Not surprisingly, Indian companies were initially terrified of the prospects of
global competition. Many Indians worried their economy would be recolonized by foreign multinationals. But Indian firms soon found their footing—starting with IT services—and thereafter discovered that integration into the global economy also brought new opportunities

Wipro is a classic case. Founded in Mumbai by Mohamed Hasham Premji in 1945, the company, originally called Western India Vegetable Products Limited, began as a manufacturer of vegetable oils. After the founder’s death in 1966, his twenty-one-year-old son, Azim, newly graduated from Stanford, returned to India to run the business. In the 1980s, the younger Premji made a bold decision to diversify into computers and information technologies. In the 1990s, as the effects of economic reforms in India gathered momentum, companies around the world were belatedly discovering that they would need armies of new programmers to prevent their IT systems from crashing in the transition to the new millennium—the dreaded “Y2K bug.” Safeguarding their systems from the Y2K threat was a vital but unglamorous task—the sort of work big companies were glad to outsource. Y2K enabled Wipro and other Indian IT services companies to build capacity and prove their skills. Now Wipro, alongside India’s two other large IT players, Infosys and TCS, deliver sophisticated high-value software services to clients around the world. By now the success of India’s IT service providers is well known. Other companies, like Sundram Fasteners, have shown that, in the new Global Century, Indian firms in some manufacturing sectors can also hold their own.

Yet the one thing we know about global competition is that to maintain their lead in the efficiency race, companies must run ever faster. Already, new competitors to China and India have emerged in Vietnam and Cambodia. The hundreds of millions of new workers who will enter the global labor force in the next three decades can be trained to produce commodity products and services ever more efficiently. Keeping pace with this constantly moving “efficiency frontier” will be the great challenge for twenty-first-century global managers, including those from India. The important lesson for Indian managers is that competing on the efficiency dimension requires relentless discipline: To succeed, their
companies must achieve continuous productivity improvements and ascend ceaselessly into activities that add greater value for their customers.

Companies like Tata Motors have demonstrated that Indian firms can capture global opportunities in a second way: by developing products uniquely suited to local markets. In 2001, after posting a $125 million loss, Tata moved aggressively to cut costs and raise quality. Most important, Tata Motors executives also introduced a barrage of new products, including a smaller and sturdier commercial truck called the Tata Ace. The vehicle satisfied a huge need in India’s growing economy for trucks that could carry goods the “last mile” in the supply chain—off the highways and into towns and villages. The Ace boasted a short turning radius and was able to maneuver through tight lanes. At $5,500, the truck cost half as much as other four-wheel commercial vehicles in India and was significantly cheaper than the pickup trucks with smaller payloads found in international markets. Tata had in fact created an entirely new product category: Until 2005, when the truck was introduced, overloaded three-wheel rickshaws and bullock carts had dominated the “last mile.” In 2011–2012, more than two hundred thousand Aces were sold, bringing the total to over one million.

Products like the Tata Ace exploit what my HBS colleagues Tarun Khanna and Krishna Palepu call “institutional voids.” This refers to the fact that emerging markets often lack institutions—credit, or transportation infrastructure, or a well-functioning legal system—that are taken for granted in developed markets. Businesses able to exploit these voids can generate enormous opportunity. One would expect domestic companies to have the inside track in exploiting institutional voids. But the success of South Korea’s LG in developing white goods tailored to the needs of Indian consumers, and Vodafone in devising customized cellular services, show that even “outsiders” can realize big gains from responding to local needs.

In the modern global economy, growth increasingly is driven by consumers in emerging markets. Indian firms may be especially well
suited to responding to these needs. Much like American firms did in the twentieth century, Indian firms stand to benefit from the vast scale of their home market and are in position to leverage those gains in expanding into other emerging markets. Companies like Bharti Airtel, which is now successfully venturing into markets in Africa, provide a great example of this opportunity.

The third and most powerful way to create value in the Global Century is through innovation. Innovation was the key to the dominance of American firms in the twentieth century, and will play an even more decisive—and unpredictable—role in our current hyperconnected age. Today breakthrough change can come from anywhere. That’s fortunate for consumers, because we desperately need big breakthroughs to cope with the challenges of energy and environmental sustainability, health care and quality of life, and a constantly expanding digital landscape. Indian companies have as much chance as competitors from anywhere else in achieving these breakthroughs and emerging as Global Century winners. Their high levels of intellectual capital and ingenuity may even give them an edge in competing along the innovation dimension.

Innovations can come in two forms: those that create genuinely new products and services for global consumers, and those that enable the world to meet existing needs with radically fewer resources and at dramatically lower prices than current alternatives. So far, with the exception of Sony’s Walkman or Matsushita’s VHS VCR, few global products and services have originated in Asia. That may change: Samsung, for instance, now ranks among the top ten companies in global patents awarded annually. In India, too, Piramal Life Sciences and Biocon have set their sights on bringing new patented drugs to the global market. If they succeed, they could transform the way the world sees India’s capacity for innovation, just as the success of firms like Wipro reshaped perceptions of India’s ability to compete on the basis of greater efficiency.

Innovations of the second type, which can be described as “frugal innovations,” can meet the needs of the billions who live below the poverty line and are desperate to enter the circle of prosperity that others have so long enjoyed. The most celebrated example of such an innovation is
microfinance, pioneered by the Grameen Bank in Bangladesh. In India, Narayana Hrudayalaya Hospital has shown that heart surgeries can be performed at scale and at order of magnitude lower prices with equally successful outcomes. Products like the Tata Nano or GE’s new cardiac monitor developed in India also suggest the potential for frugal innovations to transform the global economy.

The Indian capacity for
jugaad
(creative improvisation), which is highlighted in the book
The India Way
, may well give Indian firms a leg up when it comes to frugal innovations.

In the last two decades, India has emerged as one of the Global Century’s most promising players. Indian firms have shown that they can create value by exploiting opportunities that arise from efficiency, local responsiveness, and innovation. A decade ago, few students left Harvard Business School fully prepared to compete in the Global Century. Now, each year, we graduate nine hundred MBAs and nine thousand executives who, we hope, see global opportunities far more clearly. The Global Century has only begun. Indian firms and their leaders can and should aspire to be leading contenders in this new Global Century. Vast opportunities await, in India and throughout the world.

Sunil Bharti Mittal

Sunil Bharti Mittal is chairman and group CEO of Bharti Enterprises.

Technology has always been a game changer for modern India. The 1960s saw the advent of heavy manufacturing, changing the face of industry. The 1970s saw the Green Revolution in agriculture, transforming the country from import dependency to near self-sufficiency. More recently, vibrant telecommunications and information technology industries have bolstered the country’s confidence and ambitions to vault into the ranks of economically advanced nations.

We stand today on the threshold of a new era of technological innovation. In this decade, the convergence of mobile telephony and new digital technologies will open extraordinary new vistas and transcend traditional developmental challenges.

The Government of India’s Unique Identification initiative offers a real-time case study of the transformation under way and hints at the possibilities in store. Recognized as one of the world’s most ambitious national identity programs, the project is now taking its next logical step with the introduction of direct benefit transfers, enabling the government to send cash electronically to recipients of various public subsidies. By routing transfers through the UID payment system, the government can curtail transaction costs to a fraction of the previous level and almost eliminate the massive leakages that have plagued such disbursements in the past. This new payment method is currently available in fifty-one districts; the rest of the country will be getting it in a phased manner.

The Direct Benefit Transfer is just one example of what is possible as
technology integrates with everyday life—and the greatest promise lies in bringing geographically remote and low-income groups into the economic mainstream. We have already moved some way on this path and are reaping tangible benefits as a result. Thanks to e-Governance—the government’s plan to make many public services available via electronic media—people no longer must travel to district and state headquarters to update their land records or check the status of their job applications. I am convinced that we are only scratching the surface in applying these technologies to public services.

In our age of rapid technological change, government is no longer the sole agent of public welfare. Today, entrepreneurial zeal provides an equally important force propelling technology closer to people and enhancing their newfound capacity to absorb and make the best use of it in improving quality of life. Most heartening is the fact that this can evidently take place in a low-literacy (not just low-tech literacy) environment.

Dwarfing the technology-induced changes in public services are the parallel efforts by manufacturers and service providers to experiment with new technologies, spurred by an across-the-board increase in employment opportunities, rising disposable incomes, and greater affordability of mobile devices. Today, even a low-income vegetable vendor can benefit from a $20 water purifier to provide clean drinking water for his children. Similarly, the mobile phone has become indispensable to those whose professions are “mobile” in nature, such as salespeople and those in the construction industry. And even for those who don’t work in such fields, the Internet’s benefits are no farther away than their fingertips. Mobile-banking applications have eliminated the distance between the customer and the bank. M-commerce applications have done the same to the marketplace. Forget about smartphones; many feature phones are capable of delivering a majority of these services despite being just a step up from basic phones good only for calling and texting.

India’s hinterland has become one of the most powerful arenas for
empowerment through technology. Farmers are getting real-time information on weather, commodity prices, and fertilizer availability in the local market—all for free. The potential for inclusive growth of these initiatives far outweighs the initial investments that have gone into them in a country where 60 percent of the population still depends on agriculture. Rural artisans and small entrepreneurs no longer have to travel to urban markets to vend their products; they can do it over their mobile phones.

The next great frontiers are health care and education—two critical sectors that stand to gain immensely from technological leapfrogging. Lack of brick-and-mortar models in these sectors remains a significant constraint, compounded by limited public investment. M-health services are already starting to help overcome the 1:1,700 doctor-patient ratio in the country; private firms are offering medical consultations and diagnostic services via mobile phone and text messaging, and plans are afoot to deploy devices such as the “m-steth” (mobile stethoscope) for transmitting heart data of cardiac patients. M-education has also made a beginning. Both sectors stand to gain tremendously in India from what McKinsey has estimated will be the largest addition of Internet users of any country in the world, reaching 330–370 million people by 2015, more than in the United States and second only to China. The fact that an estimated three-quarters of the new users will be accessing the Internet solely through mobile handsets or tablets opens boundless new possibilities in education and health.

How, then, can India realize the full promise of mobile broadband? As we move to the “Internet of things,” in which not only people but also everyday objects like cars, appliances, and even consumer products can be linked together in digital networks, we need to remove disparities, not only in access but in speed and functionality as well. To create the perfect tango, a host of forces must move in tandem, including communication technology standards (3G, 4G, and future generations), network speed and reach, handset capability and proliferation, application development,
and manpower training. But this broadband revolution requires a nurturing regulatory landscape, in which government regulators seek out global best practices in policy making. That will mean balancing the revenue the government reaps from the telecommunications sector against the improvements in public welfare that will stem from the industry’s development. It will also mean ensuring sufficient availability of quality spectrum without technological or service restrictions, managing data traffic with transparent rules, safeguarding competition, and fostering the development of a national broadband network.