Emerging markets are evolving as the market and center for innovations which has led companies to develop and customize products out of these countries. What are the key lessons which an organization can learn on successfully leveraging India as a market and (or) development hub.
We all know that the next wave of growth from demand and hence economy is going to come from the emerging markets. The emerging markets or so called fast developing nations account for more than 1/3 of the global population – and its growing fast. China and India are among the fastest growing nations in the world. To sustain the growth and serve their people these countries have humongous demand of goods, products and services. MNCs worldwide, from Automotive companies to fast food chains and many more, are eyeing this market.
Innovations from Emerging Markets
Making Telecommunication Affordable: Texas Instruments has been in India since early 1980s, and the way they have adapted their India strategy is a case study. TI a leading chip manufacturer of the world understood the potential of the telecom market in India and identified cost of handset as the barrier. TI India came up with Locosto a mobile phone chip, which was of half the price of their nearest competitor. The chip helped Motorola reduce the price of their handsets by 20% to 20% and launch a USD30 mobile phone for India markets. Further to this Motorola did localization on their handset to make it apt for the India rural market. The mobile phone was sturdy has dust proof key pas and a very small display to ensure the long lasting battery.
There were 11 Million users of the Locosto based mobile phones in 2008. The product went global and is used across many developing and developed markets – a case study on how the needs of emerging markets can be transformed in to innovation with huge market potential across the globe. TI Locosto was completely developed in India which resulted in USD 8 to 10 Million saving for Texas Instruments.
Online office tools for Masses: Driving innovation for or out of emerging markets – catering to emerging markets need – is only one side of the story. A more common phenomenon is leveraging the low cost talent pool, fresh ideas and a different eco-system of these markets to develop global products. Zoho is one such example, it’s a web based suit for office tools which was developed from India. The target market for Zoho is global and the competitors were majors like Google, Microsoft and Salesforce.com. Zoho faced three pronged challenge:
1) How to provide a low cost product 2) How to reduce the development cycle and 3) how to ramp up the team in a short time. Zoho leveraged the talent in Indian market skillfully which not only reduced the ramp up time (120 FTEs in 15 months) but also cut down the cost of development by USD10 to 12 million. The swift release of Zoho along with the global appeal of the product has made Zoho quite successful, more with students and SMEs in emerging markets. At the end of 2008, there were close to 200,000 active users of Zoho products.
Entertainment on Mobile: OnMobile is an India based mobile VAS (value added services) provider. OnMobile targeted the booming telecom sector of India and the content hungry users of the mobile phone. While there were lot of telecom suppliers catering to the basic needs of market VAS was not considered as the revenue potential area. OnMobile was among the first few companies to develop innovative solutions and products for Indian mobile users. While the theme of the services was coherent to developing markets but the innovation was brought in India specific contents and pricing which suits the Indian customers. The results are: more than 300 million users, 10 billion calls per month, and a reach of 600 Million customers.
A car for Millions: The Indian car maker Tata motors have come up with a car which has captured the imagination of millions across the world. Tata looked at the huge price gap between two wheelers and cars as a potential opportunity. The target customers of NANO were millions of people who were not able to afford the car but they had a need of safe transportation system. Tata Motors in association with its suppliers took the challenge to come up with a USD 2500 (INR 100,000) car. Tata innovated and improvised in the entire value chain of car production, from design, development, manufacturing to supply and marketing.
The result was close to advance booking of more than 200,000 NANOs, with in a month of starting the offer because of which Tata Motors raised NR 2500 (USD 500 Million) Crores.
Challenges with Emerging Markets
While there are many organizations globally who have successfully leveraged the emerging market through innovations, there are challenges which are unique to these markets. While innovation from or for emerging markets organizations need to adopt strategies which are aligned with the demand and ecosystem of these locations. Our experiences with clients suggest that many organizations miss out on the finer details which lead to not so fruitful results. Some of the key Points which needs to be kept in mind by the organizations are:
| Developing Products from Emerging Markets |
Clear goals for the innovation team
Capability development initiatives
Effective use of local Eco-system
Right organization structure
Ownership to teams |
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| Emerging Markets as Customer Base |
Value at right price
Educate the customer
Design to cost
Distribution
Integration with local Eco-system |
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Organizations developing products from Emerging Markets
- Clear Goals for the innovation team: In most of the cases organizations developing products from emerging markets do so in an offshore setup. In such cases the captive center (or offshore development center) has the umbilical cord tied to their parent development center. This leads to confusion on the goals, roles and responsibilities of the offshore team. It is imperative that organizations leverage their captive centers in a strategic way rather than a short term tactical off shoring destinations. Companies like, Google who have been immensely successful in developing products out of their centers in emerging markets have been able to so because of clear goals for their captive teams. These goals are more often set by the local teams (at time with approval from their other global teams).
- Capability development initiatives: Organizations should invest in the capabilities of their innovation centers. Companies like Texas Instrument have been investing in their India center to ensure they can develop a complete product from their India center. This enables the team to take quick and fast decisions without reliance on the third party (or global centers). Such capabilities have been instrumental in development of key innovations like Locosto (for TI) and Google Finance for Google.
- Effective use of local eco-system: Organizations who have been able to effectively leverage the ecosystem around them have been able to create product of far reaching importance and relevance for the markets. Tata NANO is one such example, TATA identified the key nodes in the development of their low cost car and entrusted it suppliers with the innovations needed to accomplish the specifications. This was done to ensure 1) Increase speed of development 2) Leverage expertise of suppliers 3) Reduced cost of development. The experiment was immensely successful with likes of Bosch, Johnson Controls, Saint-Gobain and some other close to 100 suppliers participating in the development efforts. Tata rewarded their suppliers with ensured contracts for the NANO – the deal worked in a symbiotic manner.
Another example of leveraging the local eco-system is how global storage device leader EMC has been able to effectively use the service providers (vendors) like Wipro to develop products for India, which helps in 1)Reduced cost 2) Resource Optimization 3)Right localization 4) Appended capabilities 5) Direct feedback from the customers. Wipro which is a long term strategic partner for EMC in India is also the leading distributor of EMC’s storage devices in emerging markets. So, besides being an effective channel to bring in the customer feedback to EMC Wipro has also been playing an important role in helping EMC develop India specific products, EMC insignia is an example of this, a products developed for emerging markets out of India.
- Right Organization Structure: Project management of teams which are not well integrated with the parent organizations creates confusion resulting in low productivity and eventually loss of directions for such team. Global leaders of engineering companies who have been successful in driving innovation out of emerging markets have been well aware of the importance of the organization structure and have spent time and multiple iterations to align their development centers in to ensure the productivity. Organizations need to evaluate whether the functional, or cross functional structure would suit their requirement. Once the org structure type has been put in place a clear demarcation of direct reporting, indirect reporting, Decision makers, key stakeholders have to be done. Organizations that have wide interest in development through multiple locations have migrated to the concept of Centralize Governance of Off-shoring Activities (CGO). CGO as an independent department ensures that all the issues pertaining to the innovation centers across the globe are resolved under one roof – with speed through expertise.
- Ownership to teams: Organizations which follow the above rules are well placed to have complete ownership of the activities in their development centers. Ownership of modules or the complete products have acted as an accelerator for driving innovation from these centers. Such organizations are able to gauge the need of the market and go about achieving it independently. One of the US based Hi-Tech major (Company A) is engaged in developing medical devices for emerging market from their India center. They have not been successful in competing with one of it global peer in India as the company A brings in the finished products from US, strip it in India and try to customize it for the local markets. The final products are neither well customized and nor effective enough for local conditions. The India team has very limited ownership on the innovations which they can bring on to the products which handicaps them in creating a product which is truly made fro such markets.
On the other hand companies like Adobe, Texas Instruments, Google, Intel, Motorola and many other such firms have brought about innovations from their India center which have been successful in emerging markets and the developed markets. One of the key differentiator is, these organizations have 70% to 90% ownership of the projects in their offshore development centers.
Organizations looking at Emerging markets as Markets
- Value at right Price: Customers in developing markets are tough buyers and like to bargain till the last point, they evaluate products across price brands and features before purchasing. A successful product should have mix of Brand, Value, Price and consumer appeal. Big companies have failed in India because of not able to catch the consumer nerves. Companies like McDonald have been immensely successful since they have adjusted their price value proposition according to the market conditions. At the same time there are many examples of globally immensely successful organizations who have failed to adapt in India and hence either quit the market – thinking it’s not ready for their products, or are still struggling to make profits. One of the largest software product companies in the world is struggling to find way to make money in markets like India and China. The piracy rates of their products in these markets are up-to -90%. A key inhibitor is the prohibitive price of the products which is not able to provide the right value proposition for these customers.
- Educate the Customer: When companies introduce new products or services in the developing markets customers might not be able to strike a chord with the products. It can be in the case of the brand or the overall product idea, it becomes imperative in such times that companies take “Customer Education” as a key priority which can create the new market for them. Products like Wrigley’s Orbit have been able to create a significant presence of their product (a chewing gum) in developing markets on the basis of their campaign on dental care. Two decades back Videocon an India based home appliance educated the customers on how a washing machine is better than using a maid. This was an important message, as for those who can afford the washing machine also had maids in their home. The idea clicked pretty well with customers and with in a decade washing machine became a common commodity in Indian house holds – with Videocon as the leading brand.
- Design to Cost: Customers in emerging markets have different needs which mean some of the globally accepted features might not work in the emerging markets. Successful companies have shed of some of the globally sought after features from their products to make them adapt to emerging markets: Hero Honda (India based motorbike company, also the largest producer of bikes in world) became the leader in Indian market by shedding speed and design for mileage and cost. Another learning is using the local resource for manufacturing, developing countries usually have poor infrastructure in such cases centralized big manufacturing facilities are not profitable.
- Distribution: Poor infrastructure and unorganized market poses challenges for distribution, Distribution in emerging markets is different and is best handled by third party vendors.
- Integration with local eco-system: Integration with local eco-system for sourcing of goods, local skills, leveraging distribution channels helps organizations better serve the market. Companies like Kohler which is a leading faucet player globally have benefited immensely by setting up a manufacturing plant in western India and integrating their sourcing channels for local market rather. It’s a similar case merchandise companies like Reebok and Nike who have skillfully used the created a supply base out of Tiripur a textile hub in southern India.
Conclusion:
Emerging markets are for sure going to be the drivers of the global economy for the decades to come. The burgeoning population and vast skill- set presents a handsome opportunity to companies looking at these countries as supply base or demand base. It is important that organizations learn from their peers and adapt their strategy towards these markets. Since these countries represents different and tough conditions– Innovation is the only out. |
