Many western corporations are trying to “transplant” business models in emerging markets and come back with “bloodied noses”. Perhaps the question we should be asking is not how to create value from emerging markets, but how to create value for emerging markets.
In India, many basic consumer needs are going unmet. Large MNC’s are still failing to address these needs. Why? Due to misassumptions made by MNC’s such as – (1) Assuming all emerging markets evolve in the same way; (2) The value-arrogance of MNC’s in assuming all consumers want modernity; (3) Theory of income thresholds; and (4) Targeting high class market first, then the masses.
The major challenges that will be faced for companies looking to enter India include:
- Massive scale – adapting business models to the low margin, high volume model. Most business models are made for the opposite.
- Complex market portfolio – India’s market is getting increasingly complex and diverse. Companies must know which sub-segment they intend to target.
- The rural poor will not accept poor technology – they are not backwards as many firms assume. The mobile phone is India’s “central nervous system” and it has the power to revolutionise India.
- Economic challenge – providing low price goods at reasonable performance. Consumer variable cost is the “silver bullet”.
A person and an idea are connected.
What is it that companies can do for these markets to create value and create work for themselves?
So it’s all about relationships.
And what Reliance did in the partnership with Steven Spielberg is to establish a virtual studio in Hollywood.
Modernising– we are not Westernising.
If you actually look at where the future of the next trillion dollars of India’s GDP is, the first trillion dollars took us 62 years. The next trillion will take us eight to 10. Well, we have a consumer society defined in terms of high aspiration with a total and spectacular failure of public goods and an absence of public goods– education, health care, power, infrastructure.
We have monster consumers who don’t know that they can only get this much benefit at this much cost. They’re saying I will pay only so much. And I want a hell of a lot more. And if you deliver it, you deliver it. If you don’t deliver it, I don’t want it.
The monster consumers also have seen over the last 10 years in India, we’ve had taxes coming down, prices coming down, simultaneously quality going up. So these are the people who are going to come into the workplace or the home place, the next generation, very shortly. And I think we really have a disaster on our hands.
The second economic challenge is that you have many, many Indias. They are increasing in number. We thought once upon a time that as India got richer, we would actually have a more homogeneous country. We now know that everything from our politics to our festivals to everything else, you have a more heterogeneous country.
So I think if you look at all these Indias, and they’re continuing to increase, and the regionalisation you require for your complexity, which is way ahead of what the market is currently worth. Putting all these things into perspective, I think the question is what is it that companies can do for these markets to create value for these markets and create wealth for themselves.
Similarly, if you look at the retail, everybody says, well, what about modern retail? And I think the question is modern according to whose logic? If you go to the local retailer next door in my house, he actually called me when my daughter went off to college. And he said are you buying from someone else? And I said, no.
And he said, well, there’s no ketchup. There’s no Maggi noodles. There’s no cheese. There’s no iced tea. And he had a list of five items that only my daughter consumed. He did this without the benefits of CRM.
He has his own particular way to do it. What’s more, if there are two pieces of a particular brand– if there’s a particular brand that I drink, he will keep those two pieces for me, whereas the supermarket nearby will tell you how, in terms of logic, it doesn’t work. Which means that the question most agencies ask, when will the ugly duckling evolve into the familiar, beautiful swan, and when will India be ready for my global strategy? The answer is probably never.
I think the question really is when will you as a company be ready to be able to marry your competencies to what the market wants and create a whole new market. If you want to be part of a trillion dollar journey, then you cannot say I will only target class and not mass. You have a whole lot of people who on a little bit each who buy a little bit each. And that adds up to one hell of a lot.
The bottom 60% of people, who earn less than $2 a day, actually control one-third of India’s income and a lot more of expenditure because the poor don’t save. The rich do. When you have 10 kids who’ve gone through college with one photo spectrometer, they learn how to do things very quickly in the short period of time they have. And that’s really where it all comes from.
So on the one hand, consumers are good at extracting value. On the other hand, poor is not backward. I think that’s something most people forget. The poor embrace technology. Low income people love technology. Technology democratises.
The ATM doesn’t care whether I’m withdrawing two rupees or 30 rupees. Who’s going to build, participate, and build the road? Who’s going to invest in innovation that’s going to take time? Who’s going to support multiple strategies ahead of their time? And who’s going to actually provide advanced solutions for this crisis?
May 2009, Cambridge
Innovation in India and China