Klaus Maier | MD & Founder | Maier+Vidorno
First published in January 2015
This article is from the recent book “Indovation” by Wolfgang Bergtaler.
The bait has to appeal to the fish, not the fisherman
Western premium products sell well in India, and the number of households in India with European purchasing power level has finally increased to over 40 million. Nevertheless, European and American companies face enormous challenges because the price and quality of their products position them in the relatively small but highly competitive top segment, where they can quickly reach sales limitations. This makes it hard to conquer any relevant market share and ultimately profits in emerging markets such as India.
For the majority of Western companies, the real market potential for consumer and industrial products remains inaccessible, especially the estimated 500 million middle class households with an annual income of $5,000 to $20,000 per year. India’s middle class is growing and is thirsty for consumption. More people – from drivers to managing directors – earn a bit more money each year, and this is also an opportunity for growing consumption and purchasing. Previously unattainable goods such as cars, homes and household equipment, consumer goods and luxury goods are now becoming normal purchases for a growing group of buyers. The growing Indian middle class, however, is not only characterized by specific purchasing power but also specific demands, which often differ fundamentally from Western markets.
The times in which Western managers of R & D smile about the Chinese way of copying western products are over: now “Indovations” – frugal innovation from India – characterize a new management thinking. Frugal innovations describe process and product innovations that displace Western approaches in conventional supply chains today.
India as a development laboratory for new ideas
India is ideal as a central development lab for international companies for frugal innovation: There are the acknowledged strengths of the Indian market – the young population and strong internal market, a very good investment climate, a western-oriented legal system and protection (IPR) infrastructure and large English-speaking market – and there is also the fact that Indians are considered improvisers. For all these reasons, India is an ideal test and playground for new product developments and product adaptations. And, products developed here are suitable for export – not only to other emerging nations, but also to long-established industrialized countries.
Keep your friends close – but your enemies closer
However, customized products can be offered by only those who know what the customer really needs and in what he is willing to invest his money. To understand the local demand, you have to understand how India ticks. Foreign companies who are newcomers to India often face great challenges with the complexity of the local consumers, and also with competitors. While the organized sector – consisting of local and foreign multinational companies or local large companies – is comparatively easy to detect, the vast number of unorganized medium-sized companies remains often hidden during initial market analysis. A scaffolding company would not have thought their main competitor in India, locally, would be the bamboo scaffolding lenders – who dominate most of the market even for modern glass palaces of “Corporate India “.
India is a very price-sensitive market. Negotiations can last forever. Purchasing decisions are often, however, made on the basis short-term investment plans – hence, the enormous price sensitivity. This is true for both private and corporate investment decisions. Western companies are increasingly feeling that despite savings of local production, purchasing and any material substitution, there is a significant price pressure on the market, and German and foreign companies need to find a balance to manage this. Customers expect German products to be high quality-engineered, using the most modern technologies and to be highly durable. But, these qualities mean that they do not always sell at the cheapest price. Decisive innovation, however, is the pairing of convincing functionality and everyday practicality. There are many examples of this. Honda launches the world’s cheapest motorcycles in the Indian market – for approximately 600 Euros, followed by the announcement that they will export it and are working on an even cheaper model for India. Unilever is the pioneer of micro packaging for single use and short-term purchasing decisions. This idea is supported by Southern Europe à la reverse innovation as a response to growing consumer uncertainty. Siemens, GE and Philips have revolutionized their mobile diagnostic equipment and remote diagnostics as solutions for the health care of the masses in India – and also, these products do find applications in Western industrialized countries.
How to learn the innovation business?
Selling of existing products is often the first step in the market – for sale, but especially for learning. Companies learn how to respond to the market and deal with pressure on prices, local competition or growth of consumer layers, and in doing so, usually find out how their existing product portfolio performs and where it does not perform to fulfil the consumer needs.
The first step, in the direction of adaptation to India, is in creating awareness and acceptance for ideas beyond the primarily technology-driven “upgrade postulate” in research and development.
Barriers for foreign product development in India relate primarily to the mindset: changing the minds of those who have grown up in a society for which innovation has always meant higher, better and more, through centuries of “tinkering” and “Do-It-Yourself”, but also understanding a rather practical approach to functionality with less perfection.
Local knowledge for the right product
The right product for India requires above all knowledge from India. Pure development at a distance at the Head office, embedded in an environment of abundance, can be used as an interim solution; however, long-term localization works only with use of local knowledge.
To engage early with a strategic multi-product approach means, above all, systematically evaluating customers’ inquiries and feedback and demand behavior, and implementing operational and communication structures between sales, production and R & D. Only in this way can need be uncovered in the market, in order for local creative approaches to be developed to succeed against local competition.