In a new article, Anatomy of New Growth in India, posted at SandHill.com, I argue three things. First, take emerging markets like India seriously because they punch above their weight-class. Second, go after the bottom-of-pyramid opportunities. Third, think beyond talent/cost arbitrage and build in-market capability to incubate new products and business models. This is the first article in a series called India DNA Talk where I will discuss the burgeoning growth in India and its implications for the software industry at large.
By coincidence, the article appears on the same day that Wal-mart has announced a big push into India (see news). In my article, I describe the Indian retail market as the über “edge market” that is looking to leapfrog technologies. But it’s a chastened Wal-mart that’s coming to India. They have learnt that while discount retailing has potential in many markets outside US, having a faithful replica of what they have back home is a recipe for disaster. Their move into India comes only months after calling it quits in South Korea and Germany because they misjudged the local needs.
Given the economic growth in India, it’s easy to see why discount retailing, or discount airlines for that matter, will be big here. Less intuitive, and therefore more controversial, is the claim that, over time, India and China will dominate the world of discount retailing or discount airlines or some other “discount” model. Yet this claim has merit. The natural market share of a “discount” model, frankly I prefer the term ‘lean model’, is much higher in India and China than it is in the Western world. In US, the discount airlines might have 40-50% market share; in India it’s likely to be 70-80%. The lean model wins big because often there are no entrenched incumbents for it to compete with and it’s the most effective in turning non-customers into customers.
In a sense, the ‘discount’ model has already found its way into the IT industry. Wipro describes itself as using “lean manufacturing techniques in the digitization of business processes”. It is, along with Infosys and the other big Indian IT services firms, putting the same pressure on traditional services firms like Accenture and IGS that SouthWest and JetBlue have exerted on players like United and Delta.
Now this ‘lean’ model is working its way deeper into the IT industry. Nick Carr has already labeled it as the coming era of “frugal computing”. In my post here about this, I assert that the “real story is about consumption, not production. It’s about the deeper penetration of IT among new segments. In fact, I believe, that some of the major action in the new segments will happen in emerging markets like India.
Succeeding in India and other emerging markets with lean models increasingly requires going “from a sales-out mentality to incubating the right products and business models”. Wal-mart’s experience and other MNCs’ experience has been that this business model/product incubation has to be in-market. This is a huge change for a typical MNC. It requires the home office to relinquish its monopoly on business model innovation. Though many companies will buy into the need for this change, only a few will be able to make that change happen. We don’t have many success stories in the IT industry yet. Our industry has a lot to learn from others in this respect. I will cover some of these success stories in the days to come. Watch this space!
Later article in this series:
Another Reason to Not Ignore Emerging Markets
[Growth Anatomy Series Roundup is here]
Interesting article on the need for business model innovation to succeed in emerging markets. While I agree that new models are emerging in India, I would argue the discount model isn’t new and I find that firms in India that think of them as innovators are trying to adapt a model that worked well to India. I’d be keen to explore true innovators here in India — a scalable micro-finance success would be nice to see. Is Amul an example of a cooperative model that has succeeeded? How about the e-choupal model from ITC? Sharad, I can’t wait for your success stories!
In addition to the obvious business success, given the sheer volume of people and the disparities we have in India, I’d love to see innovative and successful business models that incorporate a social element into it. Maybe this is where the IIMs can help in a unique way. While the Bharti-Walmart alliance can do wonders in terms of distribution and offering the best choice and prices to consumers, I wonder how we make this a win-win for the suppliers who get squeezed in the process.