Presentation made at the Global Innovation Exchange Conference

November 2007

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India : The Innovation Journey

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Presentation scope
The India market quick facts Innovation successes of the past decade The new imperative in Innovation Challenges for India Inc Addressing the challenges

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India Market

12th largest consumer market in the world - Consumption - $ 420 Bn
Expected to be 5th largest by 2025 - Consumption - $ 1.73 Tr.

Burgeoning middle class - 50 Mn : Expected to increase tenfold by 2025 Significant rise in Urban Household income
Robust growth across sectors

Sector
FMCG Auto Pharma

Value
$ 17.3 bn $ 34 bn $ 5 bn

Growth %
22% 14% 9%

Domestic consumption fuelling rapid economic growth

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India - economic eras

Pre 1991

1996-2000

2007 onwards

Economic Era

Socialist economy

Market economy

Globally integrated, rapidly growing economy Creativity & Innovation

Characteristics

Distribution

Productivity & Quality

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Big Indian Innovation successes of the past decade

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Telecom - Bharti Airtel

Indias leading telecommunication services provider

Customer base - 50 million

Staggering subscriber growth in the last 2 years adding approx 10 Mn customers Revenue : $4.3 Bn Market cap - $ 40 Bn ; employs 30,000 people

The company

Need to keep costs down yet provide reliable & affordable service

Radical innovation model - outsourcing entire cellular network

Innovation

Company personnel focus solely on Marketing and Customer service Strong focus on quality outsourced to reputed global suppliers Ericsson, Nokia and Siemens Subsequently , also outsourced all its call-center operations

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Telecom - Bharti Airtel

Rock bottom cost to consumer 2 cents / min

Results

Fastest sign up rate in Indias history One of the worlds fastest growing telecom company

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IT Infosys Technologies
Indias leading IT services company, providing consulting & IT services to companies globally

The company

Revenue - $ 3.2 Bn Market Cap - $ 29.2 Bn ; employs 80,000 people across 44 locations

Pioneered the Global Delivery model led to this rise of offshore global outsourcing

Innovation

A process breakthrough breaking projects down into components, distributing them to different locations Enabled by highly educated , technically skilled talent & a 24 hr work day

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IT Infosys Technologies
Significantly lower costs , higher quality and productivity for clients

Results

Explosive growth in Indian IT industry - $ 31 Bn revenue ; employs 1.6 Mn people Driver of broader prosperity in India

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Diversified operations : ITC group

Presence in tobacco, hotels, branded apparel , packaged goods etc.

Group revenue $2 Bn. Created an international agritrading company ( IBD ) in 1990 . Revenue - $150 Mn - trades in food grains, coffee, black pepper

The company

Innovation

Reengineered the business system towards a profitable rural transformation Created e-Choupal (gathering place) farming village based internet linked information centres to help farmers learn commodity prices in different village /city markets & learn about new farming techniques etc.

Helped eliminate middlemen in the supply chain - lowering costs for the buyer & increasing sale prices for the seller

Diversified operations : ITC group

Services reached > 2 Mn farmers ; 30000 villages

Results

System continues to expand Dual benefits of cost reduction & profit enhancement for both IBD and the farmer Enhancing productivity of the Indian agricultural system

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Key to their success

Process Innovation

Innovating the business system to deliver significant value for the consumer at an affordable price

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Reasons for thrust on Process Innovation

Consumer Reality

Business Culture

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Growing middle class

Growing share of urban middle class HH
100% 80% 44.9 60% 62.9 40% 52.7 46.1 26.1 10%
27.0

Rising income of urban middle class

(Mn HH) (Rs 000s) 200 194 40% 190 50%

2.4

3.4 11.0 Burgeoning middle class 50.5

30% 169 20% 163

43.6

180

170

20%

160 150 1998-1999 2001-2002 2009-2010P

0
1998-1999 < 90000 2001-2002 90,000 500,000 ( middle ) 2009-2010P >500,000

Urban middle class HH Left side Avg. middle class HH income right side At 2001-02 prices

At 2001-02 prices

P : Projections Source : NCAER

P : Projections Source : NCAER

Middle Income HH are the biggest market in terms of sheer size Rising average annual income ; however budgets still limited
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Consumer Mindset
A value conscious mentality - consumers carefully evaluate the value they get for the money they spend
Not about buying cheap products It is about smart buying ensuring the return on the spend is maximised Deeply ingrained in the Indian psyche & is revealed in product choices across income classes

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Business Culture
High entrepreneurial zealopportunity seeking , commercially savvy. Hierarchical, no permission for debate and dissent Quick to spot and exploit lucrative opportunities

Stifling out of the box thinking

Risk averse & failure intolerant

Low experimentation

Mentality of exploiting a business opportunity in the most

efficient and cost effective manner
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Product Innovation The new Imperative

Competitive Reality

Evolving Consumers

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Explosive growth of competitors

Personal Care 1990 18 Air cons 6 Footwear 7

1995 2001
Source : Paradigm Management Knowhow

34 120

13 27

13 44

Need meaningful differentiation to survive and thrive in a cut throat environment

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The S Curve Phenomenon

Revenue for business, brand, product

Competitive friction leading to plateauing and decline of revenue & growth for a business/brand Plateau & decline can only be temporarily arrested by product/brand rejuvenation

Revenue

Time

Eventually, need to find a new growth engine for business/ brand

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Rapidly evolving consumers

Surge in consumption want more desire for new features, experimentation Lifestyle upgradation convenience, style, image

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The challenge for India Inc

Driving big sustainable hits for the mass market 1. Consumer intimacy NPD perspective 2. Sustaining growth via a strong competitive advantage

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Consumer Insight Model for India

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The Indian Thali

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A Generic model
How Indian consumers maximize VFM Brand Badging

Simplicity / Convenience

+ Value Adds /
Extras

+
Image

+
Excitement

The Thali metaphor for what a value oriented Indian consumer looks for in products he/she buys. Best bundle of features and benefits for the price

Product

Personalized

Purpose / usefulness

Relationship

+
Trust and confidence
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Good enough performance + other elements at a good price

The Model : Premise

To the consumer, a product category comprises a set of attributes and benefits. The attributes & benefits cluster together as sources of value The clusters contribute differentially to the total value for money realized from the price paid Each product type in the market is a value bundle that represents combinations and trade offs among sources of value
Eliminating trade-offs is a powerful route to NPD for the Indian consumer Helps marketer redefine the price-value equation by making products that offer a new kind of value for the consumer

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Sustaining Competitive Advantage

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The combined force

Process Innovation
Cost efficiencies Source of competitive advantage novel processes hard to duplicate Commercial success + societal improvement

Product Innovation
Real , tangible value for the consumer Design User experience

Business system focus

End consumer orientation

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Some pioneers
Tata Motors peoples car at $2200.
Indias largest automobile company ; Rev : $ 7.2 bn Intended launch of car : 2008 Target group - 5 million Indians who own motorbikes but cannot afford a standard economy car. Radical process innovation + distinct product / design integration Process innovation : cars to be made and distributed via knocked down kits to franchisees across the country easier to ship kits than fully loaded cars. Product /design integration styling & engine management assistance from international experts .

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Some pioneers
Motorcycles
Bajaj Auto The Pulsar - a no compromise bike

Automobiles
Mahindra & Mahindra Slew of concept based passenger cars

Tractors
Mahindra & Mahindra Technologically driven tractors for the young and progressive Indian farmer Stylish , versatile , efficient
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Indias Innovation Journey

Pre 1991

1996-2000

2007 onwards

Economic Era

Socialist economy

Market Economy

Globally integrated rapidly growing economy Process innovation + Product Innovation

Innovation Type

None

Value through Process Innovation

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The India that will be .

Creativity to be the new currency

India well placed to unleash its creative and innovative energy for big marketplace success. Wealth of human capital Strong surge in support for entrepreneurial spirit High on the agenda for India Inc. Burgeoning marketplace

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Thank you

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