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JIBR
6,1
4 Organization Behavior and Human Resource Management Area,
Received 15 December 2012
Revised 27 July 2013 Abstract
Accepted 6 November 2013 Purpose – Frugal innovation is a term that has been used to describe the low-cost products and
Journal of Indian Business Research
Vol. 6 No. 1, 2014
pp. 4-28
q Emerald Group Publishing Limited
1755-4195
DOI 10.1108/JIBR-12-2012-0123
MNCs in India: focus on frugal
innovation
Abhoy K. Ojha
Indian Institute of Management Bangalore, Bangalore, India
services, as well as the systems and processes adopted by organizations to develop them. The purpose
of this paper is to examine the experience of multi-national companies (MNCs) in India as they adopt
the philosophy of frugal innovation to develop products that are high in technology but low in terms of
cost to meet the requirements of the market conditions in India, and similar low-income economies.
Design/methodology/approach – The case study methodology was adopted to understand the
experiences of the Indian subsidiaries of two MNCs, Bosch India and 3M India. Data were acquired
through interviews with key decision makers, documents, and publicly available information.
Findings – The two MNCs have increased research and development (R&D) in India and adopted
the philosophy of frugal innovation which combines high technology with low costs. Based on the
analysis, some propositions are presented indicating that MNCs will shift R&D to India if there are
market opportunities; they will adopt the philosophy of frugal innovation to produce high technology
products that are lost cost and low cost over product lifetime and will also expand to new-to-the-world
innovation and finally contribute to global innovation.
Research limitations/implications – The study is based on only two case studies and a large
sample study may be required before the findings can be generalized.
Practical implications – Other MNCs can learn from Bosch India and 3M India in terms of
adopting frugal innovation practices to be successful in low-income economies.
Originality/value – The field of frugal innovation is quite new and largely based on anecdotal
accounts of successful low-cost innovation. This paper provides a more detailed account of the
experiences of two well-known organizations to present propositions that may be used to conduct a
large sample study.
Keywords Frugal innovation, High technology, Low costs, MNCs in India
Paper type Research paper
Introduction
Research suggests that multi-national companies (MNCs) are disaggregating their
global value chains and locating various activities in different parts of the world to
integrate “ownership-specific” and “location-specific” advantages to create global
production and innovation capabilities. According to Altenburg et al. (2008), while
production capabilities had significantly shifted to low-income economies, innovation
capabilities had largely remained in the high-income economies. They suggested that
much of the research and development (R&D) activities in economies such as India
were focused on low-end technologies and organizations in these economies were only
rarely involved with high-end technologies. However, they also indicated that
organizations in India had put in place innovation systems that would facilitate the
transition to higher levels of innovation in the future. Li et al. (2010) found that
increased R&D activities in low-income economies not only had a positive impact on
product innovation but also enhanced absorptive capacities of the innovative firms
allowing them to more easily assimilate high-end technologies that were developed MNCs in India
for the high-income economies. Bhidé (2009) suggested that even if some R&D moved
to India, and other similar economies, the high-income economies, including the USA
and Europe, would still drive innovation in the new and emerging technologies.
In short, he argued that, in the long run, both the low- and high-income economies
would benefit from the reorganization of global innovation capacities.
Franco et al. (2011) attributed the shift in R&D to high costs, shortage of qualified 5
R&D personnel, and the “war” for limited talent in high-income economies, and the
corresponding low costs, supply of abundant qualified talent, and the easy availability
of high-end knowledge workers in low-income economies. An underlying assumption
in this, and other studies (Bruche, 2009) has been that the attractive markets will
largely continue to be in the currently high-income economies and MNCs need to
globalize their production and R&D to low-income economies to control costs so as
to better address competitive challenges in their traditional markets. The perspective
taken in this paper is that there is significant shift in consumption patterns in the
low-income economies, such as India, which is making them very attractive high
growth markets (Brown, 2005; Fukuda and Watanabe, 2011), even as the traditional
markets of the MNCs adjust to lower rates of growth. As a result, there are
opportunities for MNCs to re-focus their R&D activity towards frugal innovations for
low-income economies, which may be crucial for the financial well-being of many of
them (Prahalad and Lieberthal, 2003). As explained in some detail later in the paper,
frugal innovation refers to the development of products or services using high-end
technology but with an explicit focus on keeping costs to a minimum possible.
It is quite well known that India had not produced any innovation in the recent
times that has had a major impact on the world. Firms had largely acquired patented
technologies and know-how from international collaborators or the open market
leading to a large number of “new to the firm” and also “new to the market” but not
“new-to-the-world” innovative products (Arora, 2011). Tseng (2009) concluded that
Indian organizations focused largely on incremental innovation rather than
radical innovation. However, Manimala et al. (2005) found that while many of the
innovations in India were indeed “incremental” in terms of technology evolution, but
the same innovations had significant positive outcomes for the organizations,
including revenues generated and costs saved. Krishnan (2010) suggested that a lack of
a proper eco-system in the country to support innovation, and the excessive reliance on
creative improvisation or jugaad, had prevented the adoption of systematic innovation
which is essential for successful innovation.
However, despite some of the concerns discussed above, there has been
acknowledged changes in the levels of innovation in some industries in India. Kale
and Little (2007) concluded that in the last few years, the pharmaceutical industry in
India had moved from duplicative imitation to creative imitation which had helped the
creation of the local competence to conduct advanced collaborative innovative R&D.
Similarly, Ojha (2005) concluded that innovation in the information technology had
improved significantly, although subsidiaries of MNCs were involved with higher
levels of product innovations than the Indian firms, which were more involved with
incremental process innovations. Further, a study by Munshi (2009) questioned the
theory that significant innovation had not happened in India and documented 11 cases
of breakthrough innovations in India. The inspiring accounts of overcoming
JIBR significant challenges to establish commercially successful innovations went a long
6,1 way in trying to shed the image that India-based organizations would always be
known for simple improvisations rather than genuine innovations.
The changing market conditions in India and the general increase in innovation in
the country had thrown up challenges for MNCs, even if they had been present in the
market for long. They were realizing that global innovations do not necessarily have
6 direct applicability in the Indian market, and merely replicating global products in
India may provide only limited growth opportunities (Zeschky et al., 2011). As stated
by a prominent scholar of innovation in India:
India is essentially a cost sensitive market. Hence, by implementing ideas from the west here
just as they are will not work. One needs to redesign the product for the Indian audience and
bring down the cost by a factor of 2-3. This is where innovation comes into play
( Jhunjhunwala, 2009, p. 25).
Ray and Ray (2011) explained how Tata Motors established new industry standards
for frugal innovation by championing a low cost no-frills car called the Nano to meet
the unique affordability and acceptability criteria for a completely new market
segment. According to Kumar and Puranam (2012), frugal innovation is a necessity in
India to meet the needs of consumers that are both demanding in terms of features as
well as constrained in their ability to pay. Hence, MNCs operating in India need to
adapt to the demand conditions and price sensitivity of the Indian market (Prabhakar,
2010; Brown, 2005; Singh and Choudhury, 2009; Radjou et al., 2012). They need to
develop new product and process innovations looking through the lens of constraints
(Singh and Choudhury, 2009) rather than a lens of abundance.
The focus of this paper is on MNCs that had seen growth opportunities in the
low-income economies (Fukuda and Watanabe, 2011) and have established innovation
capabilities to developed products for economies such as India (Iyer et al., 2006)
and other fast growing low-income economies. As Singh and Choudhury (2009),
Radjou et al. (2012) and Brown (2005) argue, MNCs that want to cater to the low-income
economies, including India, cannot replicate global products or global development
and production processes in India. They need to adopt innovation systems that cater to
the conditions that prevail in India, instead of assuming that the innovative products or
processes that work in the home base also apply to India. The innovation systems in
the Indian subsidiaries of two MNCs, Bosch India Limited and 3M India Limited, are
examined to understand how they had developed products based on the philosophy of
frugal innovation for the India market, and how their R&D governance processes had
evolved over time.

Frugal innovation
In the past, more often than not, the literature on innovation had glorified radical
innovation and treated incremental innovations as somewhat unimportant. However,
from the perspective of business both types of innovation are important. As stated by
Varadarajan:
Over the years, successful radical innovations have undisputedly had a significant impact on
the fortunes of a number of companies. At the same time, firms cannot afford to overlook the
role of incremental innovations in enhancing and sustaining the revenue and profit streams of
successful radical innovations (Varadarajan, 2009, p. 21).
Despite such cautionary arguments, most large MNCs had adopted systems and processes MNCs in India
to primarily support radical innovations. Radjou et al. (2012) believe that the very same
capabilities that made these firms so successful in the past may hurt their future.
According to them, most large MNCs would be unable to deal with the speed and
complexity requirements of future innovations, particularly in the low-income economies,
as the traditional innovation systems were expensive, lacked flexibility, and were too
elitist and insular. Others have argued that in low-income economies, incremental 7
innovation may be more appropriate than radical innovation (Iyer et al., 2006) and MNCs
need to acquire capabilities to conduct R&D to develop “frugal innovations” to suit the
market needs of low-income economies. With stagnant markets in the high-income
economies, and high growth rates in India and other similar economies, “appropriate
technology” was at the core of the operation of several MNCs (Kaplinsky, 2011).
Prahalad’s (2002) and Prahalad and Hammond (2002) call to revise assumptions
about the poor to see them as an opportunity to develop new innovative products to
meet their needs at affordable prices attracted a lot of attention in the academic world.
Prahalad (2012) identified the bottom of the pyramid (BOP) in low-income economies
as a new and large source of untapped revenues if managers focused on the
four as namely, creating awareness, access, affordability, and availability. In another
paper, Prahalad and Mashelkar advocated “Gandhian innovation” that focused on
affordability and sustainability, so labeled as the authors claimed that the two
attributes are consistent with Mahatma Gandhi’s philosophy (Prahalad and
Mashelkar, 2010). Kumar and Puranam (2012) identified six principles that underlie
the system of frugal innovation, namely:
(1) robustness;
(2) portability;
(3) defeaturing;
(4) leap frog technology;
(5) megascale production; and
(6) service ecosystem.

Similarly, Radjou et al. (2012) also identified six different principles:

(1) seek opportunity in adversity;
(2) do more with less;
(3) think and act flexibly;
(4) keep it simple;
(5) include the margin; and
(6) follow your heart.

They argue that these principles collectively provide “resilience, frugality,

adaptability, simplicity, inclusivity, empathy, and passion, all of which are essential
to compete and win in a complex world” (Radjou et al., 2012, p. 20).
There may be some overlaps among the notions of frugal innovation suggested
above, and creative improvisation labeled as “jugaad” (Krishnan, 2010). However,
in this paper, the term frugal innovation refers to the systematic innovation processes
JIBR that had been adopted in order to develop high-end low-cost technology products for
6,1 markets such as India, which are demanding in terms of features of the products and/or
services offered but are also demanding in terms of the price (Kumar and Puranam,
2012). Recognizing the importance of frugal innovation for MNCs that want to tap the
low-income economies, Brown (2005) argued that MNCs need to reposition innovation
efforts to meet the unconventional demands of those markets. He argued that products
8 from the home countries would not “penetrate beyond small segments of relatively
affluent consumers and miss out on the vast purchasing power of less affluent ones”
in these economies. He also argued that MNCs cannot hope to do much better by
merely stripping features from existing products to reduce costs. He suggested that
they need to redesign their products and processes from a “clean-sheet” perspective to
develop frugal innovations which may be based on the same technologies but with
different guiding principles. According to him, production-driven modularity and
customer-driven modularity were two ways of building frugality. Zeschky et al. (2011)
had documented the efforts of one MNC to adopt the philosophy of frugal innovation as
it tried to cope with the challenge from local organizations.

Methodology
The case study method (Yin, 2009) was adopted to examine the experiences of
two organizations. Bosch India and 3M India were selected as two organizations for the
study as both had been in India for some time, and both had recently publically
announced their focus on R&D for India. The author had conducted several executive
education programs for Bosch India and a program for 3M India, and the interactions
with executives in designing the programs, and discussion of issues during the
program provided him ample opportunity to understand the general issues around
frugal innovation. The two cases were selected with the confidence that both
organizations would be rich sources of data for a study on frugal innovation. Formal
data on the innovation activities in the two organizations were acquired through
interviews with key persons directly involved with various innovation initiatives in the
organizations. Before the interviews were conducted, the author conducted a review of
the literature on frugal innovation, and innovation in India in particular, to understand
the issues to prepare for the data collection process.
At Bosch India, in-depth interviews of about one hour to one-and-a-half hours were
conducted with four executives. The interviews were semi-structured with a protocol to
guide the conversation but with enough flexibility to allow the interviewee to provide
information that he thought was relevant. One of the interviewees was part of initial
group of engineers that was sent to Germany to train to transition some R&D activity
to India, and could share the chronology of developments. Another was the head of the
R&D department of the Diesel Division who had been the leader of the team that
created a “new-to-the-world” innovation for India that was getting attention in Europe.
The other two executives were heading two different R&D programs in collaboration
with R&D units in China and Brazil to develop frugal innovations. Permission was
provided to record, so these interviews were recorded and transcribed. In addition,
there were follow up telephone calls and email exchanges with the first two executives
to clarify doubts and seek further information.
At 3M India, in-depth interviews of over an hour each were conducted with two
senior executives, and an open-ended interview with a third executive for more than
an hour before the other two interviews were conducted. The open-ended interview MNCs in India
was with a business development executive who promoted some of the innovations in
the Indian market. The first formal interview was with an executive who was part of
the earliest 3M R&D team in India, and again could narrate the chronology of events at
3M. The second interview was with the head of R&D in 3M India. As in the earlier case,
the interviews were semi-structured. The interviews at 3M were captured in the notes
taken during the interviews. 9
In addition to the formal interviews, relevant documents pertaining to the
discussions, that could be made available to outsiders, were obtained from
the interviewees in both organizations. Further, publically available information
from the press, including interviews by senior executives of both organizations, and
company web sites were also acquired to substantiate and triangulate the information
that was obtained during the interviews and the documents that were made available.
The data was coded by the author and analyzed to understand any common patterns
as well as noticeable differences in practices within and across the two organizations.
This search was largely driven by issues identified during the literature review,
while the author attempted to be open to other patterns to emerge during the process.
While the focus was on frugal innovation which is captured in Propositions 1-5, certain
patterns associated with the evolution of R&D governance in the subsidiaries that were
identified are also reported as Propositions 6-8.

Frugal innovation by MNCs in India: the cases of Bosch India and 3M India
In the next sub-section, brief background information on the two organizations is
presented. This is followed by the description of propositions that have been extracted
from the data along with brief support information for each proposition.

Background of two MNC subsidiaries in India

In 2011, the Bosch Group, headquartered in Stuttgart, Germany, had worldwide sales
of e51.4 billion, employing about 303,200 associates, with about 38,750 in R&D. The
organization had spent more than e30 billion on R&D in the last ten years. It had filed
for about 16 patents each working day, with an invention about every 30 minutes.
Bosch entered India with a representative’s office in Kolkata (then Calcutta) in 1922.
It formally started its own operations in India in 1951, and set up its manufacturing
operations in Bangalore in 1953, and had grown over the years to 11 manufacturing
sites and four development centers. It was the largest auto component supplier in India.
In 2011, Bosch India had about 25,000 employees, and achieved total consolidated
revenue of over Rs.113,000 million. Since the early 1990s, significant R&D activities
had been located in Bangalore. The increased focus on R&D in India was reflected in
the increase in patent applications filed in India, from four in 2004 to 117 in 2011.
The commercial goal was to boost Bosch India’s contribution to global revenues from
3.5 to 5 percent by 2015.
In 2011, 3M, headquartered in St Paul, USA, had global sales of $30 billion with
$19.6 billion from outside the USA. It had about 84,000 employees across all operations
with about 51,000 working outside the USA. It acquired 514 patents in the same year,
which made it one of the highest ranked US companies in terms of number of patents in
a year. Every year, it introduced about 100 major products (about two per week) and
about 500 modified or enhanced products (about 10 per week). The Indian subsidiary
JIBR of 3M was formed in 1988 as a joint venture. Later, 3M became the majority
6,1 shareholder the name of the company was changed to 3M India in December 2002.
In 2011, 3M India was headquartered in Bengaluru, with R&D facilities in Bengaluru
and Gurgaon. As in the rest of the world, about 80-85 per cent of revenues were
derived from the business-to-business market and the remaining from the
business-to-customer market. It had an employee base of approximately 1,800, and a
10 turnover of Rs.1,176 crores with a profit of Rs.99 crores. The organization hoped to
achieve revenues of $1 billion by 2015, a fivefold increase which was to be achieved by
a renewed focus on innovation. It had about a 120 member strong team at its
innovation center in Bengaluru with plans to increase it to about 300 in five years.
In the last two years, 14 patents were filed in India. Further, about 23 of its products
in India had been developed locally.

Focus on innovation for India

Both organizations had been in India for a significant duration, with Bosch’s presence
being much longer. However, both had adopted the idea of innovation in India for India
only after the economy was liberalized and globalized recently. It would be fair to
argue, that this change in focus on India was the result of opportunities for growth
in India, and other similar economies, and simultaneous slow growth and stagnation in
the traditional markets of these companies.
Bosch had a geographic division structure till 2005-2006, and all business decisions
including those related to R&D activity were made in India. While, as discussed later,
there was a gradual progression in the nature of R&D in India, there was little focus on
high-end technology for the Indian market as innovation capability was lacking. Early
R&D focused on supporting technologies that were migrated to India from Europe, and
then progressed to modifying products originally developed for the European market
to the needs of the Indian market, without any significant change in the architecture of
the products. As one the executives stated:
Though we started production (in Bangalore) in 1953, we did not have any R&D facilities in
India till 1991-92. At most we did some application for India without changing the product.
However, that had changed in recent times. In 1996 a group of about 25-30 people were
hired for R&D in India and sent to Germany to be trained to transfer some R&D
activity to India. Later, small batches of new hires were sent to Bosch laboratories in
Germany to transfer R&D activity related to different technologies. Stating the current
attitude to R&D at Bosch India, the head of R&D for the Diesel Division said:
In Bosch (India) today, the belief is that unless the local R&D is powerful we cannot capture
the local market. We file patents here. Diesel (division) has many (patents).
It was quite clear from the interviews that Bosch’s focus on India was driven by the
prospects of transportation infrastructure growth in the country. For example, the
projected growth of national highways from about 50,000 km in 2005 to about 100,000 km
in 2015 was indicative of the potential for growth in the automotive sector in India.
However, the need to focus on innovation for India came from the roadmap of legislation
on emission norms in India. While the norms being implemented still lagged the norms in
Europe, the schedule of adoption of the norms was aggressive enough to suggest that
Bosch or others in the industry could not rely on legacy technologies – they needed to
incorporate technologies that were still in use in Germany. The need became more urgent MNCs in India
because of the entry of other international suppliers from high-income economies in the
India market. Bosch needed to draw on its technological expertise to maintain a
competitive advantage in the market. Finally, the ambitious plan of Indian players in the
automotive industry, and their announced intentions to drive down costs to
offer automobiles in the Indian market at prices lower than so far envisaged made
Bosch to adopt frugal innovation as a strategy for innovation. As one executive explained: 11
When the Indian OEMs became cost conscious in the late 1990s, we also assessed that
off-the-shelf products from Germany were not relevant for India. There was a price war
among the OEMs. The effect gradually went up the supply chain and we realized we had
a gap [. . .] The OEMs started challenging us, and the entry of new international competitors
also forced the decision to do local R&D.
Similarly, the head of R&D for the Gasoline division indicated:
The growth in the Indian market, particularly the prospect of the Nano, gave a fillip to the
gasoline R&D in India. Until then Bosch was not present in India in that segment. When
Indian OEMs decided to adopt fuel injection in 2000 (in the gasoline segment), Bosch also
started local R&D.
From the discussions presented above, it was quite apparent that for a long time Bosch
India did not have a local R&D focus and relied on transferring products developed in
Europe, and at most made minor modifications to suit the Indian markets. However,
in more recent times the prospects for high demand in the market and the pressure
from Indian OEMs to develop unique products for them, had led to Bosch India
increasing its R&D activities.
When 3M entered India, it followed a global geographic divisional structure, and
continued with the same structure. Consequently, R&D activities of 3M India had
always focused on the local needs. The early R&D activities of 3M India started in 1990
with the inauguration of the Customer Technology Support Centre in Bengaluru. This
center provided technical support to products that were manufactured outside the
country. In 1998, with the inauguration of the innovation centre in Bengaluru the focus
shifted to the early attempts to modify products for the Indian market. Finally, with the
establishment of the Rs.100-crore 3M R&D Centre in 2011, the “In India for India”
thrust that 3M had adopted was given a big impetus.
After almost 20 years of healthy growth, 3M India contributed only about 1 percent
towards 3M’s global revenues, and even less in terms of profits. However, there was a
renewed thrust to expand the market in India with an “In India for India” strategy. The
Chairman of 3M India in his message in the 2010 annual report stated that the new
thrust of innovation in India was part of the drive to achieve a target of US$1 billion
sales by 2015:
3M India is ready for a transformation and its working with full vigor to take its “In India for
India” strategy to reach the US$1 billion goal (by 2015) [. . .] The stage is set for greater
performance in the coming future and I’m confident that with the new initiatives [. . .] the 3M
India team will rein in the challenges posed by the market and outperform on its objectives,
to make progress possible.
A senior executive responsible for growth in Asia was quoted as saying:
JIBR Our growth strategy for India is to accelerate development of products in India, for India,
through cutting-edge R&D capability.
6,1
Explaining the logic behind the strategic drive, he said:
We believe innovation comes from interacting with customers, i.e. by observing them and
figuring out how their businesses or their lives can be improved. You cannot do this by sitting
in the US and talking to somebody on the phone. You have to be physically present in the
12 market. This is why we lay so much stress on localization, because customers in each market
have unique requirements.
Reinforcing the message, the CEO of 3M India in his “Message from the Managing
Director” in the 2010 annual report stated:
Our “In India for India” theme gained further momentum [. . .] Our state-of-the-art R&D
facility at Electronic City [. . .] will accelerate our ability to drive 3M’s renowned innovation
engine.
3M India hoped to meet its ambitious targets by obtaining about 40 percent revenues
from new products developed in India. It had focused its local R&D initiatives on the
oil and gas industry, health care, and transportation, and more recently on renewable
energy and the natural resource industries. In order to support these efforts, 3M India
had decided to invest 2.5 percent of its revenues on R& D. The head of R&D in India
stated:
The R&D Centre in India is expected to develop products mainly for India. The idea is that if
a market is identified we can develop products for it. We believe that the local people are more
qualified to understand local needs.
Again, just like in the case of Bosch India, 3M India had also been in India for quite
some time, but it was only recently that they saw the prospect of high growth in India,
and had given a big fillip to their local R&D infrastructure to develop products for
India.
It can be concluded that both organizations had low levels of R&D in India for a
long time. However, both had invested significantly in R&D infrastructure and
building research capacity among its employees in anticipation of growth in the Indian
market:
P1. MNCs in India will increase R&D activities in the country when they see a
prospect of market growth that cannot be met by the products developed for
their traditional markets.

Shift from legacy technology to high-end technology

In both organizations, the move towards higher levels of R&D in India had resulted in
a shift from using low-end technology to high-end technology. In both organizations,
most of the intellectual property rights and the fundamental technologies were
“owned” by the global R&D laboratories that were affiliated with corporate
headquarters and all the market facing units had the same access to the technologies to
develop products to meet their market needs. As long as the respective R&D units in
India were supporting products developed elsewhere or merely modifying products
developed for other markets, the level of R&D in India and hence access to high-end
technology was quite low. Also, like the “chicken and egg” problem, the low level of
R&D also meant a low level of R&D capacity in India, which inhibited high-end R&D MNCs in India
activity. However, all that changed when the focus shifted to India.
Initially, at Bosch, products designed for Europe were introduced into the Indian
market without significant modifications. When the emission norms were not
implemented in India, the lag in technology implemented was so much that most Bosch
technologies were transferred to India when they were being phased out in Europe.
As one executive put it: 13
A product that was at the end of its life in Europe, when introduced in India, got a new lease
of life.
The R&D unit in India was involved in supporting the European products, and at the
best participated in making minor modifications to make them suitable for the Indian
market.
However, the first steps towards mastering legacy technology and initiating the
march towards high-end technology started in 1989-1990 with the establishment of the
center for excellence for a single-cylinder pump in Bangalore. The first generation
innovations in Bosch India were largely focused on the local markets. The single
cylinder pump was an example of such a technology. The center in India mastered the
technology to be able to develop products for many of the engines used by Indian
equipment manufacturers. However, the opportunity to innovate provided lots of scope
for learning and the development of innovation competence to go through a product
development and implementation cycle. By 2002, the common rail system became the
focus of Bosch across the world, including India, and the legacy technology which had
been phased out in Europe was just being tolerated even in India. However,
a requirement from a European company provided an opportunity for the center of
competence for the PF pump in India to innovate, which it grabbed (Munshi, 2009). The
challenge was to match the capabilities of the common rail pump in terms of
performance to meet the emission norms in Europe without making changes to other
components of the engine. The research team from Bosch essentially “unbundled” the
common rail pump to understand the fundamental requirements and then
re-engineered a single-cylinder pump, called the PF-45, which delivered the same
outcomes. As the head of the R&D unit of the Diesel Division indicated:
The PF pump was designed to meet BS2 (Bharat Stage 2) norms. To meet BS3 norms we had
to make minor modifications. Then we examined the possibility of developing the same
technology to meet BS4 norms as the pump was widely supported across the country, while
in Europe they had adopted a different technology to meet Euro 4 (BS4 is equivalent) norms.
Since the mechanical pump had been discarded in Europe, the entire R&D to make a PF pump
compliant with BS4 was done in Bangalore.
It is worth noting that the initiative had to be kept “under the radar” to avoid internal
hurdles. After the success of the first “new-to-the-world” product, they also developed
the next generation smaller version of the pump, called PF-51, for other similar
applications. As discussed later, these technologies were expected to find applications
in the west where it had been phased out, and was being cited as an example of
“innovation blowback” (Munshi, 2009).
The success with the PF pump also allowed the R&D teams in India to get the
confidence of the company headquarters. When in the early 2000s the Indian market
started developing its own needs but was not willing to pay for the European products
JIBR that were over-designed, Bosch India had to enhance local competence to develop
6,1 platforms and products for the local market. Bosch India had to work very closely with
the domestic automotive players, who were very demanding in their requirements of
both quality and price, to develop new products using the frugal philosophy. Frugal
innovation philosophy encouraged Bosch to use the new technologies but design
products to be compatible with the old platforms that were reused by the downstream
14 customers to keep costs down for the end-user. This was the second generation of
innovations. While transfer of technologies from Germany to India continued, this
phase of innovation was based on the pull from the local market rather than push from
the headquarters. As one executive put it:
Technology transfer from Germany to India is still essential. But today it is based on the pull
from the local market rather than a push from headquarters.
For Bosch India, a big opportunity to move to high-end technology came when an
Indian automotive industry major planned to introduce low cost small vehicles with
two cylinder engines not used anywhere else in the world. There was no scope to take
European products and strip them of features to make them suitable for the
requirement. Bosch had to abandon the strategy of simplifying complex products
originally developed for Europe to meet needs in India to developing products from
scratch. By 2008-2009, Bosch India was developing its own technology platforms for
local needs. While there was some reservations in Bosch headquarters about the ability
of the Indian arm to develop the platforms, but to Bosch India’s advantage there was
no ready capability in Germany for those technologies and the prospect of high growth
of the Indian market was quite attractive. Hence, R&D had to be conducted in India to
develop products for the Indian market based on newer technology platforms
developed for Europe. The head of R&D of the Diesel Division explained the difference:
In Europe, Bosch products are developed for new generation engines so the new technology
products are designed afresh. In India, the engine platforms are relatively unchanging to keep
costs low and Bosch has to design its new technologies to fit old engine platforms [. . .]
We have to develop products with the capabilities of the European product without affecting
the interfaces with the old engine.
In short, R&D activities of Bosch in India started with legacy technologies but the lag
at the level of technology had been eliminated. However, Bosch India had still relied on
the high-end technologies from the parent organization to develop technology
platforms using the frugal philosophy for the Indian markets. Explaining this one
interviewee said:
Today the (technology) lag is less as the emission norms are driving the changes. The
common rail technology is now used in Europe and also in India. The core does not lag, but
some of the additional features offered in Europe are not included in the products in India.
At 3M India, the product development was still largely based on the family of
technologies owned by the 3M corporate research. As the head of R&D indicated:
In 3M, technology is owned by the corporation, and products are owned by the business
divisions.
This meant that all business divisions had equal access to the technology at 3M.
Initially, products were directly imported, and then some products were modified in
order to suit conditions in India. However, in recent times 3M India had also focused on MNCs in India
local R&D. As in the case of Bosch, the opportunities for frugal innovation had come
from working with many Indian companies. 3M India worked closely with a
motorcycle manufacturer, to developing a method of etching its logo on its motorcycle
using 3M film and abrasive technology platforms to replace a chemical etching process
that was used earlier. While for 3M it was a creative application of existing
technologies, it saved the motorcycle manufacturer both cost and time. As an 15
illustration of the next level of innovation, an anti-corrosion technology that had been
developed for the oil and gas pipe industry, with some local innovation found
application in the water supplies industry in India. Simple innovations conducted in
India to replace expensive inputs to bring down the costs made the products more
affordable. More recently, 3M was able to get an oil and gas sector major to replace hot
welding during repair and maintenance with its fusion technology to reduce shut down
time. This technology was still in use in the USA. While the procedure adopted in India
was not much cheaper as it still involved high-end technology, the overall cost to the
organization was reduced by reducing downtime making it more cost effective. In other
words, with each step, the lag between the technology in use in the traditional markets
and the Indian market had decreased. As the head of R&D in India explained:
The primary focus of the R&D laboratories in India is to drive the product development
for the local market in India. The priorities for us are to enable the growth of 3M India
through the development of products and solutions that are unique to the India market.
As shown above, both organizations were still dependent on the parent organization
for high-end technologies. However, with the prospect of growth in the Indian market,
and also the market developing “tastes” for products that were different from the home
markets of these organizations, they had tried to develop new products using more
current technologies. The successes of a few local efforts at Bosch India had facilitated
the move to high-end technologies and access to them had improved over the years.
Similarly, 3M India had enhanced the R&D capabilities in India to develop products
based on the latest technologies:
P2. MNCs in India will increase their focus on high-end technology when the lag
between technology requirements of their traditional markets and the Indian
market decreases.

Value for money

A strange feature of the consumers in India is that even as they demand high-end
technology, they demand it at the prices comparable to the old technology. With the
ease of information flow and the high levels of international mobility of Indians, the
awareness of global technology was very high. However, given the low levels of
income, the ability to pay is not very high. Hence, the organizations have had to adopt
the strategy of frugal innovation.
The frugal innovation strategy was not a matter of choice but forced on Bosch India
by the notions of “value for money” that prevail in India. As one executive at Bosch
India put it:
An Indian customer does not want anything that is nice to have, but wants only the features
that are must to have.
JIBR Further, it was so much easier to incorporate a mindset of “high-end technology at
6,1 low costs” in India than change the mindset in Germany where high-end technology
was normally associated with high costs and hence high prices. As one of the
executives stated:
The OEMs brought down the price of their vehicles, and their budget for components.
Hence, we had to develop products from scratch. We could not start with European products
16 and bring down the features to reduce price. So from simplification (of European products)
we started replacing them with products of our own.
As one executive explained, Bosch India had adopted a philosophy that expected that
a platform design must be scalable from the lowest to the highest cost. He suggested
that a technology platform developed for Europe where cost is not a major issue,
cannot be stripped of features to make it suitable for the Indian market. He believed
that it was easier to develop a platform for the low cost market with some anticipation
of application for the high-end markets. This way there was no feature introduced
in the market for which the customer was not prepared to pay. Explaining how the
concept of “value for money” had influenced the design principles, one of the
interviewees said:
We are developing products to meet the minimum specifications and then enhancing it to
meet higher specifications [. . .] This way a customer does not pay for a feature he does not
want. This is different from taking a product developed for Europe and stripping off some
features, as it will still have features that the Indian customer does not want and will be
unwilling to pay for them.
In order to meet the requirements of low costs, Bosch’s frugal innovation principles
include avoiding over design with the idea of getting the right product for India
with the clear understanding that low costs did not mean low-end technology. To
illustrate the frugal philosophy, Bosch India had a choice of adopting the common rail
technology that was used in Europe or enhancing the mechanical pump to meet the
new emission norms. Since the mechanical pump was widely supported in India and
also to avoid the cost of designing new engine blocks, Bosch decided to innovate on a
new pump using the mechanical technology to keep the overall costs of the system
complying with Bharat Stage 4 at its lowest. Hence, Bosch’s frugal innovation included
trying to design products that did not require the rest of the engine to be modified or
redesigned thus bringing down the overall cost of innovation.
Over time, Bosch India did not see cost constraints as impediments to innovation
anymore. They were seen as opportunities to think out-side-the-box and develop frugal
innovations rather than modify an existing technology platform from Europe.
Explaining the logic, one executive argued that the pressure from the two wheeler
industry to keep the costs low as it migrated to injection systems had encouraged the
reexamination of the technology platform requirements to see if some features could be
replaced by software to offer similar or near similar performance. He said:
Traditionally, one would have sensors on the engine and time the injection to improve
efficiency. The cost pressure forced us to re-think about the sensors – can I use software to
replace a sensor or combine some sensors?
The executive argued that such thinking was not feasible in R&D units of Bosch which
operated in resource rich environments. In other words, Bosch India had moved from
adopting frugal innovation philosophy to meet the constraints of the Indian market, MNCs in India
to seeing constraints as opportunities to innovate “new-to-the-world” innovations.
To stress this point another executive said:
While in Europe, emission norms, safety and comfort are key drivers of innovation followed
by costs, in India cost trumps everything.
He explained how a technology called, the idle-stop-feature, that stops the engine when 17
the vehicle is idling was developed as an innovation that improved emission
performance and was marketed as such in Europe had to be positioned as fuel saving,
i.e. cost saving, innovation in India. In other words, given the high importance for
perception of value for money in the India market, not only did Bosch have to be frugal,
it also had to position its products that might have other features with “value for
money” propositions.
Even at 3M, while most products were modified based on unique circumstances
faced in India, one prominent dimension was common to almost all of them – “value
for money”. It was well-known that the Indian market was a price-sensitive market,
and hence many products had been developed just to bring them to the price point that
might meet the market needs. As a senior executive described the situation:
Some customers don’t want a Rolls-Royce; they are quite happy with the performance
characteristics that meet their need. So, instead of trying to give them a platinum-coated
product, we give them a silver-coated product.
In other words, a product that might be “over-designed” may be “right-designed” for
India to meet all functional requirements at a substantively lower price. For example,
3M India conducted an ethnographic study for developing its home care products.
Technical and sales professionals visited homes across the country to observe how
homes were cleaned. This learning was taken back to the research laboratory to
develop products to fit the cleaning practices and habits. One of the consumer products
that emerged from this exercise was a Scotch-Brite Floor Cloth or “Pochha”. It was not
a technological innovation, but a product that provided value for money. Rather than
provide the proprietary and expensive woven fiber developed by 3M in the entire floor
cloth, it retained the regular cotton floor cloth that was widely used and cheaply
available in the market, and provided the expensive abrasive fiber material only in one
corner. As a result, the product met the “value for money” condition as consumers
could continue their cleaning habits as in the past, but could also use the 3M
technology to remove nasty spills and stains that occurred occasionally. Similarly,
3M India had worked closely with an Indian automobile manufacturer to develop
sound insulation pads for compact Indian cars that reduced noise to levels acceptable
in India at nominal costs. It had also reduced the number of light-emitting diodes in
brake lights for cars from 30 to four which reduced costs without significantly
affecting the functionality. In other words, the pressure to create, “value for money”,
forced 3M India to look at everything afresh. According to a senior executive
responsible for innovation across Asia:
India-style innovation – good quality at a low cost – is what the world is discovering.
In summary, as both organizations had attempted to increase R&D in India to
participate in the growth of the market, they had realized that the customers were very
demanding in terms of technology, but were more demanding in terms of prices. Data
JIBR from both organizations indicated that customers in India wanted to pay for basic
6,1 functionality only. They may like to have the “bells and whistles” but were not
prepared to pay for them. Hence, both organizations have had to understand and then
change their innovation practices to cater to the “value for money” principle:
P3. MNCs in India, unlike in their traditional markets, will adopt a “value for
money” design philosophy when introducing high-end technology products.
18
Low cost of ownership
Frugal innovation was meant to bring down the cost of each product so that it could be
offered at low prices. However, the Indian consumer also did not support products that
did not have a low cost of ownership, i.e. low cost over the life cycle of a product. India
was not yet an economy that supported a culture of use and throw. Explaining this one
Bosch executive said:
This market is so used to “use and repair” and has not adopted the practice of “use and
throw” that we have to factor this in the design. There are a lot of service providers who can
provide cheap services. We need to design products that can allow these service providers to
repair the products to reduce overall cost of ownership.
So in addition to supporting innovations in the market with guarantees and warrantees
for a limited time period, Bosch India also designed for repair and replacement to
enhance the life of a product.
Further, Bosch India has had to adapt its technology for the usage patterns in India
often referred to as “design for abuse”. For example, it had to take a common rail
technology and develop a platform to suit Indian conditions. Given the frequency at
which cars have to change speeds, particularly in urban driving, the technology
developed for Europe had to be modified for India by separating the injector and the
controller to ensure that excess pressure was not generated and wasted. At the same
time, separating the injector and controller as two modules facilitated repair and
replacements at lower costs, thus reducing cost of ownership. Similarly, in the case of
motors, the water and dust protection that was required to make it robust was critical.
This made it difficult for motors developed in Europe to be introduced in the Indian
market without localization. A significant portion of the design process had to focus on
design to prevent abuse, and also for repair after abuse if it did take place, unlike in the
traditional markets. Explaining this one executive said:
For example, we have to design for the possibility that the user might use an inferior (and
cheaper) fuel and damage the product.
In other words, Bosch India had to keep in mind that its products might be abused as
customers try to save running costs, so its design had to try to prevent abuse, or be
robust to abuse, and finally be repairable if it failed due to abuse. The underlying
principle was to reduce the overall cost of ownership of a product.
Despite frugal innovation, several of 3M India’s products were expensive so it tried
to emphasize in the minds of the customer the concept of low cost of ownership.
An example of a product developed for India was the respirator used on shop floors.
The dimensions of the respirators were changed to suit the facial structure of Indians,
and features were added to allow the users to speak while wearing the respirator,
which was quite common on Indian shop-floors. Further, the respirator was made
foldable rather than molded into a fixed shape as it was noticed that shop-floor workers MNCs in India
had a habit of carrying their respirators during coffee/tea and lunch breaks. The folding
feature allowed workers to fold their respirators and carry them in the front pocket of
their overalls without damaging them. This feature enhanced the life of the respirator
and brought down the cost of ownership. Similarly, a 3M product used to provide
temporary barricades on roads had to be re-designed with flexible material as the
original product would often get damaged by vehicles running into them. The change 19
in material enhanced the life of the product, and hence reduced the cost of ownership.
In short, both organizations had adopted the principle of low cost of ownership in
the design of their products for the Indian market. Since Bosch India has been
developing products for the Indian market a little longer, there were more examples
from that organization and the principle was much more entrenched in its innovation
practices. There were fewer examples at 3M India due to the later start, but there was
evidence that the innovations for the Indian market had started incorporating the
principle of low cost of ownership:
P4. MNCs in India, unlike in their traditional markets, will adopt a “low cost of
ownership” design philosophy when introducing high-end technology products.

Gradual focus on new local applications

Even as local R&D units of the two MNCs tried to meet the unique requirements of
developing high-end technology products for the extremely price sensitive market in
India, the confidence of the early successes provided them the confidence to explore
the possibilities of developing new applications that might not have been part of their
offerings in any other part of the world. In other words, as the corporate headquarters
became comfortable with the R&D activities at subsidiaries, the local R&D units
went beyond the traditional products and created new innovations for the local
market.
At Bosch India, one of the first examples of “new-to-the-world” innovations, the PF
pump (PF-45) that met e4 norms, has already been discussed in the earlier section.
It involved taking an old legacy technology that had been used to meet e2 norms and had
been discontinued in Europe as new technology was introduced to meet e3 and 4 norms,
and fundamentally re-designing it to meet e4 norms that were considered impossible
to meet without adopting new technology. While the technology platform was old, the
opportunity to develop a “new-to-the-world” product provided a lot of learning to Bosch
India and the confidence in head-office about the innovation capabilities in India. Later,
the focus on small two or three cylinder engines in India that currently did not have many
applications elsewhere in the world provided an opportunity to create “new-to-the-world”
innovations using high-end technology that better met the needs for the local
applications. For example, the electronic control unit (ECU) for the small sized engine had
to be re-designed to reduce the size and the heat generated. The new design involved a
fundamental change in architecture which required the deletion of some sub-components
and utilization of some forces that were generated in the old design but not used leading to
“new-to-the-world” product driven by local application requirements.
More recently, Bosch attempted to innovate with partners from the Indian motorcycle
industry to meet to higher level emission norms to create many “new-to-the-world”
products. As one executive from the Gasoline division explained:
JIBR About eight to ten years ago the Indian market started developing its own needs and was not
willing to pay for the European products that meet those needs. This forced the organization
6,1 to enhance local competence to develop platforms and products for the local market.
As a result, the team in India developed a “new-to-the-world” product based on a
contemporary technology in partnership with the booming motorcycle industry. The
combination of confidence in local R&D capability and lack of capability in other
20 geographies, allowed Bosch India to develop many “new-to-the-world” products.
Similar examples of focus on local applications abound in 3M India. Its regular
pavement markers that were designed to be durable and highly reflective were not
suitable for India. They had to be redesigned for Indian conditions. Indian roads are
normally surfaced with asphalt (tar) which often melts or softens in extreme heat
conditions. Further, it was quite common for drivers on Indian roads to neglect lane
markers and drive on them. As a result, markers would get misaligned and become
ineffective. The redesigned marker retained the features of the existing products, but
added two shanks to anchor them in the tar and prevent displacement or
disorientation. This again was a visible example of a “new-to-the-world” innovation.
An example of an industrial application that required 3M India to develop a
“new-to-the-world” product was that of a polymer blend that had a setting time of
about 2 minutes when developed for the US market. Given the low automation levels in
the factory setups in India, the short duration of setting time that was a strength in the
original market was a weakness in the Indian market. Much of the blend polymer
would set before it could be applied and hence be wasted as there were potentially long
waits between the preparation of a batch of blend (by mixing two polymers) and its
application. A team of 3M engineers had to study the actual usage patterns, to assess
normal usage volumes, to modify the mix of polymers to increase setting time and also
re-define the packaging size to provide the right quantity of polymer mix in a batch
suitable for application in the Indian context.
In short, both organizations provided many examples of “new-to-the-world”
applications that were developed using high-end technologies, but to meet the unique
conditions in the Indian market. It is worth mentioning that the interviewees who
provided the information were convinced that these innovations that addressed local
challenges would not have been feasible had the focus of R&D in India not increased:
P5. MNCs in India, that have increased R&D focus in India, will use technology to
develop “new-to-the-world” products.

Reverse innovation
Govindarajan (2012) argued that when MNCs are successful in developing innovations
for emerging markets, they can often find opportunities for those innovations in some
niche markets in the high wage economies. He referred to this as “reverse innovation”.
However, he argued that many MNCs might not be able to experience this phenomenon
as it requires major changes in attitudes at headquarters and also major changes in
organizational structures, product development process in home countries and also a
re-orientation of the sales force.
As discussed earlier, Bosch India had already developed a product for a European car
manufacturer. However, in that case, the advantage that the R&D unit in India had was
that it was the only center of excellence for that technology in the Bosch world. Hence, the
client requirement was assigned to it. However, now Bosch India was in the early stages MNCs in India
of developing products based on technologies that were still used in Europe, but with
frugal philosophy to cater to some segments of the European market. For example, the
product platform that was developed for the small vehicle market in India was now
being standardized for usage across the world. Many European car manufacturers were
expected to return to producing small cars with fewer cylinders, and Bosch was
attempting to take the platform developed in India and adapt the applications for 21
European conditions. This had been a learning experience for Bosch India.
When platforms were developed only for Indian markets they reflected the belief that
“Indians do not want anything that is nice to have, only what is must to have”. In other
words, platforms were developed without attention to the need to add features in the
future. Now that the platforms were being adopted in other markets, R&D engineers
were alert to the idea that the platforms should be designed for Indian market but with
provisions for addition of applications and features to make them suitable for “reverse
innovation” for European markets. For example, a technology platform for generators
developed for the regional requirements of India, China and Brazil, and launched in 2010
was ready to be launched in Europe with additional applications to customize it for
European needs. The head of the R&D team for generators in India said:
We have a successful product that is now being standardized for usage across the world.
Many European customers are looking for smaller cars and this product is being upgraded to
meet the European requirements. So Europe is taking a platform developed in India and
adapting it for European applications.
He suggested that while products designed for India adopt frugal principles, the design
had to be modified to accommodate addition features in the future if the Indian market
started demanding those features or the product had to be introduced in another
market. He said:
We have to adjust the design of the products to allow for the addition of nice to have features
for other markets.
At 3M India, there was no ready example of “reverse innovation” although it might
happen in the future. There are several possible explanations for this. First, the
high-end technology innovation efforts in India were very new. It may take some time
for the R&D unit in India to establish itself to be ready for reverse innovation. Second,
unlike, Bosch, 3M followed a geographic division structure. Hence, it was less likely
that there would be explicit attention to other markets when developing products for
the Indian market. As stated by the head of R&D:
The mandate for the R&D center is to develop technology for the India market. However, if it
becomes globally relevant it is fine.
However, given the open flow of information across R&D units in different
geographies and corporate R&D there was always a possibility for reverse innovation
to happen just as it had with other mature R&D units of 3M.
In other words, since the R&D infrastructure and human capability had been
established in Bosch India for some time, there was evidence of early “reverse
innovations” in the organization. On the other hand, the capabilities at 3M India were
still focused on India and there were no examples of reverse innovations but there was
potential for them in the future:
JIBR P6. MNCs in India, after successfully developing products for India, will
6,1 contribute innovations to the related markets, and even the traditional
markets.

From local innovator to global contributor

In a study of Japanese multinationals, Asakawa (2002) found the role of overseas
22 laboratories had evolved over time from “starter” to “innovator” and then to “contributor”.
Bruche (2009) also found similar evolution in R&D capability and contribution.
Birkinshaw et al. (2002) referred to the three phases of R&D in MNC subsidiaries as
paternalism, expansionism, and liberalism. In the first phase, the subsidiaries merely
support the global products. In the expansionism phase, the subsidiaries work on
innovations for the local market or work for global innovations assigned by headquarters.
Finally, in the third phase, the subsidiary R&D unit has an equal opportunity to work on
projects, local or global, as an equal partner. They suggested that in the long run MNCs
would benefit from subsidiary innovations as “No one has a monopoly on great ideas,
least of all headquarters”. Similarly, Gupta and Govindarajan (1994) suggested that
“innovation by foreign subsidiaries is more typically the result of autonomous initiative
by the subsidiaries rather than strategic directives issued from corporate headquarters”.
As may be clear from the discussion in the earlier subsections, there had been a
gradual evolution of the innovation capabilities and contributions from the R&D units
of Bosch in India. Although Bosch started operations in India in 1951, it did not have
an R&D focus till very recently. The R&D department functioned largely to coordinate
the transfer of technologies from Germany to India. They provided product support,
and at best they developed some applications for India without changing the product.
When R&D started it was focused on the local market. As one of the executives stated:
In the early 1990s, we started development of products for India. There was no link to
products developed in other markets (as Bosch was organized in geographic divisions).
However, when we wanted to take the products to other markets, we found that the products
did not meet the specifications required for global markets.
However, after liberalization when the original equipment manufacturers started
facing competition in an open market, they put pressure on Bosch to provide
customized products. The plans for the implementation of strict emission norms
suggested that it could no more rely on legacy technologies. Bosch had to respond as
the simultaneous entry and/or expansion of other suppliers put competitive pressures.
The later technologies that were transferred were high-end technologies that were still
in use in Europe. For example, the common rail technology was used in Europe and
India, although the European platforms had more features to meet the stricter
European norms. As already discussed earlier, some of the executives suggested, that
if European car makers attempted to introduce small vehicles with two or three
cylinder engines, some of the technology platforms developed in India may become
relevant for Europe in the future.
The journey for R&D activity in India started with the transfer of technology
related to mechanical distribution pumps. Later technology related to electronic
distribution pumps was transferred. By 2003, the technology was completely shifted to
India as it was no more relevant to Europe. It was to be supported for India and
India-like markets under the “local for local” philosophy adopted by Bosch. In 2005,
Bosch India worked on the common rail technology for an Indian automobile
manufacturer which was the first project that adapted a high-end technology for the MNCs in India
needs of an Indian manufacturer. As one executive explained, in the diesel group,
which was the first to start R&D in India, the level of localization was more than
85 percent while in gasoline it was about 70 percent. As localization increased fewer
expats were station in India and also positions in Germany responsible for these
innovations were also reduced. The R&D manager for starters, motors, and generators
stated: 23
In 2008-9, we started developing products for India, Brazil and China. We developed a new
base line series of generators for the regional requirements. The products were launched in
India, Brazil and China in 2010. Now the product is to be launched in Europe.
In short, Bosch R&D in India had evolved from the local implementer and local
innovator to a global innovator and was on the threshold of being an integrated player.
Similarly, at 3M India R&D had evolved from simply supporting products to
innovating for the local context. At the time of data collection, there were no examples of
contribution to the global markets. Again, there has not been enough time for 3M India to
develop too many products since the new R&D capabilities have been established only
recently. This may also partly be attributed to the global geographic division structure.
However, as suggested above, the executives who were interviewed were confident that
they would be able to contribute to global products for 3M in the future.
It can be concluded that given enough time, both organizations that started their
R&D journey as local innovators would become global contributors in the long run.
While there was more ready evidence of this at Bosch India, there were recently
noticeable indications that the same trend might be obtained at 3M India.
P7. R&D units of MNCs in India, after successfully developing products for India
as local innovators, will become global contributors over time.

Relationship management in a network

Birkinshaw et al. (2002) suggested that often HQ and subsidiary managers have
different perceptions about the role of the subsidiary in the multinational corporation
and any subsidiary unit that evolved in its activities had to be careful to negotiate its
role as the changes happen, else it may not be successful. On similar lines, Asakawa
(2002) argued that in order to reconcile the need for local autonomy by the subsidiary
and benefits of internal information connectivity, the subsidiary should attempt to
obtain “semi-connected freedom”. More recently, Kumar and Puranam (2011) argued
for multinational organizations to adopt T-shaped organizational forms which
suggested globally distributed R&D activity with a lot of local knowledge in each
region or geography and strong horizontal linkages across the regions to share and
access knowledge.
The head of R&D at the Diesel Division emphasized the importance of managing
the relationship with headquarters. He said:
Surely we cannot work independent of the global operations. It does not make sense as a lot of
competence and resources are available in Germany. So we use what is available and we now
have the freedom to innovate for the local conditions.
Another executive echoed a similar sentiment:
JIBR Building competence locally is a challenge. We rely on Germany for the job training. Hence,
collaboration between headquarters and regions is very important [. . .] Even today we are
6,1 dependent on Germany for technology. We are localizing the development of applications and
features.
When innovation started at Bosch India in the late 1990s it was focused on developing
products for India, although technologies were still from Europe. Since, the
24 organization followed a geographic division structure, there was no link between
product development in India and other markets and so involvement of headquarters
was low. However, when Bosch adopted a matrix structure with integrated global
product divisions in 2006-2007, the local operations got integrated into the global
operations. As the head of R&D stated:
(Before Bosch adopted a matrix structure), R&D in India was managed locally. But now we
have a “verticalized” organization where each division is directly linked to the global
headquarters. The R&D projects are funded and managed by headquarters and projects that
are done in India are located here because this is the most suitable place to do it.
At the beginning, Bosch headquarters had some concerns with the level of innovation
capabilities in India. The local efforts were guided by experienced engineers from
Germany. As one executive explained:
Based on local requirements we developed applications for the Indian context. Since R&D
laboratories in Europe had more experience with the technology they monitored and
supported the effort.
Gradually, the team in India aspired for greater responsibility but was hampered by lack
of independent design experience. The R&D team in India had to break out of the
situation where it was not in a position to demonstrate competence which prevented it
from pursuing innovation. The Indian team needed to convince internal customers
before going to external customers. Bosch India had to build demonstration engines that
did not have formal budgetary approvals and were referred to as “submarine” projects
that were based on inputs from the Indian market to display competence, and use the
same engines to convince specific partners in the market to commit to the development
of technologies. The first success put the organization on a virtuous cycle, with each
success leading to increase in confidence and further support from headquarters.
The relationship between headquarters and subsidiary had matured and both sides
had learnt to deal with the transition. As one executive put it:
Questions are still asked by headquarters but there is a higher level of trust in the local
capabilities, and there is greater understanding and appreciation of the questions in India
now than at the beginning of the transition.
Finally, Bosch India and other subsidiaries, under the coordination of headquarters,
started developing technology platforms for India and similar markets. For example,
Bosch India collaborated with subsidiaries in Brazil and China to develop a new
technology platform for generators for regional requirements. In turn, each country
subsidiary added applications on the same platform to customize the products for their
respective markets. As the head of R&D explained:
Since the matrix structure was adopted all units within one vertical have very regular sharing
of technologies between headquarters and regions. However, there is less frequent interaction
 with R&D units in other geographies. But for India there is more frequent exchange of ideas MNCs in India
with R&D units in China and Brazil as they face similar challenges and markets.
In other words, there were regular coordination interactions with headquarters, but
except for explicit technology sharing meetings and conferences there was little day to
day interactions with other subsidiaries. However, there was greater interaction with
R&D units working on similar innovations, in regions such as China and Brazil.
Explaining the regional cooperation, one of the executives said: 25
Each product has a lead plant, and they coordinate their efforts with plants in the other
countries to develop a base product that can be introduced in the three markets with different
features. . . R&D is synchronized and production is networked across geographies. Failure in
one geography is reported across the other geographies for improvement. Similarly,
successes are shared across different units.
Since 3M followed a global geographic structure the India arm had more autonomy. As
the head of R&D in India explained:
The primary focus of the R&D laboratories in India is to drive the product development for
the local market in India. The priorities for us are to enable the growth of 3M India through
the development of products and solutions that are unique to the India market.
As a result, coordination issues were fewer in 3M. However, since 3M India was still
dependent on corporate R&D for the technology platforms, there was some indirect
coordination. As a senior executive of the India subsidiary was quoted as saying:
Unlike other multinational corporations which set up global centers, our centers are very
country-specific [. . .], But there is seamless sharing of technology across all these centers. For
example, if US develops something, it becomes available to India [. . .] We do not create
mother units which everybody feeds off. These are amoebas or satellite units which support
each other.
In other words, 3M India had been able to obtain the support of headquarters and R&D
units in other geographies when required.
It can be concluded that the R&D subsidiaries in India had built trusting
relationships with headquarters and other subsidiaries catering to similar markets as
they transitioned to bigger roles in the internal network of subsidiaries:
P8. The ability of R&D units of MNCs in India to go from local innovators to
global contributors will be contingent on their ability to build trusting
relationships with R&D units at HQ and other markets.

Conclusions and implications

The literature on R&D activity of MNCs and frugal innovation was examined. It was
argued that MNCs had relocated much of their manufacturing capabilities in low-income
economies and more recently located substantive R&D capability in the same
economies. While many such initiatives had a focus on increasing competiveness in
home markets due to cost savings in both manufacturing and R&D, it was argued that
now many MNCs were re-examining their global strategies. In light of the low-income
economies becoming very important for long-term financial well-being of these
companies who can no longer rely only on their traditional markets, they need to develop
products for the low-income economies. Through the case study of two organizations
JIBR that had increased their R&D activity in India, it was suggested that MNCs that had
6,1 chosen to focus on low-income economies had evolved an innovation strategy informed
by the principles of frugal innovation. A set of propositions that captured the evolution
of R&D strategy were presented. Further, a set of propositions that highlighted the
evolution of R&D governance processes were also presented.
The early success of these two organizations suggests that they need to further
26 entrench the R&D activities in India, and then further integrate them with their global
operations to obtain the full benefits of the R&D capacity located in India. These efforts
are likely to help the Indian subsidiaries to increase their markets in India and make
a greater contribution to the overall revenues of their parent companies. Further,
the R&D efforts in India are likely to lead to growth in other similar markets, but more
importantly to increase competitiveness and even growth opportunities in their home
market or other similar markets.
The findings also have implications for other MNCs who might be interested in the
markets like India. They need to implement R&D strategies informed by frugal
innovation principles to be successful in India and other similar markets. They will be
required to nurture a R&D in the Indian subsidiary till it gains experience, establishes
trustworthy relationships with corporate R&D and R&D units in other geographies.
In other words, there are unlikely to be quick gains but long-term sustainable benefits
may accrue if the MNC provides adequate support for its local initiatives.
Further, even if certain MNCs are not interested in India, they need to be keep track
of the competition in their home countries that are off shoring R&D to India and other
low-income economies. They may find that their position in the home markets may
also be affected by the innovation blowbacks that might happen thorough the R&D
efforts of the subsidiaries of their competitors. Frugal innovation as a concept or a
philosophy for product development is of great significance to MNCs, whether they
want to pursue the markets in low-income economies or not.

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Harvard Business Review, Vol. 78 No. 2, pp. 66-76.

About the author

Abhoy K. Ojha is a Professor in the area of organization behavior and human resource
management at the Indian Institute of Management Bangalore. He obtained his Doctor of
Philosophy degree in organisational analysis from the University of Alberta, Edmonton, Canada.
His other educational qualifications include a Bachelor of Technology in mechanical engineering
from the Indian Institute of Technology, Kanpur and a Post Graduate Diploma in administrative
management from Jamnalal Bajaj Institute of Management Studies (Bombay University),
Mumbai. Abhoy K. Ojha can be contacted at: aojha@iimb.ernet.in

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