Technology and Business

in India
I. Market
Untapped Market
Developing countries have large untapped
Market

India has 1 billion people
180 million households

What is the market size ?
Example 1
In mid 1980s
detergent market was small
Surf was used by 1 to 2 percent households
Nirma reduced the price by a factor of three
market size increased immensely
detergent reaches almost 15 percent of Indian
households today
Example 2
Cable TV
did not exist in Indian homes in 1992
today reaches 40 million homes
costs Rs 60 to 150 per month
affordable to almost 50% of households
TV reaches about 75 million homes in India
Black and White TV at Rs 1200
Example 3
Less than 5 million homes had telephones in 1990
Introduction of
one fourth rate STD tariff in the night
STD PCOs everywhere
As a result
over 20 % of Indians today make STD calls
STD PCO available on every street and in every small town
PCOs contributes to 20 % of total income for DOT and MTNL

Market Size depends on Affordability

Nirma made detergent affordable
low operation cost made cable TV
affordable
STD PCO coupled with night-time STD tariff
made STD calls affordable

on the other hand . . .
Is Telecom and Internet
Affordable ?
Investment required to install a telephone
and Internet line: Rs 35,000
with 15 % finance charges, 10 % depreciation
and 10 % operation and maintenance cost
Rs 12,000 annual recurring revenue (Rs 1000 per
month) required per line
not affordable to more than 2 - 3 percent of Indians
Telecom Affordability in India
Total number of Households = 180 million
Assumptions: 7% of family income spent on communications
35 % of investment required per year to break even
0
10
20
30
40
50
60
70
6500.00 12500.00 25000.00 40000.00
Network Cost per line (in Rs)
%

o
f

H
o
u
s
e
h
o
l
d
s

(
C
u
m
u
l
a
t
i
v
e
)
64%, 6500
32%, 12500
8%, 25000
1.6%, 40000
Affordable Telecom and Internet
India requires Rs 10,000 per line Telecom
and Internet connection

will be affordable to 50 % of Indian households

India will then be a market for 150 to 200
million Telecom and Internet connections
sum up - market


Indian and developing countries market is
very large

but at affordable prices
II. Technology
R&D focus in West
Telecom connection in West costs $ 1000 per line
needs a $ 350 annual recurring revenue
$ 30 per month affordable to 95% of population in West

Bringing down costs does not further expand
market in the West
focus of R&D shifts to providing a larger basket of
services at same cost
Enhancing features and services
Same phenomenon in Personal Computer
in 1983 : PC with 8088, 128 KB memory, mono
monitor costs $ 1000
today : PC with Pentium processor, 128 MB memory,
color monitor, large HD, CD costs $ 1000
but there is no low-end $ 100 PC
because $ 1000 is affordable at large in West
focus on enhancing features rather than reducing costs

Technology from West
Technology developed for Western market
and affordable in West

affordable to only 1 to 5 % of Indians

not affordable at large

R&D tasks for India
costs of products need to be brought down
further by a factor of 3 to 5

will make it affordable at large

market size in hundreds of million in India

large market in other developing countries
But is such cost-reduction
possible ?
Why not ?
A challenge for R&D
attempt what does not appear to be possible and
make it happen
Rewards are great
large Indian and developing countries market
In bringing down costs by a factor of 3 to 5,
one becomes technology leader
that it is possible. an example
Efforts of TeNeT group at IIT Madras
aim to bring down cost of Telecom and Internet
connection
from Rs 35,000 to Rs 10,000 per line
last five years of effort
incubated five product companies at IITM
developed WiLL, DIAS, FiLL and NMS products
brought down costs to Rs 18,000 per line

corDECT Wireless in Local Loop
To PSTN
To Internet
35/70 kbps Internet
plus simultaneous
telephone
Direct Internet Access System
dsl on copper
to PSTN
Internet
Always ON permanent Internet connection
In a similar way . . .

Technologically possible to bring down
cost of home PC

from current Rs 25 - 30 K
to Rs 5 - 10 K

has a large market in India

sum up - technology
Developing countries require

Disruptive technological Innovation*
expands market drastically with an inferior product
soon the new product overtakes the old even in quality

The Innovators dilemma : Clayton M. Christensen
III. Distribution
Indian economic sectors
Organised sector
works 200 to 225 days a year, 6 to 8 hours a day
self-employed sector
works 300 to 325 days a year, 9 to 12 hours a day
manpower costs 1/3 to 1/4 of that in organised sector
STD PCO, cable TV, milk distribution, roadside shops
make goods and services affordable at large
a challenge to make business plan for this sector
Large Market penetration
To make a product or service affordable at large
require
the use of self-employed small sector

to achieve 150 to 200 million telecom and
Internet connections
imperative that Access network, the most expensive
and difficult part of telecom network, is franchised
operated like cable TV connection
Sachet economy boom
Pay and use in very small quantity
affordable, even though expensive in long run
shampoo, paan-masala
PCO
Internet Kiosk
Can technology provide low-cost telecom and
Internet access for infrequent use
shared infrastructure
sum up - distribution

Innovative distribution mechanism
required to expand market

involving self-employed small sector a must
IV. Business Challenges
From Services to Products
India has made a mark in service sector
providing sophisticated and simple service
but with quality
can we take service sector to small towns
Can we make a mark with products in the world
without having significant home market for these
products
or can we tap potential home market
and prepare for world market
sum up
India presents a unique business
challenge
has a large potential untapped market
of size equal to that of the rest of the world
(excluding China)
require affordable products to be designed
innovative mechanism to produce and
distribute
sound business built on values
Old and New Economy Values
employees are naukars
or partners in every sense
shareholders taken for granted
management is a trustee of shareholders
where will customer go
customer is God
vendors to be squeezed
strong vendors make you strong
one has to manage law
business conducted legally in letter and in spirit