Technology and Business in India

Ashok Jhunjhunwala Tenet Group, IIT Madras ashok@tenet.res.in

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

70

64%, 6500
60

% of Households (Cumulative)

50

40

32%, 12500
30

20

8%, 25000
10

1.6%, 40000

0 6500.00 12500.00 25000.00 40000.00

Network Cost per line (in Rs)

Total number of Households = 180 million Assumptions: 7% of family income spent on communications 35 % of investment required per year to break even

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