Presentation made at the Global Innovation Exchange Conference

November 2007

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India : The Innovation Journey

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

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

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

Sector
FMCG Auto Pharma

Value
$ 17.3 bn $ 34 bn $ 5 bn

Growth %
22% 14% 9%

Domestic consumption fuelling rapid economic growth

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India - economic era’s

Pre 1991

1996-2000

2007 onwards

Economic Era

Socialist economy

Market economy

Globally integrated, rapidly growing economy Creativity & Innovation

Characteristics

Distribution

Productivity & Quality

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Big Indian Innovation successes of the past decade

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Telecom - Bharti Airtel
India’s leading telecommunication services provider

Customer base - 50 million
Staggering subscriber growth in the last 2 years – adding approx 10 Mn customers Revenue : $4.3 Bn Market cap - $ 40 Bn ; employs 30,000 people

The company

• • •

Need to keep costs down– yet provide reliable & affordable service

Radical innovation model - outsourcing entire cellular network

Innovation

• • •

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

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Telecom - Bharti Airtel
• Rock bottom cost to consumer – 2 cents / min

Results

• Fastest sign up rate in India’s history • One of the world’s fastest growing telecom company

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IT – Infosys Technologies
India’s leading IT services company, providing consulting & IT services to companies globally

The company

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

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

Innovation

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

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

Results

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

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Diversified operations : ITC group
Presence in tobacco, hotels, branded apparel , packaged goods etc.

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

The company

• •

• •
Innovation

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

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

Diversified operations : ITC group
• Services reached > 2 Mn farmers ; 30000 villages

Results

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

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Key to their success

Process Innovation

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

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Reasons for thrust on Process Innovation

Consumer Reality

Business Culture

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

Rising income of urban middle class
(Mn HH) (Rs 000’s) 200 194 40% 190 50%

2.4

3.4 11.0 Burgeoning middle class 50.5

30% 169 20% 163
43.6

180

170

20%

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

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

0

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

At 2001-02 prices

P : Projections Source : NCAER

P : Projections Source : NCAER

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

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

Stifling “out of the box “ thinking

Risk averse & failure intolerant

Low experimentation

Mentality of exploiting a business opportunity in the most
efficient and cost effective manner
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Product Innovation – The new Imperative

Competitive Reality

Evolving Consumers

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Explosive growth of competitors
Personal Care 1990 18 Air cons 6 Footwear 7

1995 2001
Source : Paradigm Management Knowhow

34 120

13 27

13 44

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

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The S – Curve Phenomenon

Revenue for business, brand, product

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

Revenue

Time

Eventually, need to find a new growth engine for business/ brand
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Rapidly evolving consumers
Surge in consumption – want more desire for new features, experimentation Lifestyle upgradation – convenience, style, image

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The challenge for India Inc

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

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Consumer Insight Model for India

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The Indian “Thali”

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A Generic model
How Indian consumers maximize VFM Brand Badging

Simplicity / Convenience

+ Value Adds /
Extras

+
Image

+
Excitement

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

Product

+

Personalized

+

Purpose / usefulness

Relationship

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

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

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Sustaining Competitive Advantage

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The combined force

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

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

Business system focus

End consumer orientation

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

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

• Automobiles
– Mahindra & Mahindra – Slew of “concept “ based passenger cars

• Tractors
– Mahindra & Mahindra – Technologically driven tractors for the young and progressive Indian farmer – Stylish , versatile , efficient
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India’s Innovation Journey
Pre 1991

1996-2000

2007 onwards

Economic Era

Socialist economy

Market Economy

Globally integrated rapidly growing economy Process innovation + Product Innovation

Innovation Type

None

Value through Process Innovation

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The India that will be ….
Creativity to be the new currency

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

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Thank you

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