CHAPTER-I

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 CHAPTER ~1

INTRODUCTION

Chapter overview

This chapter of the study outlines research - background, motivation, objectives,

benefits, questions scope and limitations. It elucidates conceptual background to
study Reverse Innovation as phenomenon, along with the core phenomenon of
Reverse Innovation; it also includes various peripheral topics like innovation in
emerging markets, Indian Market, Indian Customer etc. Along with the conceptual
background this chapter also explains Paint industry in general and the Paint
industry in India.

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 Research Outline
1.1 Research Background
We are living in a times were emerging economies in the East and South are
thriving, while there is a stagnated economic growth in the West geographies of
the world. Due to rapid and swift growth in developing countries millions of
people‟s standard of living is rising up and there is an emergence of new
consuming middle class. Owing to this upsurge of middle class in developing
nations, there are mounting pressures on businesses operating worldwide to widen
up their business portfolios in new, developing countries and continue to compete
and produce profits. Developing markets are thus becoming an increasingly
growing area of focus, especially for multinational corporations, as these markets
are opening up new opportunities for business as well as new opportunities for
innovation.
The figures from the International Monetary Fund are quite encouraging for
developing economies, it suggest that today 85 % of global citizens, which is
about 5.8 billion people live in developing countries and they produce a total GDP
of nearly $ 35 trillion. This amounts to almost half of the world‟s GDP. If we
anticipate prospect of these developing nations, it is expected to represent at least
2/3rd of the world GDP growth in near future. With a vast amount of influence,
developing market on one hand open up enormous opportunity for worldwide
companies to expand their business bases and grow. But, on another hand
appealing in emerging markets requires more than straightforward geographic
expansion. As a major starting point, it requires extreme curiosity about how the
requirements of the developing countries are different from those at Developed
countries. The differences between developed world and developing world
consumers are widely different. In rich world, there are few people who each spend

3
a lot; in the developing world, there are a lot of people who each spend a little.
Either way, total spending is vast. China and India are mega-markets with micro-
consumers. Thus, doing more business in these high growth developing countries
one requires much more than ramping up sales, distribution and production. It
requires innovation. “Reverse Innovation” (Govindrajan and Trimble, 2013)1
Although, this latest phenomenon of “Reverse Innovation” were low priced, good
enough products, which are taken to the markets of developed countries from
developing countries is crucial for further studies. The existing literature on this
phenomenon so far has been limited to diverse subjective examples lacking
quantitative studies and deeper theoretical insights. The present research addresses
this limitation and provides empirical insights on what are the factors and
environmental necessity for an Indian paint manufacturing company to organize
reverse innovation.

1.2 Relevance of the Research

There is no doubt about the fact that today; innovation is the key stone on which
modern businesses are relying on, for its sustainability and growth. Ideally
innovation use to take place in the developed nations and the same innovation use
to get transferred to the developing Nations like India, however due to
globalization today, developing countries like India have become emerging
economies were consumption of innovative goods and services are going to happen
in scale, thus there arises a greater need for innovation in India, According to Vijay
Govindrajan Professor of International Business and the founding director of
Tuck‟s Centre for Global Leadership “Reverse Innovation is not optional. It is
oxygen” for the developing countries like India.

1
Govindarajan, V., & Trimble, C. (2013). Reverse innovation: Create far from home, win everywhere. Harvard Business Press.

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In India, although there are many examples about innovation, in Industrial fronts.
However, these are not enough, given the size of the country. Citing the global
Innovation Index report for 20152, the innovation survey pointed out that even
though India has substantially improved its ranking (p.32) in some innovative
measures such as Knowledge diffusion, Research & Development, General
Infrastructure, Investment and Knowledge & technology output. However, India‟s
position still continues to remain weak in Institutions, Infrastructure, Human
capital and research, Market sophistication, Business sophistication and Creative
outputs. Thus, the present research which is primarily related to study and analyze
frameworks with respect to Reverse Innovation in India holds significant
relevance. The present research is although taking Reverse Innovations as its base
to study Innovation practices in India with special reference to Paint Industry in
India; it broadly triggers two major contributions:
1. It mentions the various contextual factors and general psyche of the people in
India who have an inherent ability to achieve „Affordable Excellence‟ (Mashelkar,
2015) 3
2. How Indian Innovation (Indovation) 4can facilitate & boost „Make in India
Campaign‟ what are the bottlenecks for Innovation in general in India.

2
The Global Innovation Index is an annual ranking of countries by their capacity for, and success in, innovation. It is published
by INSEAD and the World Intellectual Property Organization, in partnership with other organizations and institutions, and is
based on both subjective and objective data derived from several sources, including the International Telecommunication Union,
the World Bank and the World Economic Forum. The index was started in 2007 by INSEAD and World Business, a British
magazine.
3
Mashelkar (2015) “,Indovation for affordable excellence”, Current Science, volume 108, No :1
4
Indovation is a word coined by G. Katragadda (2009) which stands for Indian Innovation.

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1.3 Research Motivation
While low innovative practices in India, is a universal problem applicable to many
industries and services. In present thesis we have selected only four major paint
companies in India, Asian Paints Ltd, Kansai Nerolac, Berger Paints and
Akzonobel to study their innovative practices (at low cost) The four major paint
companies selected for the study represent about 70 % of the total paint industry in
terms of revenue. According to AC Nielsen report 5on Indian Paint Industry‟s size
it is about In Rs 26,040 crore, (In FY 2012), which is estimated to be doubled in
size within next 5 years.
Researcher has selected the Paint Industry for his study because of the following
reasons:-
 Basic know how of the Industry as researcher holds Master‟s Degree in
Paints & Varnishes
 Three years of Industrial experience in Paint Industry
 Industry is directly proportional to the construction and infrastructure
development.

1.4 Research Purpose

 The foremost purpose of this thesis is to establish and argue the increasing
importance of the phenomenon of reverse innovation in the Indian context
with special reference to Indian Paint Industry.
 After establishing its importance and validating the grounds for Reverse
Innovation phenomenon in Indian Paint Industry, there would be assessment
carried out for the essential elements required in the process of Reverse
Innovation with reference to Indian Paint Industry these essential elements

5
AC Nielsen – Market Study on Paint Industry in India updated report released during January 2013.

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 are termed as “Factors”, we hereby define “Factors” as circumstances, facts,
or influence that contributes towards the result (here the result is Reverse
Innovation phenomena), these factors are largely internal in nature, related
to organization‟s own capabilities.
 After, carrying the assessment of the essential elements or factors in the
process of Reverse Innovation., There would verification conducted to
identify barriers and challenges- These barriers and challenges are more
likely to be external in nature, it comprises of the surroundings (Political,
Social, Economical, Technological) in which a firm operates- we hereby
define this surroundings as “Environment”
 The final purpose of this thesis is to identify the implementation aspects of
Reverse Innovation phenomena and its cross-comparison with the selected
companies.

1.5 Research Objectives

I. To explore the potentiality of Reverse Innovation in Paint Industries in
India.
II. To compare and analyze the potentiality of Reverse Innovation across the
selected Paint companies and small scale paint manufacturers.
III. To explore various organizational level factors, which triggers Reverse
Innovation, among the selected paint companies and small scale paint
manufacturers
IV. To explore the external environmental necessity for the selected Paint firms
and small scale paint manufacturers in India to trigger Reverse Innovation.

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V. To identify and connect the link between Sustainability Management and
reverse innovation, across selected paint industry and the small scale
manufacturers

1.6 Research Benefits

It has become obvious by now that further research on reverse innovation is not
only warranted but also critical for contributing to the knowledge sphere of
innovation theories. These innovation theories hold significant prominence in
developing countries like India, to further improvise their national innovation
policies.
Here we are looking for connections. Connections between various inter-related
innovations theories and concepts so that reverse innovation can be better
positioned in terms of literature concept. By doing so, identifying examples from
business practices could be facilitated and their analysis could be easier and better.
In addition to this, our goal is to endorse this topic and to advocate for reverse
innovation as an approach worth considering by companies especially in India.

1.7 Research Questions

The following research questions are answered in this study in order to shed light
on various aspects of an Indian Paint firm that aims to reverse innovate in India;

1. Based on the literature review of innovation in general, where does “Reverse

innovation” stand with respect to other innovation literature streams?

2. Identifying the challenges and barriers for an Indian firm for conducting reverse
innovations?

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3. What are the factors & environmental necessity for an Indian paint firm to
conduct reverse innovations in India with special reference to Asian Paints, Kansai
Nerolac, Berger Paints and Akzo Noble?

4. How Reverse Innovation is linked with sustainability management?

5. What lessons can be learned from the selected Paint firms with regard to reverse
innovation?

1.8 Research Scope & Limitations

This thesis focuses on investigating reverse innovation aspects at the level of firms
and industry both, through a survey analysis of 396 respondents across the industry
between (March‟2016- August‟2016). Here the prime focus is placed on
innovation in general and reverse innovation in particular as promising viewpoints
suitable for the current and future business settings. The thesis refers to the latest
and updated available theories on reverse innovation as its focal point, in
combination and re-combination with prior and subsequent relevant theory from
other areas like Economics, Psychology Strategy and International Business, for
further clarifying and supplementing the knowledge on the topic Reverse
Innovation. Concepts such as Emerging Markets, Innovation at Bottom of the
Pyramid, Research & Innovation in India, Consumers profile in emerging markets,
Technical product and services aspects in Indian Paint serves mainly to describe
the context of the research topic but will not be investigated in great length.

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 Conceptual Background
1.9 Innovation Meaning
Before, moving ahead to understand the phenomena of “Reverse Innovation” it is
very important to understand the generis of “Reverse Innovation” i.e.-Innovation.
Innovation is simply defined as an act of creating something new or finding new
ways to create value (Katragadda, 2009)6. It refers to an idea, practice or object
that is perceived new by an individual or other unit of adoption (Rogers, 1983) 7.
Innovation includes the total set of activities leading to the introduction of
something new, resulting in strengthening the defendable competitive advantage of
a company (Van der Meer, 2007)8. The two important psychological attributes of
innovation are its emphasis on behavioral dimension (i.e., action) and the
perceived newness of the idea. Its emphasis on behavioral part or action part
differentiates it from its closest counterpart i.e. creativity. Creativity consists of
thinking new ideas and innovation consists of doing new ideas.

1.10 Innovation Attributes

Innovation has a number of attributes as discussed in the literature (Stone et al.,
2008).9The key attributes are summarized below:-

Attribute 1. Innovation involves the combination of inputs in the creation of

outputs. ~ Something, novel is created during innovation. Certain important inputs
must be available for innovation to occur, and the exact nature of those inputs
differs depending on the desired outputs and outcomes.

6
Katragadda, G. (2009). S.M.A.S.H. Innovation: Smashing the hand-mind-market barrier New Delhi: Wiley India
7
Rogers, E. M. (1983). Diffusion of Innovation (3rd Ed.). New York, NY: The Free Press
8
Van der Meer, H. (2007). Open innovation–the Dutch treat: challenges in thinking in business models. Creativity and
innovation management, 16(2), 192-202.
9
Stone A., Rose S., Lal B. & Shipp S. (2008), “Measuring Innovation and Intangibles: A Business Perspective”, Science and
Technology Policy Institute, Washington, December 2008

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Attribute 2. Inputs to innovation can be tangible and intangible. ~ Innovation
activities draw on a variety of inputs, which can be both tangible and intangible.
Tangible inputs have a physical embodiment and cost. Intangible inputs do not
have a physical embodiment but may have a cost. Intangible inputs are commonly
referred to in economic literature as “Knowledge assets” and in business
management literature as “Intellectual assets”. Inputs are considered assets if they
engender future benefits.

Attribute 3. Knowledge is a key input to innovation. ~ Innovation involves the

application of knowledge in creative activities. Innovation cannot take place
without an understanding of the resources, tools, technologies, materials, markets,
and needs in the situation at hand. In recognition of the tremendous importance of
knowledge to the innovation process, innovating organizations willingly spend
significant amounts of resources on research and the acquisition knowledge (e.g.,
intellectual property)

Attribute 4. The inputs to innovation are assets ~ Most innovations inputs are
considered assets because they are used repeatedly after being created for a single
innovation pipeline or are used in a pipeline in a way that results in a different
product (Arundel, 2007). Intangible assets-which typically are not reported on
balance sheets because they are difficult to measure-are increasingly being
recognized as critical to the innovation process.

Attribute 5. Innovation involves activity for the purpose of creating economic

value. ~ Fundamental to the concept of innovation is the innovator‟s intention to
create something of economic value-something that offers benefits to consumers
and provides economic returns to the innovator. Commercialization-the mechanism

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through which the consumer obtains the benefits of innovation and the innovator
obtains the return –is therefore critical to the innovative process.

Attribute 6. The process of innovation is complex. ~ Innovation is a complex

process not easily reduced to measurable elements (e.g., R & D dollars spent;
number or value of patents obtained). Nor is it linear. Instead, it is often iterative-
the outputs of early activities become the inputs for later processes. Innovation is
also not a linear combination of component factors or limited within the
boundaries of firms. Non-linear dynamics characterize the entire innovation value
chain end-to-end at the national level and at the firm level.

Attribute 7. The outputs in innovation are unpredictable. ~ The inputs to

innovation are easy to characterize; they will always be resource and assets. The
outputs, however, are difficult to characterize, especially before the process is
complete. The outputs are unpredictable because innovation is complex, nonlinear,
and risky; responds to opportunities; and inherently includes aspects of serendipity.

Attribute 8. Knowledge is a key output of innovation. ~ Whatever the outputs of

innovation may be, they incorporate the firm‟s knowledge at the time. Every
tangible and intangible (i.e., product and process) output reflects the firm‟s
knowledge of its resources, technologies, markets and consumers.

Attribute 9. The drive for Innovation must include consideration of the

demand side. ~ This consideration of the demand determines the rate of
investment and diffusion (take-up) of new products and services.

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1.11 Innovation Characteristics
Rogers (1983) 10has suggested a social analysis of innovation according to which
the rate at which different innovations get adopted by a member of social system
vary strongly, and depends, among other things, a number of characteristics of
innovation itself. The main features of innovation, as suggested by Roger (1983)
are relative advantage, which refers to the extent to which an innovation is
considered better than the idea, practice or object that it is supposed to replace;
compatibility, which refers to the extent to which an innovation is consistent with
existing values, previous experiences and the need of potential users; complexity,
which refers to the extent to which innovation is perceived as difficult to
understand and complex to use; trialability, which refers to the extent to which an
innovation can be tested and experimented on a limited scale; and, observability,
which refers to the extent to which the use and effect of an innovation are visible to
other members of the unit (for e.g., social system).

1.12 Innovation Process

According to the authors (Peters & Austin, 2003) 11the actual innovation occurs in
a zone where producers and consumers (or users) of a product or idea interact with
each other. According to them “analysis after analysis shows, in fact, that the great
majority of ideas for new products come from the users, Our own research
confirms it, not just in high technology but in the banking, health care and
hamburger business as well” (p. 156).

10
Rogers, E. M. (1983). Diffusion of Innovation (3rd Ed.). New York, NY: The Free Press
11
Peters, T. & Austin, N. (2003). A Passion for Excellence: The Leadership Difference. London: Profile Press.

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1.13 Types of Innovation
According to Oslo Manual (2005, p. 46)12, “An innovation is the implementation
of a new or significantly improved product (good or service), or process, a new
marketing method, or a new organizational method in business practices,
workplace organization or external relations”. This definition allows distinguishing
following four types of innovation:
1. Product innovation, related to the introduction on the market of new or
significantly improved products or services;
2. Process innovation, consisting of the introduction of new or improved
technology processes, machinery, equipment, software, methods of creating and
providing services, etc.;
3. Marketing innovation, aimed at the introduction of new marketing methods and
strategies related to the product, packaging, positioning, promotion, and pricing
policy;
4. Organization innovation, related to the introduction of new organization
methods, including the organization of workplace, or relations with suppliers and
distributors.

12
The Oslo Manual was first published in 1992 by the Organization for Economic Cooperation and Development (OECD). It
proposes guidelines for collecting and interpreting technological innovation data and it is based on surveys which collect data on
innovation activities of countries (Organisation for Economic Co-operation and Development, 1997).

14
1.14 Distinction between various economies
Table: 1.1 Difference between various economies
Advanced Emerging Transition Developing
Economies Markets Economies Economies
Post-industrial Subset of former Subset of emerging Low-Income
countries developing markets that have countries
characterized by economies that transformed from characterized
high per-capital have achieved centrally planned by limited
income, highly substantial economies into industrialization
competitive industrialization, liberalized markets. and stagnant
industries and well- modernization and economies
developed rapid economic
commercial growth since the
infrastructure 1980s.

Source: Cavusgil, Knight and Riesenberger (2008), p.256-261)13

1.15 Emerging Markets

The term “emerging markets” is said to have been coined during an investor
conference in Thailand in 1981 because the prevailing term “third world” sounded
too discouraging for potential investors However, the inventor of the term, Antoine
van Agtmael, offers a more sociological than economical point of view by stating
that the name is now less important than the fact that these countries are no longer
recognized as peripheral, but rather an increasingly important part of the world.
Emerging markets are defined as countries that are in process of hasty growth and
industrialization. These countries are in process of reorganizing their economies,
while at the same time they do offer wide opportunities of trade, technology
transfers and foreign investment. These countries as in phase of transition, the

13
Cavusgil, S.T., Knight, G. and Riesenberger, J.R., 2008. International Business. New Jersey: Pearson Education .

15
biggest emerging markets are the so-called BRIC countries; Brazil, Russia, India
and China. They are expected to play critical role in the global politics, future
growth of world trade and global financial stability. Special report of The
Economist (2011) 14suggests that about 70% of the world‟s growth is expected to
come from emerging markets over the next few years. Only the growth in India
and China is expected to comprise 40% of the world‟s growth. Big populations,
stabilizing economic and the increasing market attractiveness of these countries
substantiates the growth expectations.

Emerging markets have four distinct peculiarities. First is that they are regional
economic powerhouses with large populations. Any economic success or failure in
these countries would also affect neighboring countries. Second, many economic
and political reforms are being undertaken in emerging markets and the societies
are under great transition. Third, they are the fastest growing economies in the
world; consumers in these countries are expected to become more considerable
buyers of goods and services than developed countries. Finally, they seek more
power in international political, economic and social affairs. Continuous reforms
are aiming to improve the weak political institutions and poor physical
infrastructures in these countries, yet these under-progress conditions of emerging
markets could lead to challenges for Multinational Companies. (Li, 2011)15

14
The Economist, 2011. Special Report on Innovation in Emerging Markets. The Economist, 84(6), p.16.
15
Li, C.(2011), What are emerging markets?, [online] Available at: <http://ebook.law.uiowa.edu/ebook/faqs/what-are-
emerging-markets > [Accessed 11 July 2014].

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1.16 Characteristics of Emerging Markets
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Kotabe and Helsen (2010) argue that it is difficult to find a common ground
among emerging markets, and, hence a proper definition, due to the wide range of
countries classified as such. However, the authors offer seven further properties
emerging markets have in common:
• Low per capita incomes but rapid pace of economic development

• High income inequalities

• High rates of emigration to the developed world

• Populations are youthful and growing

• Weak and highly invariable infrastructure

• Technology is underdeveloped

• Weak distribution channels and media infrastructure

While there are visible and measurable progresses, emerging markets are
characterized by different institutional voids such as the access to information,
misguiding regulations and inefficient judicial systems (Khanna and Palepu,
1997)17, although the combination and severity varies from market to market
(Khanna and Palepu, 2010)18. In contrast to Khanna and Palepu (1997; 2010),
Kotabe and Helsen (2010) criticize the purely number-based institutional
framework of emerging markets and suggest to consider the fact that these
countries are establishing a more formal system with transparent rules which apply
equally to all market actors. Indicators of a more formal system are, for example,

16
Kotabe, M., and Helsen, K., 2010. Global Marketing Management. 5th ed. Hoboken: John Wiley & Sons.
17
Khanna,T & Palepu, K.G.(1997). Why focused strategies may be wrong for emerging markets., Harvard Business
Review,75(4)
18
Khanna,T & Palepu, K.G.(2010).Winning in the emerging economies. A road map for strategy and execution. Cambridge:
Harvard Business Presss.

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strong economic, political, and legal institutions with regulatory controls (e.g. anti-
trust and IP rights), corporate governance and binding contracts (Kotabe and
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Helsen, 2010). China and India are indeed progressing by moving toward
formally-run institutions but relying only on contracts is still not recommendable
(Knowledge@Wharton, 2008)20.

1.17 Scope and Measurement of Innovation in Emerging Markets.

To get the better insights of innovation in present times, we need to analyze and
compare the innovation activities of various countries. Therefore, it is very
necessary to use indicators that can approximate the level of innovation of
economies, however uniform is not yet developed addressing this problem, the
European Council is still working on the development of a single integrated
21
indicator (European Commission, 2011b) that will help in comparing and
analyzing innovation activities. While search of single indicator is still going on
innovation presently remains to be evaluated by various different indicator.
In this context to check innovativeness of any company Vernon‟s premises (1966;
1979) 22still hold‟s relevance, to check the validity of Vernon‟s premises, we need
23
to check list compiled by Forbes (2012) of “The World‟s Most Innovative
Companies”. Forbes (2012) list classifies 100 companies according to the
Innovation Premium (Gregersen and Dyer, 2012)24. While, analyzing the list, one

19
Kotabe, M., and Helsen, K., 2010. Global Marketing Management. 5th ed. Hoboken: John Wiley & Sons.
20
Knowledge @Wharton, 2008. When are emerging markets no longer emerging? [online] Available at:
http://knowledge.wharton.upenn.edu/article.cfm?articleid=1911, [Accessed 23 March 2015].
21
European Commission, 2011b. Innovation Scoreboard 2011. [pdf] Brussels: European Commission. Available at:
http://ec.europa.eu/enterprise/policies/innovation/files/ius-2011_en.pdf> [Accessed 24 March 2015].
22
Vernon, R., 1966. International investment and international trade in the product cycle. Quarterly Journal of Economics, 80
(2), pp.190-207.
23
Forbes is an American business magazine. Published bi-weekly, it features original articles on finance, industry, investing, and
marketing topics. Forbes also reports on related subjects such as technology, communications, science, and law. Its
headquarters is located in Jersey City, New Jersey.
24
Gregersen, H. and Dyer, J., 2012. How we rank the world‟s most innovative companies. [online] Available at:
http://www.forbes.com/sites/innovatorsdna/2012/09/05/how-we-rank-the-worlds-most-innovative-companies/ [Accessed 11
March 2015

18
easily can conclude that the majority of the companies 43 are based in USA, while
42 are based in other developed economies (e.g. the UK, Japan, France, Germany,
etc.). On the other hand, emerging/developing economies (China, Brazil, India and
Malaysia) are the home of only 15 companies, or 15 percent of the total list
(Forbes, 2012). This shows that the situation today is quite similar to what Vernon
described in 1966 and 1979. In addition, Fagerberg, Srholec and Verspagen
25
(2009) argue that measuring national capabilities in terms of one country‟s
technological, social and innovative capacity can be difficult in practice, although
plenty of theory can be found on this issue. The authors name “science, research
and innovation” (p.28) as one of the dimensions constituting national capabilities
and they suggest scientific publications, innovation counts, patents and R&D, as a
sufficient aggregate empirical measure. The clear problem that arises is the
imperfect, insufficient or even non-existing data available for analysis which
creates only a partial image of the reality. For example, the number of patents
alone is generally not regarded as a perfect measure of innovation (Griliches,
Pakes and Hall, 1987; Lanjouw, Pakes and Putnam, 1998 cited in Gallini, 2002,
26
p.138) and patenting may not be very common in developing economies with
undeveloped intellectual property (henceforth IP) protection systems (Fagerberg,
Srholec and Verspagen, 2009). Furthermore, data is not being collected for many
developing economies, which has also been a problem for the advanced economies
27
until the beginning of the 1990s when the Oslo Manual marked the start of the
effort to record innovation activity (Smith, 2004 cited in Fagerberg, Srholec and

25
Fagerberg, J., Srholec, M. and Verspagen, B., 2009. Innovation and Economic Development. Working Paper n. #2009-032,
United Nations University-Maastricht Economic and social Research and training centre on Innovation and Technology,
Maastricht.
26
Gallini, N.T., 2002. The economics of patents: Lessons From recent U.S. patent reform. Journal of Economic
Perspectives,16(2), pp.131-154.
27
The Oslo Manual was first published in 1992 by the Organization for Economic Cooperation and Development (OECD). It
proposes guidelines for collecting and interpreting technological innovation data and it is based on surveys which collect data on
innovation activities of countries (Organisation for Economic Co-operation and Development, 1997).

19
Verspagen, 2009). This problem is further exacerbated by the fact that the meaning
of the term “innovation” may vary across different contexts (ibid.). As a result,
what is being considered and recorded as innovation activity might differ as well.
In the absence of other more reliable indicators of innovation, the combination of
measures of science, research and innovation suggested by Fagerberg, Srholec and
Verspagen (2009) could be considered highly helpful for approximating
28
innovation. Using some of those measures, Bel (2013) provides empirical
evidence from China. Based on data from the European Commission, the author
explains that in the last decade China has doubled the investments in R&D, the
number of researchers and the number of patent applications, whereas the number
of scientific publications has increased five times. As a consequence, China has the
most researchers in the world and it is approaching the EU and U.S. according to
the R&D intensity and the number of scientific publications respectively (Bel,
2013). Patent applications are the only measured dimension where China is not
performing as well as the EU-27, U.S. and Japan. Furthermore, figures from 2011
show that China and India (taken together) have had the highest growth rate of
27.2 percent in R&D spending (Jaruzelski, Loehr and Homan, 2012), 29which can
be seen as an incentive for more Multinational Companies to expand their
operations in emerging economies where innovation activity is flourishing.

28
Bel, R., 2013. Innovation: Misconceptions, Trends, and Directions. Global Business and Organizational Excellence,
January/February, pp. 71-87.
29
Jaruzelski, B., Loehr, J. and Holman, R., 2012. Making Ideas Work. [pdf] Available at:
http://www.booz.com/media/uploads/BoozCo_The-2012-Global-Innovation-1000-Study.pdf [Accessed 07 January 2015].

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1.18 Emerging markets and the Bottom of the Pyramid
It is important to distinguish between emerging markets and the “bottom of the
pyramid” - low income market interesting for Multinational Company due to the
high number of potential consumers (Prahalad and Hart, 2002)30.
Simanis and Hart (2008)31 point out that the proper term is “base of the pyramid”,
since the former label “bottom” has rather negative connotations. Nonetheless, a
unanimous definition of what the Bottom of Pyramid actually means and
consequently a clear statement about its total potential has not been developed yet.
Emerging markets usually refer to fast-growing countries, while the Bottom of
pyramid comprises four billion people in different parts the world, or a staggering
65 percent of the world population, who earn an income of less than $2,000 per
year (Prahalad and Hammond, 2002). This, however, is only one estimate of the
32
Bottom of Pyramid‟s power. Prahalad and Hart (2002) state that those four
billion people only have a yearly per capita income of $1,500, based on purchasing
power parity. There are different opinions on whether companies, especially large
Multinational Company, should serve this market segment. Prahalad and
33
Hammond (2002) make clear that the low buying power or the inability to use
modern technology are not obstacles in serving these markets. It is the authors‟
opinion that the Bottom of Pyramid could help Multinational companies generate
strong revenues and uncover new sources of innovation. Disruptive technologies,
such as fuel cells, photovoltaic or nano-technology, are awaited by people at the
Bottom of Pyramid and have the potential to be the best early market for those new

30
Prahalad, C.K. and Hart, S.L., 2002. The fortune at the bottom of the pyramid. Strategy + business, 6, pp.1-14.
31
Simanis, E. and Hart, S., 2008. The Base of the Pyramid Protocol: Toward Next Generation BoP Strategy. [pdf] Ithaca:
Center for Sustainable Global Enterprise. Available at:
http://www.stuartlhart.com/sites/stuartlhart.com/files/BoPProtocol2ndEdition2008_0.pdf [Accessed 22 January 2015].
32
Same as reference no 29
33
Prahalad, C. K. and Hammond, A., 2002. Serving the World‟s Poor - Profitably. Harvard Business Review,
September, pp.48-57.

21
technologies (Prahalad and Hart, 2002). In general, as Govindarajan (2012c)34
argues, people from the Bottom of Pyramid work hard and earn little, and they are
not willing to spend their money on outdated technology or stripped-down
products. “Simply selling the cheapest products on hand or reusing technologies
from higher-priced products will not cut costs enough and is unlikely to result in
the kind of products these new customers will buy“, agree authors Sehgal, Dehoff
and Panneer (2010)35. Hence, there is a demand for new technology and
convenient, inexpensive solutions at the base.
36
This point of view is contested by author Karnani (2007) who suggests that
Multinational companies have to be well aware that marketing to the poor is not as
easy as it seems and proposes a change in the price-quality trade-off (a 50 percent
price reduction) in order to be successful. The author agrees on the fact that poor
people desire quality products but argues that they cannot afford them and thus,
serving the Bottom of Pyramid would not be profitable for companies.
Govindarajan and Trimble (2012) 37even suggest that the price should drop to 15
percent and at this point the functionality of the product should be 50 percent.
Govindarajan and Euchner (2012, p.14)38 clarify that “50 percent of the
functionality does not mean 50 percent of the quality”, pointing out that there is a
way for companies to offer both affordable and quality products to the customers at
the base. Moreover, the Bottom of Pyramid market itself can be seen as a pyramid
(Dansk Industri, 2007)39 with different segments which suggests that a shift in the

34
Govindarajan, V., 2012 c. Interview on Global Business. Interviewed by Peter Day [radio] BBC, 28 April 2012, 11:32.
Available at: http://www.bbc.co.uk/iplayer/episode/p00qy7pp/Global_Business_Reverse_Innovation/, 28 April 2012 [Accessed
29 January 2015].
35
Sehgal, V., Dehoff, K. and Panneer, G., 2010. The importance of frugal engineering. Business + strategy, 59, pp.1-5.
36
Karnani, A., 2007. The mirage of marketing to the bottom of the pyramid. California Management Review, 49 (4), pp. 90-111.
37
Govindarajan, V. and Trimble, C., 2012. Reverse Innovation: Create Far From Home, Win Everywhere. Boston, Mass.:
Harvard Business Review Press.
38
Govindarajan, V. and Euchner, E., 2012. Reverse Innovation. Research-Technology Management, 55 (6), pp. 13-17.
39
Dansk Industri, 2007. Working with the bottom of the pyramid. [pdf] Available at:
http://di.dk/SiteCollectionDocuments/DIBD/Working%20with%20the%20Bottom%20of%20the%20Pyramid.pdf [Accessed 22
February 2015].

22
price-performance ratio could still not appeal to everyone at the Bottom of
Pyramid, and companies could focus instead on some but not all of the segments.
The Bottom of Pyramid should not be dismissed as a futile endeavor on grounds of
the low purchasing power of those customers but it also cannot be served with the
same products that Multinational companies offer to their customers at home. This
calls for new innovations and solutions specifically tailored to the conditions in
emerging markets and to the characteristics of customers in those countries.

1.19 Drivers of Innovation at the Bottom of the Pyramid

Innovation at the Bottom of Pyramid can be influenced by a number of factors that
define the populace and the environment at that position in the pyramid (Prasad &
Ganvir, 2005)40. From the configuration of the Bottom of pyramid one can deduce
a number of factors as possible drivers of innovation at this level. The following
three Bottom of Pyramid innovation drivers will be examined:

 Low Income Level: To serve a market where the people live below the
3 US dollar income level, will obviously pose a challenge to the cost
structure with which organizations have targeted the Top of Pyramid
(Pantulu, 2009)41. To heed Prahalads‟ call for multinational corporations to
serve the Bottom of Pyramid, will not only push organizations to innovate
around costs but will require innovations to make products, services and
distribution processes cheaper (Vachani & Smith, 2008)42. Considering the
income level of the Bottom of the Pyramid, will be a major factor pushing

40
Prasad, V.C.S & Ganvir, V. 2005, „Study of the principles of innovation for the BOP consumer-the case of a rural water filter‟,
International Journal of Innovation and Technology Management (IJITM),2(4),pp.349-366
41
Pantulu,C.C. 2009, Philips digs at bottom of the pyramid,retrived on 5th Febraury‟2015, from
http://www.dnaindia.com/money/report_philips-digs-at-bottom-of-the-pyramid_1310881.
42
Vacahani & Smith, 2008,‟socially responsible distribution: Distribution strategies for reaching the bottom of the pyramid‟.
California Management Review 50(2), pp.52-84.

23
 for the search for efficient, lean and cost effective approaches to delivering
value. This is the major driver for what is termed as frugal innovation.
 Globalization: As the Top of the Pyramid and old markets are gradually
getting saturated (Hart, & Christensen, 2002)43, organizations have been
concerned about how to extend their research to the international market
place and find new ones (Levitt, 1983).44By extension the search for new
markets and the desire for growth and stakeholder satisfaction implies that
the research of these organizations can extend to the Bottom of Pyramid.
However, entering into the Bottom of Pyramid market as analyzed above
will drive organizations to innovate in ways that meets the peculiar needs of
serving and competing in the Bottom of Pyramid market.
 Population: With a market of a growing potential of 4 billion consumers,
reaching a significant number of this group and reaping the associated
benefits of economy of scale, has the tendency to push the innovation
frontiers of production and distribution. Organizations planning to shift
from the Top of the Pyramid market with fewer people, to this massive
population will need to innovate and rethink their processes, in order to
efficiently harness the dividends at the Bottom of Pyramid.

1.20 Indian Market

Guillermo Wille, managing director at General Electric in India says; “The beauty
of the Indian market is that it pushes you in a corner … it demands everything in
the world, but cheaper and smaller”. (Kumar & Puranam 2012:106) 45
46
Khanna et al. (2005) maps a framework of five contexts of the fastest growing
emerging markets. These five contexts are; Political and social systems, openness,
43
Hart ,S.L & Christensen,C.M.2002,‟ The Great Leap: Driving Innovation from the Base of the Pyramid‟, MIT Sloan
Management Review,44(1),pp.51-56
44
Levitt,T. 1983,‟The globalization of markets.‟, Harvard Business Review,1983,pp.92
45
Kumar, N. & Puranam, P., 2012. India Inside, Harvard Business Press.

24
product markets, labor Markets and capital markets. The application of the
framework for India‟s political and social system is presented as a vibrant
democracy in the political structure where the government is highly bureaucratic.
Corruption is mentioned as an obstacle in state and local governments. The civil
society in India is introduced with a dynamic press and vigilant NGOs act as
checks on politicians and companies. In terms of openness of the market and the
modes of entry, restrictions on investments and the necessity of acquisitions and
joint ventures in some sectors is mentioned. Red tape was claimed to hinder
companies in sectors where the government allow foreign investment. The product
market context was explored under three parts; the product development and
intellectual property rights (IPR), supplier base and logistics, and brand
perceptions and management. Some local design capability is available in India
regarding product development, but IPR problems with the United States exist in
some industries. There are regulatory bodies monitoring product quality and fraud.
Local suppliers in India are available but their quality and dependability varies
greatly. Quality of transportation is considered to be low as the roads are in poor
condition and ports and airports are underdeveloped. About the brand perceptions
and management of Indian consumers; it has been presented as they buy both local
and global brands. Global ad agencies are also present, but not as successful as the
local ad agencies (Khanna et al. 2005).
The labor and capital markets of India are also analyzed in the five contexts. The
labor market in India contains a high number of English-speaking management
talents from the technical and business schools. Local hires are preferred over
foreign managers. The trade union movements are becoming less important in
India, however it is still active and volatile; and they have strong political

46
Khanna, T., Palepu, K.G. & Sinha, J., 2005. „Strategies that fit emerging markets‟. Harvard business review, 83(6), pp.63–74,
76, 148.

25
connections. The analysis of the capital markets in India has shown that the local
banking system is well developed and they can be relied on by multinationals for
their local needs. Equity is available to local and foreign entities. Venture capital is
also available in some cities and from the Indian Diaspora. Accounting standards
are high in India; the financial reporting is based on a common-law system and it
functions well. Finally, existence of inefficient bankruptcy processes in India has
been claimed as the promoters find it difficult to sell off or shut down the sick
enterprises (Khanna et al. 2005).
Kumar and Puranam (2012:6) analyze the Indian market and business structure in
their book “Inside India”. In their book, they present a recent study that has shown
that there are 750 Research &Development subsidiaries of Multinational national
company‟s employing over 400,000 employees in India, which promises India as a
new destination for innovation. The remarkable number of Research &
Development subsidiaries of many Multinational national companies in India also
demonstrates the faith that these Multinational national companies have in India.
According to Kumar and Puranam (2012), understanding the business and social
life of India is crucial for multinationals, especially in a country that contains
enormous range of constraints. In their book, they stress on the limited income
levels in India. They claim that a large segment of India‟s population is both
demanding and budget constrained. They present the Indian consumer as the most
value conscious consumer group in the world than anywhere else. According to
them, the Indian consumer is more value conscious than cost. They ask “How this
product will change my life?” Therefore, Kumar and Puranam (2012: 106) suggest
the companies to think hard in terms of what is the value added, together with the
differentiation they are bringing to the Indian marketplace.
It has been suggested that the large number of limited income consumers have
allowed the emergence of new capabilities for certain kinds of innovation in India.
26
Moreover, meeting the needs of these customers may lead to some new products
and services that might eventually diffuse to the west. Finally, three main issues
that India has as roadblocks to innovation and success in India were defined: the
real talent pool, IP protection and venture financing (Kumar & Puranam 2012:15).
The literature on Indian market clearly points out that India is not an easy market
to enter and operate for western MNCs. The country has a very different
infrastructure, politics, customers and many other characteristics that don‟t
resemble anywhere else in the world.

1.21 Indian Consumers

The majority of consumers in rural areas in India are in the Bottom of pyramid
segment and consumers in urban areas are in lower middle class (in between Top
of the Pyramid and the Bottom of Pyramid). Despite the continuous growth and
developments in India, many of the consumers will continue to be in the low-
income segments. The most conspicuous characteristics of Indian consumers are
“budget-constrained” and “value seeking” (Kumar & Puranam 2012:106).
Managing director of AstraZeneca India, Anandh Balasundaram describes the
Indian consumers; “Indian consumers are a lot more value conscious than
anywhere I have seen. I think we always viewed it as being cost conscious, but I
see it as value.” Indian consumers ask “How will this product change my life?”,
“Do I really need it?” before spending even a little amount of money. Therefore
according to him, it is very important for company operating in India to add value
as well as bringing differentiation to the marketplace (Kumar & Puranam
2012:106). 47

47
Kumar, N. & Puranam, P., 2012. India Inside, Harvard Business Press

27
Krishnan (2010) 48presents some interesting aspects of Indian people. According to
him, Indians are notoriously bad team players and they have difficulties in
achieving shared goals. He also argues that Indians are sensitive to criticism and
this is a challenge for them to work together. Together with these characteristics
and the high levels of hierarchy and control, he argues that India has challenges to
become an innovation player.
The value consciousness and budget-constraints of Indian consumers refer to the
two important aspects of innovation; affordability and value creation. These
aspects are of prime importance for phenomena of Reverse Innovation.

1.22 Innovation in India

49
According to Entrepreneurship in India Report (2008) published by National
Knowledge Commission “innovation has emerged as one of the drivers of India‟s
economic growth, and is a factor in increasing competitiveness, profitability and
market share as well as reduced costs. The „Innovation Intensity‟ (i.e. the
percentage of revenue derived from products or services which are less than three
years old) has increased for large firms as well as Small &Medium Enterprises in
India. The strategic prioritization of innovation has also intensified since economic
liberalization. Moreover, an interesting finding is that Small & Medium
Enterprises register a greater increase in „Innovation Intensity‟ than large firms.
This could also indicate that smaller, decentralized, creative and experimentation-
oriented organizations could be the torchbearers of large-scale „innovation‟ in the
country (p. 53).
According to the Innovation in India Report published by National Knowledge

48
Krishnan, R.T., 2010. From Jugaad to Systematic Innovation: The Challenge for India, Utpreraka Foundation.
49
National Knowledge Commission. (2008). Entrepreneurship in India. New Delhi: National Knowledge Commission.

28
Commission (2007)50, in the growth of the Indian economy, Innovation is
emerging as a key driver, although this may neither be apparent nor readily visible.
According to the report:
 17% of the large firms rank Innovation as the top strategic priority and 75%
rank it among the top 3 priorities.
 All the large firms agree (of which 81% strongly agree) that Innovation has
Gained importance as being critical to growth and competitiveness since the
start of economic liberalization in India.
 All the large firms agree (of which nearly half strongly agree) that they
cannot Survive and grow without investment in Innovation.
 An overwhelming 96% of large firms see Innovation spending increasing
over the next 3-5 years.

1.23 Innovation in India: Where it is happening?

Three major hubs dominate Indian research and innovation-Delhi, Mumbai and
Bangalore, as shown in Figure: 1 Delhi and Mumbai have populations of over 20
51
million, and Bangalore nearly nine million. They are also India‟s most
competitive cities according to the 2011 India City Competitiveness Report 52,
which ranks city performance across indicators of financial, social and business
performance as well as technology and inward investments.

50
National Knowledge Commission. (2007). Innovation in India. National Knowledge Commission, Government of India, June.
51
Metropolitan Area. Delhi includes NCR. http://pibmumbai.gov.in/scripts/detail.asp?releaseId=E2011IS3 Accessed April 2015.
52
The report is compiled using a methodology devised by Harvard economist Michael Porter
http://competitiveness.in/wpcontent/uploads/2012/01/CCR-2011-Business-World.pdf Accessed May 2015.

29
 Figure: 1.1 Innovation in India: Geographical Location

Source: Bound, K., & Thornton, I. W. (2012). Our frugal future: Lessons from India's innovation system, p38, London:
Nesta.

30
1.24 Research & Development in which Business Sectors in India?
As Research and Development is one of the aspects of Innovation, more precisely
applied research is Innovation. We will here discuss the business wise sector in
which Research & Development spending are done. The current growth in
Research and Development spend in India is led by the pharmaceutical and
automotive sectors53. In real terms, they account for 45 and 17 percent of business
Research and Development spend respectively54. Between 2000 and 2006 Research
& Development spend in these sectors grew six-fold and 2.4-fold respectively,
whilst other sectors only grew more slowly from lower bases.

Figure: 1.2 R &D Spending in Business Sectors

Source: Bound, K., & Thornton, I. W. (2012). Our frugal future: Lessons from India's innovation system, p 49, London:
Nesta.

53
Mani, S. in UNESCO Science Report 2010. UNESCO
54
Data from Statistical Tables, Department of Science and Technology, 2009.

31
 Paint Industry General Introduction
1.25 Paint- Historical Background55
The history of paint is as old as the history of human civilization. Millions and
millions of years ago, life floated in the deep seas in the form of unicellular
amoebae. Evolution brought it into its best and the natural culmination-man. Even
though evolution seems to have stopped, revolution in the outlook, ideas and habits
of man still continues. The capacity to understand and appreciate beauty, further
extended to beautifying nature as well as his own creations. The history of colour
started from there.

The origin of paint can be traced back to the pre-historic period (20,000 years
ago).The cave dwellers of those times expressed their artistic abilities by doubling
coloured mud on the walls of their caves. They painted the pictures of food giving
animals as well as their fellow-men. These primitive paintings were done with
different ends in view. Certain objects were coloured to ensure good fortune in
hunting, or to hold evil spirits at bay or to honour the dead in their graves. These
pre-historic paintings have been located in the caves of Altimara in Spain and
Lascause in France. The pre-historic paints were made by mixing coloured mud
and water. Animal fat was used as the binder. The primitive painters used their
own figures and sticks as brushes.

Coming to 3000 BC, the Egyptians painted their tombs and temples with the
happenings of those days like battles, priestly rites. The tombs were supposed to
have been painted to welcome the soul when it comes back to re-enter the body
kept well protected therein by secret preservatives. Yellow, red, black, blue and
white colours were used in paintings .The studies at paintings revealed that Gum
55
https://wikitainment.wordpress.com/2014/05/13/history-of-paint-a-modern-science-from-an-ancient-art/, accessed on
April‟2016

32
Arabic, Egg White, Gelatine, Casein, Bees-wax blood and animal tallow were
employed as binders. It was a long time before people realized the need for a long-
lasting paint rather than frequent repainting.

By the 18th century, paint factories started operations in Europe. Paint which was
once a costly product of hard labor by master craftsmen, who prepared and mixed
their own raw materials from a secret formula handed over from generation to
generation, was ready for the mass production stage. Until the 19 th century, amber
was a widely used paint vehicle for decorative purposes. Some of the oldest violins
that retained their appearance and tonal quality over centuries have a smooth
amber coating. When amber became scarce and expensive, semi-fossil gums took
over. The main substitutes were gum Arabic, copal, resin, mastic shellac.

The 20th century revolutionized the concept of paint and paint application. The ever
increasing demand for paint necessitated the introduction of new synthetic
pigments and binders and new application techniques. The need for long term
durability and substantial increase in the painting cost further accelerated the
development process. Keeping in line with the development of technology in other
areas, the development of paint technology in the last quarter century also
surpassed the development in all the previous year‟s put together. The search for
new raw materials, new products for new surfaces and industrial application
techniques have transformed paint production into a modern science from an
ancient art.

1.26 What is Paint Scientifically?

According to International Standard Organization (ISO) 4618/1 Paint is defined as
a product liquid or powder in form, containing pigment(s), which when applied to
a substrate, forms an opaque film having protective, decorative or specific

33
technical properties. Although, terms “Paint” and “Coating” are often used
interchangeably. Generally “Paint” is the term more often linked to decorative
purpose and “Coating” is linked for protective purpose.

1.27 Source of Raw Material used in Paints & Coatings

Figure: 1.3 ~ Raw materials used in Paints & Coatings

Source: American Coatings Association, accessed from www.paint.org.

34
1.28 Application of Paints & Coatings
Figure: 1.4~ Various Application of Paints & Coatings

Source: American Coatings Association, accessed from www.paint.org

1.29 The Paint Industry General: Classification

Figure: 1. 5 ~ Classification of Paint Industry

35
 Paint Industry in India
1.30 The Indian Paint Industry Evolution
The Indian paint industry is over 100 years old. Its beginning can be traced back to
the setting up of a factory by Shalimar Paints in Calcutta (now Kolkata) in 1902.
Until World War II, the industry consisted of small producers and two foreign
companies. After the war, the imports stopped, which led to the setting up of
manufacturing facilities by local entrepreneurs. Still, the foreign companies
continued to dominate the market. Initially British paint companies such as
Goodlass Walls (Now Kansai Nerolac), ICI (Imperial Chemical Industry), British
Paints (Berger Paints), Jenson & Nicolson and Blundell & Eomite dominated the
market. A major break-through occurred in the forties when Asian Paints was set
up at Bombay (now Mumbai) and till date Asian Paints continuous to be the
market leader in Indian Paint Industries in decorative segment. 56

1.31Indian Paint Industry Classification

The Indian paint industry is divided into decorative and industrial segments.
Decorative paints enjoy a market share of 73 percent and industrial paints have the
balance of 27 percent. Decorative paints can be further classified into higher end
acrylic exterior and interior emulsions, medium range exterior and interior
emulsions and enamel paints, low end distempers, wall putty, primers and thinners
and wood coatings. They can also be broadly categorized into water and solvent
based Paints. Water based paints have an edge and are growing at a higher rate
because most paintable surfaces in architectural constructions use water based
coatings. It also has the added advantage of being more environmentally friendly.
Industrial paints, on the other hand, comprise automotive including auto refinish,

56
http://www.prnewswire.com/news-releases/indian-paint-industry-128867833.html, accessed on April‟2016

36
general industrial including consumer durables, protective coatings, coil coatings
and powder coatings.57
Figure: 1.6 ~ Classification of Indian Paint Industry

Indian Paint Industry Classification

Industrial
Paints
27%

Decorative
Paints
73%

Source: Indian Paint Association, Nielson Report, January‟2013

1.32 The Indian Paint Industry Market Overview

India is the second largest paint market in Asia with an annual demand of over two
million tons. The Indian paint industry has been growing constantly over the last
decade. Growth has been consistent with the Gross Domestic Product growth rate
of the country and in some years even it‟s even higher. Over the past few years, the
Indian paint market has considerably grown and caught the attention of many
International players. The country continues to enjoy a healthy growth rate
compared to other economies, backed by the increasing level of disposable income,
and demand from infrastructure, industrial and automotive sectors. On the back of

57
Paint market likely to pick-up pace in coming time”, January‟2015, from www.indiratrade.com

37
such advocacy, it is anticipated that the sector will post a CAGR (Compound
Annual Growth Rate) of around 15 per cent during 2012 to 2015, According Indian
paint industry expert forecast. According to survey conducted by leading market
researching firm AC Nielsen Indian paint industry is about INR 26,040 crore (in
2011-12). Share of decorative paint share is INR 19,010 Crores (73per cent) and
share of industrial paint is INR 7,030 Crores (27 per cent). . The per capita paint
consumption has been estimated to be 2.57 kilograms. (2011-2012) the paint
market is estimated to double to INR 50,000 crore by 2016 with per capita
consumption increasing to over 4 kilograms.58
The India paint industry is highly fragmented and has been polarized in organized
and unorganized sectors. The organized sector accounted for 65.1% of the total
market, while unorganized sector showcased a share of 34.9% in FY‟2012. The
advent of the global companies and their increased penetration into the market for
paints in India has led the organized sector to gain massive traction compared to
the unorganized players in the market. The paint market in the country is majorly
comprised of premier paint manufacturing companies including Asian Paints,
Kansai Nerolac, Akzo Nobel India, Berger Paints, Shalimar Paints and Jenson and
Nicholson in the organized sector. Asian Paints has been the market leader in terms
of revenues over the years and has commanded a share of 48.9% in FY‟2012. In
addition, the unorganized sector consisted of several small scale companies
producing paints.
The demand in the India paint industry is sensitive to price fluctuations of paint
products, and varies with the economic and industrial growth. While, the demand
in the decorative segment is largely dependent on the seasonal trends, with
increased sales during the festive seasons, the demand in the industrial segment is
58
Indian Paint Association, Nielson Report, January‟2013

38
determined by total industrial production, which affects the demand from the
sectors such as consumer durables, construction, automobiles and others.
Additionally, the industry is also affected by the raw material prices, of which
mostly are derivatives based on petroleum. Thus, the revenues from the paint
industry in India are influenced principally by the volatile crude oil prices.
Titanium dioxide is one of the major raw materials and a fluctuation in its prices
has a direct and substantial impact on the cost of production. The paint is
composed of several constituents such as binders or resins, solvents, titanium
dioxide, packaging materials, additives, and others.
The paint industry has been showcasing trends in both marketing and technology.
In the past several years, leading market players have launched several
promotional campaigns to attract customers. Additionally the paint industry in
India has witnessed technological developments such as environment friendly
paints, tinting machines, and others. The increasing size of the middle class in the
country coupled with growing disposable incomes is expected to propel the growth
of the industry forward. The ongoing residential and commercial projects in many
cities, supported by cheaper financing, increasing shortage of houses and growing
urbanization is likely to drive demand in the paints used for decorative purposes.
Additionally, the development in the consumer durables, power, marine and others
will lead to the surge in the demand from the industrial sector.59

1.33 Market Share of Organized Paint Companies India

In F.Y.2015 the organized players account for 70% of the market, while the
remaining belonging to the unorganized firms.

59
Ken Research „India Paint Industry Outlook to 2017‟ Published on April,2013

39
The unorganized sector comprises of around 2000 small Scale paint units. Top
Five players are estimated to control>80% of the organized market.
List of the public firms that compete in the industry
 Asian paints.
 Kansai Nerolac
 Berger Paints
 Akzo Nobel India
 Shalimar Paints
Figure: 1.7 ~ Market Share of Organized Paint Companies in India

Shalimar Paints
2%

Akzo Nobel
11%

Kansai Nerolac
16%
Asian Paints
53%

Berger Paints
18%

* Overall Paint Industry in India is Combining both Decorative+Industial Paint Segments. The
market share represented above is based on companies Turnover, here Turnover reprents Sales
net of excise duties, it includes joint ventures & subsidiaries in India but excludes overseas
operations

Source: Berger Company Presentation, at Investor Conference, London, August‟2015

40
1.34 Indian Paint Industry: Product Classification60
Decorative Paints

The decorative paints can be segmented into various categories of paints. These
include enamel, interior emulsions, exterior emulsions, distempers and wood
finishes. Distempers are water based paints which constitute of chalk, lime, water
and few coloring agents depending upon requirement. These paints are also termed
as a whitewash. Distempers are the low-cost products which are classified under
the economy segment of the interior paints.

Enamels are paints which on drying, exhibit hard and usually a glossy finish. These
are oil-based products and are basically used on hard surfaces such as walls, metals
and wood. Also, they are applied on signboards, banners, hoardings, and others.
Another type of enamels available in the Indian market are water based enamel
having low Volatile Organic Compound (VOC) and solvent based enamels which
are highly resistant to stains and water. Enamels are a fast growing segment in
India.

Emulsions are of various kinds comprising of premium, medium cost and low-cost
ranges which differ on a cost basis. This category of paints is the largest selling as
it is heavily used for painting the interior walls in households.

Interior emulsions are water based paints that impart a rich finish to interior walls.
The differentiating factor of emulsion paints is its superior quality. The painted
surface imbibes greater durability and exhibit a freshly painted look.

Exterior emulsions are used to provide a durable coating to the outer walls for
protection against harsh climatic conditions and for enhancing color retention.

60
Ken Research „India Paint Industry Outlook to 2017‟ Published on April,2013

41
These are integrated with dry film preservatives and silicon which provides
protection from fungus and resistance from water penetration in walls,
respectively. Additionally, exterior emulsions exhibit superior adhesive properties
along with imparting protection from dirt and algae and resistance from weathering
of the painted surface. Wood finishes are coatings applied to wooden surfaces. It
provides a clear and protective coating that increases their aesthetic appeal and
prevents the wooden surfaces from getting damaged.

Figure: 1.8 Decorative Paint Market in India (Product Wise)

Decorative Paint- Market Segmentation :2012-2013

Cement Paint
Wood Coatings Putty (Acrylic) 3%
4% 4%

Enamels
Distemper 28%
12%

Primer,Thinner
12%

Ext. Emulsion
Int. Emulsion 20%
17%

Source: Indian Paint Association, Nielson Report, January‟2013

42
Industrial Paints

Industrial paints include automotive paints, high performance coatings, coil

coatings, powder coatings, marine paints and general industrial coatings.

Automotive paints are used in the automobile industry where they are applied to
vehicles and auto ancillaries. The various features provided by automotive paints
include protection of vehicles during transit from dust, chemicals, bird droppings,
protection against Ultra Violet (UV) rays, stone chip protection, resistance to
sunlight and weather and colored pigments.

Powder coatings are used for decoration and protection of consumer durables,
primarily electronic equipments, FMCG products, automobile components,
material handling equipments, gas cylinders, glasses, helmets, barrels and
containers. The growth in this category of industrial paints is led by growth in the
sales of automobile ancillaries and consumer durables.

Marine paints and coatings are used by commercial and military ships, recreational
boats, passenger ships and others. These are used to provide protection against
organic fouling and make the surface corrosion and abrasion resistant. Other
industrial paints included coil coatings and paints used in packaging materials.

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 Figure: 1.9 Industrial Paint Market in India (Product Wise)

Industrial Paints - Market Segmentation :2012-2013

Marine Coatings Other Coatings
Can Coatings 3% 5%
3%
Auto OEM
Coil Coatings
24%
7%
Powder Coatings
10%
General Industrial
11% Protective
23%
Auto Refinish
15%

Source: Indian Paint Association, Nielson Report, January‟2013

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1.35 Indian Paint Industry: Imports & Exports

Table: 1.2 Indian Paint Industry Imports ~ Revenue in USD Million

FY' FY' FY' FY' FY' FY' FY'

Country 2006 2007 2008 2009 2010 2011 2012

China 1.3 3.1 7.6 10.4 8.3 8.8 21.9

France 3.9 9.4 15.4 6.9 4.2 6.6 7.8

Germany 8.9 12.7 13.8 16.9 20.9 25.6 28.1

Indonesia 2.7 2.7 3.7 4.3 3.4 4.5 5.0

Italy 3.3 4.0 6.3 7.0 6.0 8.0 11.6

Japan 3.0 4.0 3.9 5.4 7.2 14.8 13.9

South Korea 3.1 4.2 10.5 12.1 11.6 14.2 16.6

Malaysia 1.1 2.1 2.6 3.2 5.4 6.4 8.9

Singapore 12.7 16.5 20.4 22.0 11.0 11.3 11.1

Switzerland 1.0 1.6 6.1 5.7 7.6 10.4 8.8

Thailand 2.8 4.1 6.5 6.2 5.6 7.9 12.2

UK 7.5 9.1 11.7 11.6 10.3 6.7 6.7

US 4.8 7.1 8.0 10.4 8.9 13.3 20.0

Total 78.9 100.6 146.7 160.5 140.6 176.7 212.3

Source: Ken Research „India Paint Industry Outlook to 2017‟ Published on April, 2013

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Exports ~ *Revenue in USD Million

Table: 1.3 Indian Paint Industry Exports ~ Revenue in USD Million

FY' FY FY FY FY FY FY
Country 2006 '2007 '2008 '2009 '2010 '2011 '2012

Bangladesh 0.7 0.7 0.6 0.9 0.6 1.5 2.3

China 0.8 0.8 1.2 0.7 0.8 2.2 2.5

Germany 0.2 0.1 0.1 0.1 0.6 1.4 1.1

Hong Kong 0.3 0.2 0.1 0.1 0.2 0.3 1.5

Indonesia 0.6 0.2 0.9 0.8 0.2 0.3 0.1

Iran 0.3 0.0 0.3 0.1 0.0 0.2 1.0

Japan 0.9 0.6 1.5 1.2 1.6 0.6 0.8

Nepal 1.4 1.1 1.8 1.6 1.8 2.4 3.3

Nigeria 0.7 1.0 1.4 1.1 2.3 4.0 3.3

Pakistan 0.7 0.5 0.4 0.7 0.7 0.8 0.7

Sri Lanka 1.1 1.0 1.5 0.9 0.7 1.5 1.3

Thailand 0.1 0.1 0.4 0.3 0.7 0.8 0.5

UAE 1.6 1.6 1.5 1.8 1.8 1.5 3.9

US 0.7 0.7 0.6 0.9 0.6 1.5 2.3

Total 15.7 14.0 20.3 16.9 21.4 22.8 31.4

Source: Ken Research „India Paint Industry Outlook to 2017‟ Published on April, 2013

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1.36 Indian Paint Industry: Latest Trends, Development & Insights
Figure: 1.10 Indian Paint Industry Trends (2012-2016)

Inclination Toward Increased focused on

Increased share of
Value Added Products Research &
Organized Players
& Services Development

Preference of Changing Consumer Inclination towards

customer towards Preferences for Home enviromental friendly
complete solutions decors Paints

Use of Innovative Consumer demands

technologies for products which meet Indian Paint Market
Color Tinting and performances along is highly price
various other with affordability sensitive
functions and sustainability

The above information is collected after talking to various Industry experts and
referring to various research reports on Indian paint Industry,( Ken Research
Report, 2013 and Nielson Report ,2013) as we can observe from the highlighted
boxes : Highly Price Sensitive Market, Consumer demands Products which meet
performances along with affordability and sustainability, Use of Innovative
technologies for color tinting and various other functions, preference of customer
towards complete solutions, Increase focused in research and development, these
trends and development provides fertile ground to study Reverse Innovation
phenomenon for the Indian Paint Industry. Although, at the moment the outcome
of Reverse Innovation in terms of exporting the technology to developed nation
from developing nation is low or negligible in India with respect to Paint Industry
as the export of Paint products is approximately 6.78 times lower than the imports
during (FY 2006-2012), However our argument is to find the factors and
environmental necessity for Reverse Innovation in Indian Paint industry this still

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holds lot of relevance in the industry taking into the consideration above
mentioned trends, development and insights of Indian Paint Industry. Additionally,
according to the forecasting of leading German Consultancy firm Roland Berger,
Asia is already the largest paints and coatings market in the world. Its share is 36%
and expected to increase to over 50% by 2030. With expected growth rates of 7.4%
and 10% respectively, China and India will grab the lion's share. What is driving
this growth? Improving economic conditions and rising living standards combined
with an expanding manufacturing base, moreover Paints and coatings markets are
(end-) consumer driven and under increasing cost pressure. Over the coming years,
manufacturers will have to team up with their customers, doing Research &
Development and product development together with them. Asian players in
particular will be able to benefit from this trend because they are closer to
customers in the key growth markets. Therefore now, it is evident that the face of
the paints and coatings industry will change fundamentally Asia will account for
significantly more than 50% of the market by 2030 and it will also join the
innovation race. Thus, our attempt to study the Reverse Innovation phenomenon in
context to Indian Paint Industry is not only important but also necessary
considering present and future growth avenues.
Table: 1.4 Paint & Coatings Market Forecast (2010-2030)

Paints and Coatings Market Forecast by Region,2010-'30 (EUR bn)

2010- Total EUR 68 bn 2030- Total EUR 134 bn

North America 19% North America 12%
Latin America 7% Latin America 8%
Rest of Asia 36% Rest of Asia 16%
India 5% India 18%
China 9% China 20%
Europe 29% Europe 16%
Rest of the world 7% Rest of the world 10%

Source: Roland Berger, 2013

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1.37 Thesis Structure

Chapter 1: ~ Research Background, Research Relevance, Research Motivation,

Research Objectives, Research Benefits, Research Questions, Research Scope and
limitations. It also elucidates Conceptual background to study Reverse Innovation
as phenomenon which includes various peripheral topics like Innovation Emerging
Markets, Indian Markets, Indian Consumers and Innovation in India etc. Further,
this chapter also briefly covers topics on Paint Industry in General along with
Indian Paint Industry scenario.

Chapter 2: ~ Review of literature which is related to our field of study i.e Reverse
Innovation. The chapter covers Reverse Innovation literature in detail along with
that it also explains linkages of Reverse Innovation with other types of innovations.
Through, extensive review of literature on Reverse Innovation with other literature
stream of innovation, innovation in emerging markets and sustainability, we have
tried to identify the research gaps and research questions for the further systematic
investigation on the subject.

Chapter 3: ~ The profile of the selected Indian Paint firms for the research.( Asian
Paints, Kansai Nerolac, Berger Paints and Akzo-Nobel) It explains the key
business strategies of each Indian paint company along with their product offerings
and financial performances. Chapter also compares the four parameters: Revenue
contribution for Industrial and decorative Paints, Percentage of sourcing raw
materials, Advertisement and sales promotion of the competing firms and
Company wise dealer distribution network Across, the companies to gauge their
strength and weakness in terms of Reverse Innovation.

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Chapter 4: ~ Discussion on the research methods of this thesis. The survey
research method has been chosen to determine the factors and environmental
necessity for reverse innovation in selected paint companies (Asian Paints, Kansai
Nerolac, Berger Paints, Akzo-Nobel). The sampling technique has been described
followed by the measurement procedures. The survey instrument has been
designed using Likert categorical scale to measure respondents‟ attitude towards
the important challenges, barriers and implementation of reverse innovation these
factors are consistent to the previous research findings. The data collection and
overall research design is included in this chapter. Lastly, the limitations of the
thesis are also discussed in this chapter.

Chapter: 5~ this chapter of the study provides information on the data analysis. The
analysis of the survey data is processed using Microsoft Excel and the add-in
software SPSS. The statistical analyses that have been concluded include: Overall
multi-dimension constructs measurement towards factor analysis and descriptive
statistics. The data is categorized into selected paint Asian Paints, Kansai Nerolac,
Berger Paints, Akzo Nobel and small scale paint manufacturers in Gujarat
(Including paint experts/consultants). After data collection descriptive statistical
analysis is performed to provide comparisons. The t-Test and ANOVA is used for
the hypothesis testing. The tabulation and charts are provided for the ease of
comparison between different paint companies and small scale paint manufacturers
and experts.

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Chapter: 6 ~ this chapter of study outlines the conclusion, findings and
recommendation derived from the analysis of the data and review of literature. The
overriding purpose of this study was to determine the relative importance of
Reverse Innovation in emerging countries like India. The entire set objectives,
which were mentioned in the chapter 1, are reiterated and addressed one by one to
reinforce are conclusion and to derive our findings and recommendations.

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 Table 1.5 Thesis Outline

INTRODUCTION
Chapter Research Conceptual Paint Industry in
Indian Paint Industry
1 Outline Foundation General
REVIEW OF LITERATURE
Barriers and
Linkages of Reverse Reverse Innovation
Reverse Innovation Challenges for
Chapter Innovation with other Practices and
core literature Reverse
2 Innovation Types Validation
Innovations

Reverse Innovation Linkages of Research Gap &

Chapter Implementation of Reverse
processes and Reverse Innovation Summary on
2 Innovations
contribution with sustainability Literature Review

PROFILE OF SELECTED PAINT COMPANIES

Chapter
Asian Paints Kansai Nerolac Berger Paints Akzo-Nobel
3
RESEARCH METHODOLOGY
Chapter
Sampling Research Type Sources of Data Research Approach
4

Chapter Measurement Proposed Limitations of the

Data Collection
4 Procedures Hypotheses Research
DATA ANALYSIS
Descriptive Statistics Hypothesis Testing Using Factor Analysis
Chapter Proposed Hypothesis
using ANOVA Across Various
5 Summary
- Charts & Tables & t-Test Variables
FINDING,RECOMMENDATION & CONCLUSION
Thesis implication
Chapter General Managerial Recommendation &
Findings for the paint
6 implication of the thesis Future Research
industry

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