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Industrial competitiveness

“Consider going local”

by Sachin Joshi
At a price of around $ 2,800, the Nano is the world’s cheapest car

At a price of around $ 2,800, the Nano is the world’s cheapest car

Indian companies have a solid track record on innovations that make important goods affordable for poor people. Moreover, ­private-sector companies are increasingly respecting environmental requirements. [ Interview with Sachin Joshi ]

How do you define sustainability?
In the business context, it means conducting business activities in a manner that adds value to social, environmental and economic capital. Sustainability is not just about business activities. But it is about a perspective to doing business that adds value in the long term, rather than depleting it. Obviously, if an activity undermines the health of the natural ­environment or ruptures the social fabric, it is not sustainable. On the other hand, protecting the environment is not enough – in a country with so many poor people like India, standards of living have to rise. Even in the developed countries, it will soon be the business of business to deal with ageing populations as well as ethnic diversity while providing competitive jobs. All this is sustainability.

In Europe, many managers say they cannot afford to do more to protect the environment. Do businessmen in India consider the demand for ecological sustainability an opportunity or more of a handicap?
There is an increased sensitivity among Indian managers for environmental issues. While risk and response vary depending on the industry and its impact, companies have moved up the curve of preventive and corrective measures. Key drivers in this process include enhanced environmental laws and more stringent enforcement. The risk has grown for businesses to lose their operating licenses if they violate environmental regulations. Another important issue is that the costs of environmental damages can seriously affect a company’s competitiveness, and companies are increasingly being forced to pay for such costs.

India is home to some 800 million poor people. How can and must the private sector contribute to alleviating poverty?
The role of businesses in contributing to alleviating poverty is important. They can make a huge difference by developing business models that offer solutions that help reduce poverty, provide sustainable livelihoods and develop skills of the poor. Moreover, low-priced but useful goods also make a difference. Businesses can also make investments in ­innovation to develop these solutions, forge partnerships with government ­bodies or non-governmental organisations (NGOs).

In European eyes, one of India’s greatest competitive advantages is its abundant supply of cheap labour. On the other hand, innovation is often driven by the desire to reduce labour costs. According to this logic, Indian entrepreneurs don’t have much incentive to innovate. Why do they innovate none­theless?
Cheap labour is certainly an important factor, but, in itself, it does not attract investments on innovation. Cheap labour can never be an incentive to innovate. It’s a mix of aspirations, skills and costs that makes India an attractive place for innovation. An important aspect is that the rich world is not motivated to tackle poor people’s problems with innovations. Corporations based in rich nations do not have the conditions to make such inventions, experiment and design new solutions. It is ­Indian companies that are innovating solutions that provide poor people with affordable healthcare facilities. For ­instance, Bangalore’s Narayana Hrudayalaya, a cardiac care centre, is one of the world’s largest and most effective providers of heart surgery and cardiac care. It charges a flat rate of $ 1,500 for heart surgeries. On average, other Indian hospitals charge $ 4,500, and in the USA the average price is $ 45,000. Another example is the Godrej Chotukool, a small battery operated refrigerator ­for low-income households. It costs a mere $ 70.

The best known example internationally is probably the Nano, the small energy-efficient car produced by Tata, one of India’s leading corporations. It is the cheapest car in the world, a new Nano costs the equivalent of $ 2,800 or so. Cars, however, are not what German environmentalists would consider an eco-friendly product.
But your country produces lots of cars. German car manufacturers, so far, have been unable to cater to people from India’s lower income groups. It is too early to tell whether the Nano will be a commercial success, but it certainly is a great engineering achievement, and it has already had an impact in the sense of multinational giants now reconsidering the small-car market. Generally speaking, innovations can either relate to the production process or to a product itself. Both can result in reducing retail costs. Markets at the bottom of the pyramid are worth many trillions of dollars. Entrepreneurs from India and other emer­ging markets consider that an opportunity, whereas corporate leaders in rich nations tend to look at these things as obligations in terms of corporate social responsibility, which is, of course, less productive.

What lessons should rich nations learn from India?
First of all, low-income countries are not dumping grounds for their dated products and technologies. The poor are willing to pay for quality products and ­services. Development aid should focus on technical assistance. As for multinational corporations, they should consider going local: they should develop products that are suited to local requirements. It makes sense to use India and other developing countries as laboratories to develop affordable solutions that might be put to use in developed countries.

Please give an example.
GE, the US-based multinational corporation, did that with a low-cost portable electrocardiogramme machine. GE’s Mac 400 is a hand-held device. The multiple buttons on conventional ECG machines were reduced to the essential four. Instead of a bulky printer, the Mac 400 has a tiny gadget, like the ones used in portable ticket machines. The whole thing fits in a backpack and can run on batteries. It sells for $ 800, instead of $ 2,000 for a conventional ECG machines, and has reduced the cost of an ECG test to just one dollar per patient. In the past decades, energy, health and finance were sectors in which innovations often started in poor countries and were then copied in rich nations. Microcredit is an example.

In the past, you have quoted ­C.K. Prahalad in the sense that the poor should be considered entrepreneurs as well as consumers. What does this view imply in terms of business management?
It influences the management of supply chains, requires a mind-set shift and demands change in organisational culture. The new business models and organisational cultures that have evolved in India in the last two decades have begun to influence the theories and practices of business management internationally.

To what extent are Indian innovators interested in accessing the world market and to what extent ­are they working for the domestic market?
There is interest in the world market, but domestic requirements are huge. Know­ledge and expertise sharing is one of the areas of collaboration between Indian and European companies and innovators. Many Indian companies are helping other countries to handle information and communication technologies.

What lessons should other emerging-market nations learn from ­India?
There are three important points: It makes sense to
– encourage innovations at the grassroots level,
– promote public-private partnerships in the social sector and
– invest in education and skills building.

Questions by Hans Dembowski and Cathrine Schweikardt.