In 1985, Japan and other members of the then G5 group of nations signed the ‘Plaza Accord’ to revalue the yen (and the West German deutsche mark) and let it appreciate against the dollar. This made Japanese exports uncompetitive, grievously affecting its manufacturing industry. For a country that depended on manufacturing exports, this was a cruel blow. But in keeping with its national traits of industry and determination, the Japanese went right ahead and sold more cars in the US in the next few years than they ever did. Those days, the slogan across manufacturing units in Japan was: ‘Squeeze the dry towel.’
Is it time for Indian companies to embrace a similar spirit of innovation? On the face of it, no. The economy is on a roll, domestic business houses are terribly efficient thanks to more than a decade of squeezing the fat out of the system and, most important, everybody loves India. So why bother?
If you agree with this view, the rest of the article may seem counter intuitive, even unintelligent, but the answer is, yes.
So far, India has innovated best with its back to the wall. In the 1980s, when it wanted supercomputers for weather forecasting, the US refused to part with its technology. So, the National Aerospace Laboratory in Bangalore developed an alternative technology, which forced Cray Research of the US to negotiate with the meteorological department, even though it had earlier spurned India.
Similarly, Tata Motors, one of the companies featured in this package, conceived the Ace, a one-tonne truck capable of operating on the narrow roads of rural India, during a lean phase — when its mainstay heavy vehicle business was in the grip of a slowdown and a lot of money was going into the Indica project.
While many experts argue that nations and companies alike innovate best in tough times, a school of thought contends that if India is to be counted amongst the great powers tomorrow, innovation needs to be a constant process, not just a response to a dire situation.
That was mainly why Businessworld partnered the Innovation for India-Marico Foundation and Erehwon Innovation Consulting to create the first ever Innovation for India Awards. The objective was to showcase the best innovations across the nation and inspire others to do the same. And also ask ourselves the question — are we doing enough? Is the dry towel being squeezed hard enough?
The simple answer is, no. While it would be unfair to say that Indian companies do not innovate at all, most of the innovation that happens is sporadic, not systemic. And those that innovate systemically are few.
Vijay Govindarajan, Earl C. Daum professor of international business at the Tuck School of Business, who recently published a bestseller on innovation (Ten Rules for Strategic Innovators) argues that Indians are innovative; even villagers are used to doing more with less. But Indian companies lack the will to innovate (see ‘Lack Of Resources Is Our Biggest Asset’ on page 36).
Equally, Indian companies are prone to imitate practices from their western counterparts. Says Arun Maira, chairman, Boston Consulting Group (BCG), India and member, Innovation for India-Marico Foundation: “These may not be the right practices for our context, so we may not get the result.”
So, what needs to be done?
While no one advocates a completely interventionist approach, senior managers believe the government has some role to play. “The government needs to focus on the back end and improve systemic capabilities; if it focuses on setting targets for, say, bank loans, it will become mechanical and not deliver value. Instead, it should help develop rural credit bureaus,” says Nachiket Mor, deputy managing director, ICICI Bank. This does not take away from the fact that India could do with some sort of an innovation policy. Which may at least stir a debate on the need for innovation.
People like R.A. Mashelkar, director general, CSIR, and chairman of the governing council at the Innovation for India-Marico Foundation, have long argued, society is reasonably ambivalent to the need for innovation in India. In an interview to BW in 2002 (see ‘Think Differently!’, 4 February 2002) he had said: “What we need is to get the entire society on board — administrators, educationists, ordinary people. We need to launch a national innovation movement.”
Brazil is a good example of how nations innovate. When it was hit by oil shocks in the 1970s, it used its extensive sugarcane crop to manufacture ethanol, an alternative fuel. By the mid-1980s, almost every new car in Brazil was running on ethanol blend. Today, ethanol still accounts for 40 per cent of its fuel consumption. Despite similar probelms, India hasn’t done much on this front.
There are enough examples to demonstrate how other countries like Malaysia, Australia, South Africa, Canada and the Netherlands have benefited through some sort of an innovation policy. But that alone will not do. To spread innovation, there needs to be a bringing together of two aspects of its ecosystem — laboratories at one end and access to capital at the other. While this is being experimented with in some IITs, which have tie-ups with either industry or venture capitalists, it is nowhere on the scale of the more developed economies.
Consider that universities in the US earn around a billion dollars through licences every year. In Britain, there is a VC firm, IP Group, that specialises in investing in R&D departments at universities like Oxford and Cambridge. It’s website goes by the innovative name of IP2IPO. Sample some numbers from China to put things in perspective. While there aren’t statistics on China’s investments in innovation, its R&D spends are a good enough surrogate.
According to its science and technology department, China will burn $111.8 billion on R&D by 2020; that’s 2.5 per cent of its GDP. In comparison, India had set a target of taking its R&D spend to 3 per cent of its GDP by this year. Yet, right now it stands at a sadly short 1.1 per cent. And most of this is because of the work government institutions do.
Indeed, China is emerging as a hothouse for product innovation. It has been engaging with the US on non-defence related technologies. US-based IT majors are also looking at China for their R&D bases. IBM recently set up a mainframe development lab in China and GE’s China Research and Development Centre has 28 labs working on fields like polymers and imaging technologies. Pharma major Novartis has also set up a research centre along with a Shanghai-based institute to figure out how it can bring Chinese traditional medicine to the market. While such examples give a sense of what we are up against, structurally our efforts need to be different.
BCG has recently done a study that lists 100 firms from emerging economies with a reasonable stab at becoming global players. Most of them are also at the forefront of the innovation initiative. Of the 100, there are 44 Chinese firms and 22 Indian ones. Of the 44 Chinese firms, 41 are state owned and three privately owned. Indian firms show up a reverse trend — 21 private and one state owned.
Maira uses this research to show how the two big Asian economies are approaching the same goal in somewhat different ways. The underlying message: if a nation’s economic prominence will be determined by what its industries do globally, the private sector will need to take the lead in innovation in India.
Nirmalya Kumar, professor of marketing at the London Business School, says there is yet another compelling reason for the need for breakthrough innovation.
“One must remember that while manufacturing is often in low-cost countries, innovation is kept closer to home by developed countries as it is considered their competitive advantage,” he says. In other words, if India has ambitions of becoming an economic superpower, it needs to match, if not beat the developed nations at the innovation game.
In all this debate over whether India is innovating enough, there is yet another subtext. Is the kind of innovation that is already happening here the right variety?
There is a pattern to the innovation emerging out of India. Most of it revolves around price — essentially making a product or a service more affordable (therefore, accessible) to a larger mass of people. While there is nothing wrong with an emphasis on what management thinker C.K. Prahalad calls the ‘bottom-of-the-pyramid’ approach, the question is — is price innovation enough for us?
Innovation practitioners say, yes. They argue that innovation has to be in the context of a nation’s socio-economic framework and its economic imperatives. In the US, for example, innovations are typically in technology and products, since labour is expensive there. Madhukar Shukla, professor at XLRI, says not much is being done to address this segment of the market: “There is a vast market at the bottom of the pyramid. It also makes business sense.”
One derivative of the bottom-of-the-pyramid mindset is the emphasis most Indian companies have begun paying to thrift. And that, in turn, have made many of them globally competitive, especially in manufacturing.
Take automobile components. Says Baba Kalyani, CMD, Bharat Forge, one of India’s most innovative auto-component companies: “We started by placing emphasis on improving cost efficiencies, enhancing product quality and rationalising internal processes. We then leveraged the domestic market to build an export orientation by creating international-scale capacities.”
But the real issue is whether too much emphasis on price-led innovation will prevent Indians from making an iPod, or even a Walkman. Says Ravi Kant, managing director, Tata Motors: “Price is one peg. But you must identify the need the product will cater to. With Ace, we identified both.”
XLRI’s Shukla, however, argues that even if India were to create an iPod, lack of marketing muscle would not allow it to exploit the global market. “The XP launch cost Microsoft close to $800 million. Can any Indian company match that?” he says.
He may have a point, but there are ways of getting around this issue. One is through collaboration, as Indian pharma companies doing high-end R&D have shown. (A company develops the molecule and then farms out the trials, marketing, etc., to partners.)
Another solution that Indian companies, especially in the manufacturing sector, seem to have hit upon is to look at expanding in other structurally similar markets, mainly in Africa and some parts of central and South-east Asia. Given that a bottom-of-the-pyramid approach works equally well there, Indian companies are extending innovations developed for India to these markets.
The Tata Group, for example, almost has a complete South Africa strategy, where the company is selling everything from cars to telecom to hotels. Again, Tata Motors has recently sold 228 buses, originally developed for India, to the Democratic Republic of Congo. Given their cost structures, it would be fair to assume that the Tata buses would have an advantage over buses from the US or Europe.
The journey that BW took over the past few weeks — talking to academics, consultants, and meeting with companies and non-profit organisations actually practising innovation — to see first-hand innovation at work demonstrated one reality unequivocally: Indians believe the country needs to do things differently if it wants to count itself amongst the world’s great nations. Some innovators are stuck for cash, some for guidance, some for people, but the spark exists. It is now for us as a nation to fan that spark into a flame.
Businessworld Pallavi Roy
