1. INNOVATOR INDIA
NOT JUST THE NANO, LOCAL INGENUITY IN HEALTH CARE AND ENERGY, HOUSING
AND BANKING WAIT IN THE WINGS OF THE WORLD STAGE
Historically, multinationals innovated in rich countries and sold those products in poor
countries. We are witnessing a new phenomenon where this innovation paradigm is turned
upside down. Breakthrough innovations will next happen first in poor countries and they will
flow uphill to rich countries.
This is the essence of reverse innovation. Consider the innovations in transportation,
energy, and health care from India. Transportation. India's GDP per capita today is roughly
equal to that of the United States in the 1880s, an era in which the horse-and-buggy was the
primary mode of transportation. The mainstream consumer in the US waited for a few more
decades for cars.
With today's technology at hand, however, Tata Motors has launched the Tata Nano,
the world's cheapest car at a price point of about $2500. In doing so, Tata has unlocked a
huge untapped market: cars for middle class Indians. The automobile ownership in India is
about 10 cars per 1,000 population - in sharp contrast to the US where about 750 Americans
out of 1,000 own cars.
The Tata Nano is, of course, lower in quality than even the low-end cars of the rich
world, which sell at prices near $15,000. The difference in quality, however, is much less than
the difference in price suggests. Tata Motors practised "frugal engineering" to radically rethink
the five major areas of costs in an automobile: interiors, engine and transmission, suspension
and wheels, electricals, and the body. Tata partnered its suppliers - Bosch for powering the car,
Lumax for lights, Sona for steering and so on - in front-end design.
The Nano features a no-frills design with the use of lighter components, simple door
levers, single wiper, and so on. Its 624 cc two-cylinder engine not only lowers costs turning in
up to 26 km to a litre of petrol but is also appropriate on grid-locked Indian roads where the
average speed is 16-32 km per hour. But the real breakthrough is yet to come - it is about
taking the Nano global. Already, Tata is preparing to take the Nano to other emerging markets.
Even more important, the company plans to scale up the Nano platform and launch it in
Europe and the US. Imagine for a moment that Tata Motors invests another $2,500 to make
the Nano the world's most intelligent car - with integrated navigation, entertainment, and
2. information. Even at $5,000, the Nano would be the cheapest car and could well take the low
end of the US auto market by storm.
Energy. Most of India's population still has no access to the grid. That is nearly 750
million people. India is unlikely to build a US-style infrastructure, with massive central power
stations and grids designed for longdistance transmission. It is much more likely that India will
leapfrog to the next generation energy infrastructure:
* Renewables. Renewable energy will be a central, not peripheral, part of India's
energy solution. It is nearly certain that 10 to 20 years from now, solar and wind will account for
a much greater fraction - may be five times greater - of India's energy production than they
account for in the US.
* Nano power plants. India is likely to favour thousands of small power generation
stations - you have to put a wind mill where the wind tunnels are; you cannot cost-effectively
transport wind to a central plant. The country will use natural gas or biogas-powered turbines
that are less than one per cent of the size of the rich world's bread-and-butter large gas
turbines.
* Energy storage. Power has to be generated whenever there is sun and wind and
it has to be stored and released when the customer needs electricity. India, therefore, is likely
to invest in cutting-edge battery technologies that can store power economically.
* Smart grid. About 20 per cent of power is lost in transmission in India. India is
likely to adopt next-generation smart grid technologies to optimise the delivery of electricity.
* Micro grids. Isolated villages may build self-contained "micro-grids" for power
distribution.
Health. About 75 per cent of what is spent on health care goes to benefit only about 15
per cent of the world's population. What about the rest? How should we increase the
healthspan, not just the lifespan, in emerging economies? In India, for instance, Narayana
Hrudayalaya performs world-class open heart surgery for $2,000, compared to the $20,000 to
$100,000 it costs in the US. Aravind Eye Hospitals performs high quality cataract surgery for
$30, which typically costs $3,000 in the US. The low cost is achieved not because of the low
labour cost in India or due to charitable donations from rich countries. Narayana Hrudayalaya
and Aravind Eye Hospitals have used process innovation by borrowing concepts like
economies of scale and assembly line from the industrial sector, and applying them in health
care to bring down costs without sacrificing quality. There is no reason why such approaches
will not work in the West.
The Obama administration's health care reform is anchored on three principles: low
cost, increased access, and quality care - precisely the same three principles in India. Since
the economic reforms in the early 1990s, many Indian companies have grown by making
products for rich countries at a lower cost. The time has come for Indian companies to shift
focus on the Indian consumers and solve their problems through breakthrough innovations.
India has the potential to become the innovation hub in the next 20 years. I next ask CEOs,
