Getting stuck in traffic jams is part of everyday life on India's chaotic roads. However, one company's response to this all-too-common scenario demonstrates the power of innovation and provides a potential blueprint for success in emerging economies.
In the early 2000s, Indian automaker Mahindra & Mahindra introduced a start-stop mechanism in some of its hybrid vehicles as a way of reducing the burning of fuel from cars as they sat in gridlocks. The kit – comprising a plug-in battery pack that connected to the electric engine – automatically switched off the engine if it was idling for too long.
The result? Fuel savings for motorists; lower emissions for the environment; and a game-changer for Mahindra & Mahindra that reinforced the reputation – and profits – of the company.
Pradeep Kanta Ray, a senior lecturer in the school of management at UNSW Business School, says the case study underlines the role that innovation can play as manufacturers in emerging economies such as India, China, Russia, Brazil and Indonesia seek to thrive domestically, and simultaneously lay a platform for future growth in global markets.
Ray is the co-author with Rifat Sharmelly, a former UNSW Business School researcher, of the paper, Organisational capabilities for mass market innovations in the emerging economies: Insights from an automobile firm in India.
They conclude that three elements are the key when targeting mass markets in which customers are highly sensitive to prices:
First, the ability to recombine – whereby companies reconfigure existing core technologies and components to create new products that are competitively priced.
Second, linkage capabilities – with collaboration coming to the fore as a network of domestic suppliers co-invent and share costs and resources.
Third, the capability to modularise – allowing companies to deliver ongoing product improvements as they serve multi-tiered market segments.
Ray says the success of Mahindra & Mahindra's start-stop mechanism clearly shows the power of combining the three elements: the automaker adapted existing technology to devise a frugal but effective solution; it collaborated with technology company KPIT to develop the kit; and the innovation complemented chairman Anand Mahindra's vision of providing high-quality but affordable vehicles for mass markets that could later be upgraded for motorists with more sophisticated needs.
"So this study has significant implications for managers of aspiring firms intending to serve mass markets in emerging economies," Ray says.
"Even now it is happening in other parts of the world. Firms are taking the model and are able to use existing building blocks and resources to create very innovative products."
'They are able to modularise, they are able to innovate architecturally and they are very much into using local building blocks and resources without creating something new or fresh' – pradeep kanta ray
Provision to improve
Emerging economies are redefining the global competitive landscape as they become a source of opportunity and innovation for business, with the International Monetary Fund estimating that these economies represent about one-quarter of the world's combined GDP.
However, companies operating in these markets must clearly identify what organisational capabilities are required to serve mass-market customers if they hope to meet the unique demand and price conditions of those markets.
At the University of Sydney Business School, Sangeeta Ray is a lecturer whose research focuses on innovation strategies in India's knowledge-intensive sector. She agrees that recombining, linkage capabilities and modularising – while not a guarantee of success – are driving forces behind mass-market advances in nations such as China, Brazil and India.
"And when we talk about success we have to specify the boundary conditions that we're looking at – mass markets where the need is for basic products which would meet the price-performance criteria of consumers in those markets," Sangeeta Ray says.
She adds that it is crucial for companies to build in the provision to improve or upgrade the product to integrate more sophisticated functions at a later stage.
"That's why modularisation is important because companies then have the potential to disrupt mainstream markets by initially targeting low-end markets and then gradually improving products such that they become attractive even for mainstream markets."
Sangeeta Ray notes that the rise and rise of Japanese conglomerates from the 1960s through to the 1980s was largely built on the back of the same three elements that are now such a force in India.
"The Indian model actually seems to date back to the Japanese model," she says.
Needless frills and features
At the heart of Sharmelly and Pradeep Kanta Ray's study is the concept of organisational capability; that is, a company's capacity to deploy resources such as organisational knowledge and the skills of its people to create innovative new products and services.
Ray says to date too little attention has been devoted to identifying the precise organisational capabilities required by companies for emerging-economy innovation and that their study helps address this gap.
The stakes are potentially high for companies. One theory explored in the paper is that established companies often overlook innovation opportunities in India because they fail to foresee prospects and are "held captive" by their most profitable and largest high-end customers.
The authors suggest that mass-market customers want products with simpler specifications and functionalities and are reluctant to pay for needless frills and features that add to the price.
As a result, businesses can find it challenging to allocate resources for projects that may, in the short term at least, deliver significantly lower profit margins.
However, Ray says examples such as Mahindra & Mahindra show that it can be done. During his 20 years of research on organisational capability, including on topics such as telecommunications services and the Tata conglomerate's super-cheap Nano car, he has interviewed many corporate leaders in emerging economies.
The best, he observes, are able to inspire companies to generate successful products, despite a lack of resources and even while operating in markets that often stifle innovation.
"They are able to defy that with very few resources and come up with things which are comparable to the rest in the world."
The success stories have a common thread: "They are able to modularise, they are able to innovate architecturally and they are very much into using local building blocks and resources without creating something new or fresh," Ray says.
'Instead of investing more and more in making fancier products, you try to deliberately constrain your use of technology and any other resources' – sangeeta ray
'They don't have to reinvent the wheel'
It seems that some major companies are also seeing or testing the value of the recombine-linkage-modularise model.
In the healthcare space, Sangeeta Ray notes, GE has a range of high-end products, while at the same time it makes no-frills products such as electrocardiogram and ultrasound machines that cost a fraction of those in advanced nations.
"Instead of investing more and more in making fancier products, you try to deliberately constrain your use of technology and any other resources," she says.
"You do not go for the best technology; you just go for that which is cost effective. The same innovations can then be improved and used across the developed world."
The risk for some companies, she says, is that their brand value may be hurt if they are seen to be targeting low-end consumers.
"There are many deterrents because it requires a lot of experimentation."
The research from Sharmelly and Pradeep Kanta Ray underlines the need for a mindset shift if companies want to succeed in emerging economies' mass markets.
Rather than tailoring new product developments for the most demanding customers and consigning themselves to resource-intensive routines and practices, companies may need to rethink their approach and allocation of resources.
Ray says the beauty of the three-pronged model is that it does not require companies to completely overhaul their business. Instead, they can adapt existing technologies and products for mass markets and ensure they evolve as market demands change.
"They don't have to reinvent the wheel."