Low-Cost Innovation: Waves Of Change From India?

By: Parvathy V.K.   Date: 30 August 2012

About The Author

MBA student from the Cochin University of Science & Technology in Kerala, India. Diploma in Banking

Parvathy V.K.,       EconomyWatch Contributor

           

READER SUBMISSION – Nearly two years after the Indian government declared that this was the Indian “Decade of Innovation,” the country is now emerging as one of the world’s hotbeds for low-cost and frugal ideas. Can India continue on its vision of innovation; and what can the rest of the world learn from this era?

India's Low-Cost Innovations: Changing The Lives, And Fates Of Its People?
Photo Credit: procsilas - Flickr

What does it mean for Indians today to live in our so-called “Decade of Innovation”?
For a start, our government has a vision to turn the nation into one of the most powerful economies in the world; but Indians still have to equip ourselves with better ideas and greater potential in order to turn this vision into reality.
In addition, while India today is generally regarded as an innovation hub, we still need to further develop our culture of innovation so to ensure inclusive growth in this envisioned economic scenario.

Culture Of Innovation

The National Knowledge Commission (NKC) has defined innovation as “a process by which varying degrees of measurable value enhancement is planned and achieved, in any commercial activity.”
According to the NKC, this “process” may be “a breakthrough or incremental; and it may occur systematically in a company or sporadically.” The criteria for this includes:- Introducing new or improved goods or services and/or
- Implementing new or improved operational process and/or
- Implementing new or improved organizational or managerial processes, “in order to improve market share, competitiveness and quality, while reducing cost.”
The benefits of innovation are simple: not only does it inherently creates economic value and new jobs, but it also develops a culture of entrepreneurship among citizens.
As such, innovation in India is not seen as an end in itself, but rather a means to productivity, growth and higher living standards.
Innovation is also seen as way to accelerate our economic growth, and to make economic growth more inclusive and environmentally sustainable.
Related: "Frugal Innovation" Now Key Indian Economic Strategy
Related: Indian Technological Entrepreneurship - At Street Level in Mumbai

Low-Cost Innovation – A Bottom Of The Pyramid (BOP) Perspective

Due to the nature of India’s economy, low-cost frugal innovations have emerged as the primary drivers of innovation in the country. Generally, some of the major reasons that have facilitated increasing innovative activities in India include:

• The existence of an open society
• An environment that allows for experimentation
• The availability of a young population
• Full and free competition in the private sector
• A large education capacity with several high quality institutions like the IITs.
• Technology base
• Democracy
• Broad based network of Government supported research and development laboratories with multi disciplinary expertise
• WTO compliant intellectual property laws accompanied by increasing foreign investment in research and development.

But, the human resource in the country has led Indians to generate ideas at lower costs. The middle and lower class population, which we generally categorize as the rural population, are bringing out their ideas that are affordable and eco friendly to redesign the conventional product development and marketing techniques.Major companies in India are also focusing on the previously untapped segment of the market. They see a better business opportunity in catering to the needs of the bottom of the pyramid (BOP), who are the largest, but poorest socio-economic group in India.
The BOP is also the group who traditionally cannot adapt to technological advancements due to its higher cost. With the advent of low-cost innovations, the hope is that they too can enjoy the benefits of innovative and affordable products and services.
Management Guru C.K.Prahlad, laying the frame work for the BOP market argued that “sustainable product innovations initiated in tier 4, and promoted through consumer education, will not only positively influence the choices of people at the BOP, but may ultimately reshape the way Americans and others in Tier 1 live.”
Prahlad outlined 12 principles of innovation for the BOP markets:

• Create a new price performance envelope.
• Creatively blend existing technologies with the new technologies;
• Ensure that the solutions developed are scalable and transferable across countries;
• Use minimum resources;
• Develop the product on the basis of functionality and not just of form;
• Process innovations to address logistics constraints; 
• Deskill the work content;
• Educate customers;
• Ensure that products will work in hostile environments;
• Ensure research on interfaces – this is critical;
• Design methods to make innovation reach the user; and
• Focus on the broad architecture of the system.

These principles have lead many local users in India’s rural areas to come up with inventions that are not only innovative and useful, but also less expensive than the solutions available in the market. The grass root innovations are generally environment friendly and are sustainable to the available infrastructure. In the words of Mr. Robert D.Hormats, “ideas from all sources must be allowed to compete and those that succeed must be fairly rewarded.”

Driving Low-Cost Innovation

Cost is a major factor that has been reflected in the price of a product. An innovation becomes affordable only when it can be made available to its customers at a reasonable rate.
The high-middle-low income categorizations of customers have been made by the companies with an objective of putting the best strategy in practice and thus obtaining the targeted customer group easily.
The high or luxurious category of customers is not price sensitive. The companies have already realized the need for considering the middle and low income group of customers. In many product areas where these segments were inaccessible due to higher cost are now rewriting the scenario. Products are made available at suitable designs and lesser cost and thus the standard of living of these groups increase.
The conventional formula of lesser cost = cheaper quality is redefined and it has opened up more business opportunities and a scope for economic growth. In fact, the label of ‘low cost innovation’ limits its customers to a particular category of users. The psychological barriers restrict the customers from buying a product labeled ‘low cost’ even though the customers cannot afford to buy the higher priced version of the same product.
Hence, greater care should be taken by the producers of the low cost innovations in marketing the product.  In the words of   C.K.Prahalad “the primary lesson is learning to ‘do more with less’.
Related: Disruptive Innovation: Fuelling The Growth Of Emerging Markets : Javier Santiso
Related: Indian Entrepreneurship Challenges Caste System

Examples Of India’s Approach To Low-Cost Innovation

Aakash Tablet PC – The World’s Cheapest Tablet PC

The Aakash is an initiative of the Government of India, in joint venture with the British company Datawind.inc. The initial price set for the tablet PC was set at $35 but in India, the Government of India has also decided charged RS.1750 ($31.44) per unit instead.
The reason for developing this product at such a cheap rate is to increase the computer literacy in India, with an aim to link 25000 colleges and 400 universities in an E-learning program.

Tata Nano – The World’s Cheapest Car

Tata motors launched a 1 lakh rupee ($2500) car in 2009, which promised to revolutionise mobility for the Indian middle class. The car was good looking, fuel efficient, environment friendly and ultra low priced.
Despite all the hype however, unit sales of the Nano in January 2012 were just under 8,000, a monthly rate that would soak up a mere third of the company’s 250,000-unit annual production capacity. Delays due to the costly move of the Nano factory from Singur to Sanand (something outside the company’s control) and initial safety issues with the car did not help.
However, Ratan Tata, the chairman of Tata Motors, had it right when he acknowledged recently that mistakes were made in the marketing and distribution of the Nano. The company’s impressive value innovation was not matched by an equally creative delivery system.

Chotukool – A Low-Cost Refrigerator

Chotukool is a low cost cooling solution launched by the Indian conglomerate Godrej and Boyce with a price tag of RS.3700 ($66) – half the price of normal refrigerators. It is a portable, top opening unit, weighing only 7.8 kg.
The product has been co-designed with village women to assure its acceptability and is distributed by members of micro finance group. Chotukool uses high-end insulation to stay cool for 2-3 hours during power cuts. It consumes just 55 W power, which is nearly half the energy consumed by regular refrigerators. This refrigerator uses a cooling chip and a fan similar to those used in computers and can even function in batteries. Daily items like vegetables, juices, cold drinks and other beverages and milk products can be stored in it.
The quality and quantity of power accessible to rural India is very limited and hence effective refrigeration in rural areas can help people preserve food and to make lives a little better.

Tata-Indicom Nano Ganesh – A Mobile Way To Control Irrigation

The Nano Ganeseh will allow farmers to operate their irrigation pumps from remote locations without having to travel long distances to do so daily. The subscribers will be charged RS.2700 ($48) for the device, on top of the cost of purchasing a handset that offers lifetime validity. All the calls made to the pump by the Nano Ganesh will also be free. With the product, Farmers can now not only save on electricity cost, but also improve productivity and ensure better return on investment.

Vortex's Gramateller ATM – Solar Powered ATMs For Rural Areas

Vortex engineering, based in Chennai, has introduced a solar power ATM designed to reach out to rural areas with intermittent power supply.
Normally, banks do not find it viable to set up ATMs in such areas, due to the overall costs; but the Gramateller ATM costs just RS.2-3 lakhs ($3,500 - $5,300) to set up, compared to a conventional one (RS.5 lakhs or $8,900).
The biggest difference however comes in terms of running costs, where the vortex-made ATM requires just about RS.500 ($9) a month whereas an urban ATM goes up to RS.10000 ($180).

Tata Swach – Low-Cost Water Purifier

The Tata Swach costs less than RS.1000 ($18) and uses tiny silver particles to kill harmful germs that may lead to potentially deadly water borne diseases. It has a 9.5 litre capacity and can filter around 3000 litres of water before the cartridge needs to be replaced.
The goal of the product is to ensure that the rural population in India has access to safe drinking water.

Mahindra Yuvraj – Affordable Tractor For Farmers

Four out of five Indian farms are smaller than five acres (<2 hectares), and tractor size and cost means that only a small percentage of these farms are mechanized. Providing access to mechanization became the mandate for designing the Yuvraj 215, a 15 Horse Power tractor at a fraction of the cost of other tractors.
At the cost of RS. 181,000 ($3,250), the Yuvraj is making mechanization and a quantum leap in productivity possible for small farmers across India.

Steps For The Future

India needs to focus on the low cost innovation more effectively, trying to avoid the limitations that have been identified in due course.
Companies also have to formulate suitable strategies that can enhance the value as well as make it available to the targeted group within the shortest time possible. Better products and services at affordable rate can increase the standard of living, which in turn results in economic growth of the nation. Hence, keeping the cost lower and maintaining the quality higher will be a sign of positive shift in the growth curve.
By Paravathy V.K.
Parvathy V.K. is a MBA student from the Cochin University of Science & Technology in Kerala, India. Parvathy also hold a Diploma in Banking and Finance from the Indian Institute of Banking & Finance.



Source: EconomyWatch as on 03/11/2012