A snip at the price
May 28th 2009
From The Economist print edition
The recession gives parsimonious innovators a chance to go global
COBBLED together from carts, old cars and anything else to hand, the improvised vehicles used by Indian farmers are often known as jugaad. The term also has a much broader meaning—referring to an innovative, low-cost way of doing something—as goods and services are provided in India at a fraction of the cost of those in developed countries. Ingenuity is a necessity when resources are limited and customers have little money. In a global recession it also provides a way for companies in India and China to expand into foreign markets where consumers are seeking better value for money.
Asia’s cost-cutting innovators reject the notion that purchases of certain items only take off when consumers’ incomes reach specific levels, says Rama Bijapurkar, a consultant, speaking at a recent conference organised by the Centre for India and Global Business at the Judge Business School in Cambridge, England. Instead of selling items in small quantities to the rich while waiting for everyone else to pass the relevant “income threshold”, they re-engineer their products into cheaper ones to unlock mass markets
Anil Gupta, of the Indian Institute of Management, helps run the Honey Bee Network, which encourages grassroots innovation in a number of countries. The projects he has been involved with include a refrigerator built from clay, which uses no electricity yet can help keep vegetables fresh for several days, and a cheap crop-duster in the form of a sprayer mounted on a motorcycle.
Innovation also takes place at a higher level, especially in the growing number of sophisticated research-and-development (R&D) laboratories in China and India. China is already close to overtaking Japan in research spending: over 300 multinationals have opened R&D centres in the country, says Peter Williamson, visiting professor of international management at the Judge school. Many firms began by using Chinese engineers and scientists, who are paid about a quarter as much as those in Europe or America, to adapt products for the local market. But now, he says, they are developing products for world markets.
There are also home-grown innovators such as BYD, a Chinese electronics firm. It has developed lithium-ion batteries that are unusually cheap and easy to make. It has succeeded in reducing costs from $40 a battery to less than $12. Earlier this year BYD’s automotive subsidiary unveiled a plug-in electric-hybrid car at the Detroit motor show. Thanks to the firm’s cheap batteries, it could sell for about half the $40,000 or so that the Chevy Volt, a plug-in hybrid under development at General Motors, is expected to cost.
Other examples in China include ZPMC and Zhongxing Medical, says Mr Williamson. ZPMC hired a small army of 800 design engineers to produce container-management systems which it customises for individual ports. It has now captured half the world market in harbour cranes. Zhongxing Medical, borrowing technology from the aerospace industry, has produced an X-ray machine capable of producing digital images directly. Although not as sophisticated as some fancier models sold by Western firms, it is suitable for most routine applications, such as chest X-rays. And it is produced for almost a tenth of what GE and Phillips used to charge for specialised digital X-ray machines, even after those companies cut their prices.
Perhaps the most famous cost-cutting innovator in Asia is Tata Motors, India’s biggest carmaker. In March it launched the Nano, which in basic form costs 100,000 rupees ($2,100). A fancier version of the car is expected to be launched in Europe and America in about two years.
India’s prolific and low-cost film industry, which churns out some 12,000 movies a year, is also going global. Although Indian films have long had a foreign audience, new co-production deals with Hollywood should increase their reach. Reliance Entertainment, for example, signed a deal with a number of American production houses last year. Rohan Sippy, a Bollywood producer, told the conference that Hollywood studios are keen to do deals with Indian filmmakers so that they can make for themselves cheap song-and-dance “masala” versions of American movies before Indian studios beat them to it. Whether Western firms can truly learn the ways of the jugaad, however, remains to be seen.
To read comments on this story please go to : http://www.economist.com/businessfinance/displayStory.cfm?story_id=13754045