a case study of frugal innovation in lead markets is the key to ...

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A CASE STUDY OF FRUGAL INNOVATION IN LEAD MARKETS IS THE KEY
TO SUCCESS IN NATIONAL MARKETS W.R.T. ‘TATA- NANO’,
BASED ON PCMC, AREA
Prof. (Dr.) O. P. Haldar
ASM’s Institute of Professional Studies,
Abstract :
Prof. K. Ujwala Kiran
ASM’s Institute of Professional
Studies,
Creativity encourages innovation and innovation plays a vital role in the development
of new business concepts, processes and products. Innovation drives growth and opportunity
in new markets and breathes life into a mature industry. Securing access to “lead markets” is
generally regarded as a key driver for the increasing globalization of innovation since these
are considered to be “early indicators” for emerging customer needs. Such markets,
therefore, offer a good chance of uncertainty reduction for in the innovation process of firms.
Lead markets are generally defined in terms of product segments within national boundaries
and are thought to exist in economies with high per capita income, highly sophisticated
markets and high international visibility.
It is to be argued that there is increasing evidence of lead market tendencies in
certain emerging economies, e.g. India. Both domestic and foreign-owned firms there, in
recent years, have produced several internationally acclaimed “frugal innovations”, such as
the Tata Nano or GE's handheld ECG machine Mac400. Frugal innovation or frugal
engineering is the process of reducing the complexity and cost of a good and its production.
Using several examples we demonstrate that India seems to have emerged as a national hub
for low-cost, frugal innovations.
This paper seeks to crystallize the role of Innovation in nationalization of R&D and
identify the need for an update/extension to better reflect the changed ground realities. On
the basis of emerging evidence it is proposed that sustained economic growth, voluminous
markets, strong domestic technological capabilities, presence of foreign-owned R&D, and
favorable government policies may be able to offset some of the disadvantages rooted in
traditional deficiencies. Engaging a developing country lead market may be useful for firms
in securing better access to markets at the bottom of the economic pyramid nationwide.
Keywords: Lead Markets; National Innovation; Nationalization of Innovation;
Nationalization of R&D; Bottom of the Pyramid; Frugal Innovations
1. Introduction
The ongoing process of economic globalization has opened a new arena of
opportunities and challenges for businesses worldwide. The imperative to innovate, largely
driven by global opportunities, intense competition and path-breaking technological advances
is leading to globalization of innovation as firms, increasingly, seek to tap global knowledge
resources in order to shorten development cycles, reduce development costs or simply to
develop products for a particular local market with differing customer tastes, geographic
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conditions or regulatory requirements. There is a qualitative shift along the value chain from
“Nationalisation of R&D” to “Globalisation of innovation” with a stronger focus on market
access. TATA- NANO’s innovation strategy: shape the technology to the customer’s needs,
instead of forcing the user to adapt to the technology. NANO’s design philosophy starts with
the belief, understanding that the purpose of the design is to create things that benefit people.
NANO’s core competencies of innovative culture, successful entry into new markets, human
centered design and development have contributed to its successful execution.
1.1. Internationalization of R&D and Emerging Economies:-
Internationalization of R&D was for long thought to be a phenomenon effectively
cantered in the “triad”, i.e. North America, Europe and Japan. However, in recent years there
has been a clear and remarkable trend of multinational enterprises selecting locations in
emerging markets, such as China and India, to perform innovation activities including
research and development (R&D) work. In this respect, differentiates between “off-shoring of
R&D” driven mainly by cost considerations and “globalization of R&D” which is driven,
among other things, by a desire to tap a lead market. Even though patents are an insufficient
indicator of innovation activity, nonetheless the Organization for Economic Co-Operation
and Development’s (OECD) statistics on international cooperation in patents reveal a
significantly increased R&D activity by foreign firms in the BRIC countries (Brazil, Russia,
India, and China) within last 20 years.
The falling share of foreign-owned domestic inventions in the presence of increased
total domestic inventions also signifies stronger patenting activity of domestic firms.
Country of
foreign-owned
domestic
invention
1987
(granted by the USPTO)
No. of patents Share in all
patents
2007
(granted under the PCT)
No. of patents Share in all
patents
Brazil 14 32.6% 153 26.3%
China 22 36.7% 1,239 18.1%
India 18 72.0% 602 41.4%
Russia 16 9.8% 305 32.8%
World 5,262 5.9% 24,178 15.4%
Source: http://stats.oecd.org/Index.aspx?usercontext=sourceoecd, accessed:
9.01.2011.
1.2. Nationalization of R&D and Emerging Economies :-
This paper focuses on nationalisation of innovations in India, which has emerged as
an attractive R&D location with a strong market component for national firms. In a survey of
foreign firms engaged in doing R&D in India, 36% of the respondents cited India’s
importance as a lead market for their business. India’s growing middle class coupled with
increasing per capita income is providing a major boost to domestic consumption. Domestic
and global firms in India are increasingly developing products that better suit the needs and
wishes of a large and growing middle class with comparably low individual purchasing
power in absolute terms. At the same time firms seek to use Indian market as a low-cost test
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bed before launching products elsewhere in countries with comparable geo-economic
conditions.
1.3 Concept of Lead Markets:-
The early origins of the concept of lead markets may be traced back to the late 1950s,
when Griliches (1957) undertook a study of diffusion pattern of hybrid corns in the USA and
discovered that farmers in some regions (e.g. Iowa) were much faster in adopting hybrid
corns than those in many others. Based on this study, Griliches (1957: 521) proposed that
users in some regions have “large and clear cut” profits from innovation prompting them to
be at the forefront of accepting technological change.
Subsequently, Edwin Mansfield (1969) confirmed the strong role of profit incentives
from user perspective as a determinant of the diffusion process. Later studies, such as those
of export advantages by Linder (1961), of international product life cycle by Vernon (1966),
of national competitive advantages by Porter (1986, 1990), and of innovation Diffusion by
Mansfield (1989) extended this theory to the international context.
Characterizing lead markets as “the largest, most sophisticated and most competitive
markets” with anticipatory needs, Bartlett and Ghoshal (1990: 243) have described them as
markets that provide the stimuli for most global products and processes of a multinational
company. Local innovations in such markets become useful elsewhere as the environmental
characteristics that stimulated such innovations diffuse to other locations.”
Today, it is generally agreed that a lead market characterizes a country where an
innovation is first widely accepted and adopted. Lead markets are thought to possess several
advantages, such as “cost advantages” (e.g. factor costs), “demand advantages” (e.g. high
purchasing power), as seen in examples of lead markets cited in the literature generally
include the USA for the Internet, Japan for LCD monitors, and Robotics, and Germany for
renewable energies as well as for automotive.
Lead Market Potential based on the factors
1.4.
The Lead Market Model and Changing Ground Realities:-
Even as the previous sections have established that lead markets have become a
critical consideration in deciding the location of multination R&D, many scholars have
continued to associate lead markets with classic characteristics of market power and
technological prowess. The increasing roles of emerging economies, such as India, in the
innovation value chain of multinational firms has been chiefly explained by cost arbitrage,
access to skilled labour and in some instances with publically funded R&D.
Even though Lall pointed towards the possibility of technology exports from
developing economies, so far most lead market scholars, by emphasizing attributes like high
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per capita income and market sophistication; have implicitly discounted the possibility of a
lead market emerging in a developing economy. In fact, Maddala and Knight contended that
the vast bulk of world research and development activity takes place within the industrialized
countries of the ‘centre,’ and for the most part, the developing countries of the ‘periphery’ are
forced to import new techniques originating in the ‘centre’ countries”; a view shared by
Archibugi and Pietrobelli), when they state that It must be noted, however, that Ernst called
upon East Asian “Tiger” countries to “develop” lead markets for a competitive production
base alone would not be sufficient in the long run. Developing countries can have better
learning opportunities by importing machinery and equipment from developed countries
rather than building indigenous capabilities.
In the actual practice, we however find ample examples of firms using emerging
countries as a lead market for their line of products. A study carried out in India by Herstatt
revealed that unsaturated, emerging middle-class consumer market of India is growing into
the role of a ‘lead market’ for certain products especially electronic goods and automotives
with basic functionality, less over-engineering, durability and affordable prices; since ‘prices
play a key-role in the decision-making’. Immelt report a success story of a portable
ultrasound developed in China and now sold globally. Brazil has proved its lead in the sphere
of bio-fuel based on ethanol.
2. Significance of the Study:-
The developments described above indicate that some emerging countries, in this
particular instance India, under certain circumstances might offer strong incentives for
market-driven globalization of innovation. Lead markets, usually defined as the country
where an innovation is first widely accepted and adopted and from where it diffuses to other
countries, have been traditionally regarded in terms of classic characteristics of market power
and technological prowess effectively ruling out their presence in developing countries. The
interplay of globalization, industrialization and scientific progress in some developing
economies, e.g. India, brings out developments in actual practice; that cannot be fully
explained by our present understanding of lead markets.
The paper examines this issue using several examples of low-cost, frugal innovations
of India like in Tamil Nadu, the introduction of activity-based learning in government schools
has greatly improved the quality of its elementary education, Lighting up rural India through
solar micro-grids and many more and come to the conclusion that lead markets can be
expected to evolve in a developing economy if it offers a sizable and growing market (“future
prospects”), strong domestic technological base, openness to (technological) collaborations
with the outside world, strong outward FDI by domestic firms and a favourable institutional
infrastructure. As a limiting factor, It is assumed that such a lead market would generally find
its “lag markets” in other developing nations with comparable geo-economic conditions. Its
appeal to consumers in developed nations is expected to be generally limited to economically
weaker sections of the society.
3. Objectives of the study:-
a. To aware about the Frugal Innovations in Lead Markets w.r.t Indian Product Tata
Nano (Small Car)
b. To find out the effectiveness of Frugal Innovations in Lead Markets.
c. To observe the Potential of Frugal Innovations in Lead Markets at national Level.
4. Hypothesis:-
“Frugal Innovation in Lead Markets is the Key to Success in National Markets
w.r.t. Auto-mobile Product- ‘Tata- Nano’.”
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5. Research Methodology:-
This case study will be based on Inductive way, descriptive and diagnostic research to
find the frugal innovativeness in lead markets to the national markets and the area of the
study is at three Nano sales outlets in Pimpri and Chinchwad Municipal Corporation, Pune -
18.
i. Pandit Automotive - Sales Outlet, Survey No.209, Unit No.125, B Wings, Mumbai Pune
Road, Pimpri, Pune Maharashtra Pin : 411018.
ii. Yash Auto - Tathawade ( Sales And Service Outlet ) Sr. No.81/7, Near Yogi Hotel, Near
Mumbai - Bengaluru Highway, Mulshi Taluka Pune, Maharashtra -411033.
iii. Pandit Automotive ( Sales Outlet ) Office No.1,2,3 & 4 Panchatara Apartments, Iti
Road, S.No.149/1a, Mouje Aundh,Taluka Haveli Pune , Maharashtra - 411007
The population / universe of the study will be approx 10,000 respondents, Individual
consumers (37 Consumers/day*30days*3Months*3Sales Outlet) as per pre-information from
3 Outlets.
Sample Size: 300 (100 from each Outlet).
Sample Unit: Respondent, Individual consumers visited the Sales-Outlet.
Sampling Techniques: The adopting sampling Techniques will be simple Random sample
with Quota sampling of each Outlet.
Data Collection: Primary data will be collected from the respondents (consumers) with the
help of personal Schedule (with structured questionnaire) and Secondary data from
documents and records of each sales outlets and company, provided by them.
The analysis & finding will be done in percentage methods having majority.
6. Data Analysis, Interpretations and Findings:-
The Collected primary data from the respondents (consumers) with the help of
personal schedule and secondary data from record and documents of sales outlets were
analysed. Based on the interpretation and findings, the inferences were drawn as follow:
a. Awareness of consumers about Tata Nano of low cost small car in-depth and new
innovations in Indian market:
Respondents
Yes (in %) 225 (75%)
No (in%) 75 (25%)
Total 300
According to the response of respondents that the in depth awareness of consumers
about Tata Nano was 75 % and 25% they were ignorant about total features of Tata Nano and
new innovations. It means that most of the respondents were aware about Tata Nano in depth.
b. Do Consumers know about Frugal Innovations in Lead Markets?
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Yes (in %) No (in %) Total
Respondents 105 (35%) 195 (65%) 300
It was observed that 35 % of respondents knew about frugal innovations in Lead
markets and 65% they did not know about frugal innovation in Lead markets. It means that
most of the respondents were not aware about frugal innovation in lead markets.
c. Do you know about the ‘Cost-cutting Techniques’ of Tata Nano maintaining the same
quality?
Yes (in %) No (in %) Total
Respondents 165(55%) 135(45%) 300
According to the response of the respondents 55% knowing about the ‘Cost-cutting
Techniques’ maintaining the same quality for reducing the cost up to 1Lakh and 45% they
were ignorant. Hence majority of the respondents were knowing about the cost cutting
techniques of Tata Nano.
d. Regarding Tata Nano is a city car manufactured by Tata Motors and sold in India; it
is the cheapest car with a price 1 lakh, in the world today. Tough its price is increasing day
by day from 2009 on wards still the Nano remains the lowest-cost four-wheeled passenger
vehicle in India and a popular means of economical transport in the country.
e. Expectations and effects of the study, by Indian rating agency CRISIL, thought the
Nano would expand the nation's car market by 65%. It launch was anticipated to greatly
effect the used market in 2009 and 25-30% prices will drop in the lead till to the launch.
Simultaneously effects- the competitor Maruti 800 lowered its prices by 20% as the concept
of Nano introduced. Nano had a lasting effect on the prices of and demand for close
substitutes, however. In July 2012, Tata Group Chairman, Rattan Tata while admitting that
Nano wasted an early opportunity due to initial problems, said that it has an immense
potential in the developing world.
f. Price announced as the least expensive production car in the world, Tata aimed for a
price of one lakh rupees, or 100,000, which was approximately $2,000 US at the time. Only
the very first customers were able to purchase the car at that price, however, and, as of 2012,
Cost cutting features of the car's
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the price for the basic Nano is around 150,000. Increasing material costs may be to blame
for this rapid rise in price. Compared to the Volkswagen Beetle it has a relatively low price.
In 1990, the price of the Beetle from Mexican factories was $5,300, worth $9,428 today. The
Ford Model T's initial price was about $850, equivalent to $21,987 today.
g. Technical specifications the Nano (2012) is a 38 PS (28 kW; 37 hp) car with a twocylinder
624 cc rear engine. The car complies with BS4 Indian emission standards and can
also meet European emission standards as well. The development of the Nano had led to 31
Design and 37 Technology patents being filed i. Engine used 2 cylinder petrol with Bosch
multi-point fuel injection (single injector) all aluminium 38 metric horsepower (28 kW)
624 cc (38 cu in), Value Motronic engine management platform from Bosch, 2 valves per
cylinder overhead camshaft, Compression ratio: 9.5:1, bore × stroke: 73.5 mm (2.9 in) ×
73.5 mm (2.9 in), Power: 38 PS (28 kW; 37 hp) @ 5500 +/-500 rpm, Torque: 51 N·m
(38 ft·lbf) @ 3000 +/-500 rpm. ii. Layout and Transmission used Rear wheel drive, 4-speed
manual transmission. iii. Steering used mechanical rack and pinion w/o servo, turning radius:
4 metres. iv. Performance used Acceleration: 0-60 km/h (37 mph): 8 seconds, Maximum
speed: 105 km/h (65 mph), Fuel efficiency (overall): 25.35 kilometres per litre (4.24 litres per
100 kilometres (66.6 mpg-imp; 55.5 mpg-US) v. Body and dimensions used Seat belt: 4,
Trunk capacity: 150 L (5.3 cu ft) vi. Suspension, Tires & Brakes used Front brake: 180 mm
drum, Rear brake: 180 mm drum, Front track: 1,325 mm (52.2 in), Rear track: 1,315 mm
(51.8 in), Ground clearance: 180 mm (7.1 in), Front suspension: McPherson strut with lower
A arm, Rear suspension: Independent coil spring,12-inch wheels.
h. Suppliers & Part/ system: Texspin for Clutch Bearings, Bosch for Oxygen sensor,
Gasoline injection system (diesel will follow), starter, alternator, brake system, Continental
AG for Gasoline fuel supply system, fuel level sensor, Caparo for Inner structural panels, HSI
AUTO for Static sealing systems (Weather Strips), Delphi for Instrument cluster, Rane
Madras Limited for Steering Assembly, Denso for Windshield wiper system (single motor
and arm), FAG Kugel fischer for Rear-wheel bearing, Federal-Mogul for Pistons, Piston
rings, Spark plugs, Gaskets, Systems protection, Ficosa for Rear-view mirrors, interior
mirrors, manual and CVT shifters, washer system, Freudenberg for Engine sealing, GKN for
Driveshafts, INA for Shifting elements, ITW Deltar for Outside and inside door handles,
Johnson Controls for Seating, Mahle for Camshafts, spin-on oil filters, fuel filters and air
cleaners, Saint-Gobain for Glass, TRW for Brake system, Ceekay Daikin/Valeo for Clutch
sets, Vibracoustic for Engine mounts, Visteon for Air induction system, ZF Friedrichshafen
AG for Chassis components, including tie rods, Behr for HVAC for the luxury version, Dürr
for Lean Paint Shop.
i. Compressed-air engine was proposed to be designed been by French firm, Motor
Development International which was an agreement in 2007.
j. Electric vehicle Nano is been showcased at the 2010 Geneva Motor Show. If an EV
Nano is sold it is expected to be the "world's cheapest electric car", were lithium-ion batteries
will be used, and have a range of 80 miles (130 km). A Norwegian electric car specialist,
Miljøbil Grenland AS, is the supposed partner in this project.
k. Car fires incidents were reported involving the Nano. Company denied those were
due to the car’s design or its parts and blamed “foreign electrical equipment” found on top of
the exhaust system. Company offered to retrofit the exhaust and electrical systems but
refused to recall the cars. The company extended the warranty on the car, including those
already sold, from 18 months to four years in early December 2010.
l. Awards such as 2010 Business Standard Motoring Indian car of the year, 2010
Bloomberg UTV-Autocar car of the year, 2010 Edison Awards, first place in the
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transportation category, 2010 Good Design Awards, in the category of transportation were
given to the Tata Nano as appreciation.
m. Emerging Evidence from India Apart from attracting offshore engineering
services, especially in the information technology sector India is seen as attracting firms for
functional, less expensive products with frugal engineering. Large markets with young
population faced with certain material and infrastructural deficiencies are seen to be
providing an ideal experiment ground for many firms. For instance, IBM has entrusted its
Indian subsidiary with major responsibility in its “Mobile Web Initiative” aimed at bringing
more features to mobile devices as they continue to rival the PC as the primary tool for webbased
business, education, communication and entertainment. The primary reason behind this
move has been that while India has a vast majority of mobile phone users – nearly 707
million subscriptions and a tele-density of 59.52% as of October 2010 there was a much
lesser penetration of personal computers (density 3.3%) and the fixed line Internet (density
1.2%) as of 2007. This situation increases the willingness in the country, and this is especially
true for younger people, to use the mobile Internet enabling an ideal innovation/R&D test
ground for firms. Since such ICT penetration is not unique to India the solutions developed
there may be implemented in other developing nations of Asia, Africa and, Latin America.
Not surprisingly, India has emerged as a vibrant and versatile source for game-changing,
disruptive innovations of various varieties. Some prominent examples of innovations
emanating from India include the world’s cheapest car the Tata Nano Designed to appeal to
many Indians who drive motorcycles, the Tata Nano was developed by Indian conglomerate
Tata Group; Mac 400, the handheld electrocardiogram (ECG) device of General Electric; and
“Chotu Kool”, a battery-run small-size refrigerator of Godrej & Boyce. The Chotu Kool may
have more in common with computer cooling systems than other refrigerators; it eschews the
traditional compressor for a computer fan. Innovations originating in India often encompass
the whole spectrum of product, process, marketing and organizational innovations.
n. The evolution of the value-chain in India has moved ahead to “frugal innovation”, a
relatively new and still-emerging phenomenon, for which the innovation value chain is
generally, but not necessarily always, completely located in India. For instance, the low-cost
small car Tata Nano has been developed in close interaction with domestic and foreign auto
parts suppliers, e.g. Bosch. Germany-based Bosch reportedly leveraged both its Indian
subsidiary and other global centers to bundle the capabilities. “Using local design capabilities
was a crucial decision, as most global design centers were accustomed to designing high-end
systems, employing development staff at a significantly higher wage levels”, which would
not have worked for an ultra low cost car like the Tata Nano, which requires “new thinking”.
Even other car makers such as Maruti Suzuki, Ford, Hyundai, and Renault are using India as
a global hub for low cost small cars.
o. Such innovations do not exclusively relate to product innovation alone. There are
several instances of business model innovations, e.g. in case of mobile telephony by Bharti
Airtel, or in case of micro-insurance by Bajaj-Allianz, an Indo-German joint venture.
p. One interesting aspect about innovations emerging out of India is that products are
typically conceptualized for Indian consumers keeping in mind the local needs, preferences
and tastes. Additionally, the products generally need to be:
a) Robust to deal with infrastructure shortcomings such as voltage fluctuation
b) Fault resistant to cope with unsophisticated/semi-literate or even illiterate users
c) Affordable for larger sections of the society so as to generate large volumes of
demand.
q. This has given rise to a new paradigm of innovation, often referred to as “frugal
innovation”. Authors like Christensen and Rosenbloom (1995), Hart and Christensen (2002),
Prahalad (2005), and Ahlstrom (2010) have forcefully demonstrated the business potential of
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products conceptualized to cater to the specific needs of poorer sections of the society in the
developing economies. India’s growing trade with African, Asian and Latin American
countries especially in the automobile and machinery sectors point towards growing
acceptance of “made in India” and/or even “developed in India” products in other parts of the
world.
August 2012 Sales Figures & Analysis
Top 10 Highest Selling Cars by Volume 2012
Source: http://www.motorbeam.com/salesfigures/august-2012-sales-figures-analysis/
7. Limitations:
• It is case study based on only one product
and inductive way inference drawn.
• The time duration for the study is very less
and the sample size also small.
• The area of the study only PCMC area for
collecting the primary data from consumers
those who are attending only three sales
outlets.
• The confidentiality was maintained by the company and sales-outlets for procuring
secondary data.
8. Hypothesis Testing:-
According to the study and the inference drawn the hypothesis is tested affirmative
as the Frugal Innovation in Lead Markets is the Key to Success in National Markets w.r.t.
Auto-mobile Product- ‘Tata- Nano’ in India, nation wise economic conditions specially for
the Middle class family.
9. Suggestions:-
Rank Model Aug 12 July 12
1 Alto 10488 17422
2 WagonR 10078 9582
3 Bolero 8717 9312
4 I20 7712 7775
5 Indica+Vista 7591 8852
6 Ertiga 6643 7091
7 Nano 6507 5485
8 Innova 6439 6678
9 I10 6300 6113
10 Figo 6295 4697
Graph: Showing the increase in Sales Volume of Nano
i. Tata Nano may also focus on the
improvement of the product and extent the
product to emerging markets globally like
LDCs (33 Countries in Africa, 14 Countries
in Asia – Pacific, 1 country in America
(Haiti)) were it is a great opportunity to
bring further development in the areas like
Auto mobile, Education and other basic
needs.
ii. Understanding the context and its
challenges becomes very essential for the
Government; it should focus on Market
affordability constraints, Resource
Constraints and institutional complexities
and adopt Frugal Innovations at every level.
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iii. Consumers are suggested to understand the paradigm shift (standard innovations to
frugal innovation) in order to reduce/ remove the myth “Low cost means Low Quality”
iv. Initiatives must be taken by the company and other educational and Government
institutions to bring awareness in the market regarding the importance and benefits of Frugal
Innovation in both rural and urban areas by which the consumption of the resources can be
controlled to the extent.
v. Competitors can adopt this concept to develop the whole Business and Civil Society
and Economy of the country.
vi. Still lagging to enter and capture the Rural Markets and areas of consumers and
required to aware them also.
10. Conclusions:-
1. The case study focusing on the Tata Nano helps us to conclude inductive way & to
support frugal Innovations in Lead Markets by the following points:
a. Tata Nano adopted a culture of creative improvisation; the unusual skill set and
mindset required for frugal innovation.
b. A huge market with a growing, inspirational middle class creates the perfect
conditions for frugal product Tata Nano.
c. Not only is the Indian consumer base growing, but it is also extremely price–sensitive
and willing to experiment, sustaining demand for frugal innovation.
d. Extreme conditions and major gaps in service provision stimulate demanded for lowcost
solutions in automobile, health, education and energy.
e. Tata Nano rebuilding the service and business model innovation created an advantage
in creative remodelling of product-service ecosystems.
f. New sources of social finance lowered the cost of investing in frugal innovations.
g. An increasingly ‘inclusive’ science and innovation policy is prioritised to develop the
institutional conditions that could drive high impact on frugal innovations.
2. Frugal Innovation concept was developed due to the infrastructure gaps and India’s
challenging. This isn’t a niche activity; examples are found throughout the system apart from
Tata Nano. The best other examples are Devi Shetty’s path breaking model of delivering
affordable heart surgery at low cost, Bharti Airtel’s approach to drastically cut the cost of
mobile phone calls, the Keralian approach to palliative care which is providing access to
support formal healthcare. These examples support the evidence of India positioning it self
within the national innovation networks.
3. Today Frugal Innovation has a new significance in India because of number of factors
as price–sensitive market, a culture of creative improvisation; a vibrant civil society; an
emerging funding system for social innovation; and a government keen to create an
‘inclusive’ model of innovation that aims to connect India’s leading scientists with its
greatest societal challenges. India got the Frugal Factor, at a time when frugal innovation has
ever–greater relevance around the world.
4. Competition from low-cost producers, many of them in emerging markets, is entering
a new phase as companies from emerging markets have begun to export to developed markets
homegrown products designed to meet local needs. But Western companies should embrace
frugal innovation as an opportunity rather than fear it as a threat. Although frugal innovations
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might compete against existing products in both emerging and developed markets, the
potential for massive low-end profits may well outweigh losses in higher-end product lines.
5. Companies should therefore consider adapting existing innovation strategies to the
development of frugal innovation. Successful frugal innovation begins in the mind. Before
MNCs can effectively engage in frugal innovation, they must understand the unique
characteristics of frugal products: very high customer benefits at very low costs. The path to
successful frugal innovation also demands attention to promoting a mindset of frugality
within R&D teams and establishing the necessary structures by empowering R&D
subsidiaries in emerging markets.
6. India is fast emerging as an attractive global hub for low cost, frugal innovations. Its
products are increasingly purchased in other developing nations of Asia, Africa and Latin
America. The remarkable economic growth of recent years coupled with positive future
outlook, a vast domestic market, strong domestic technological base, a relatively open FDI
policy enabling participation of foreign-owned firms and an institutional and policy
framework offering relatively good protection for intellectual property rights are the factors at
the core of this development. Another feature having a positive impact is probably the
increasing overseas engagement of Indian firms which is making them known in other
markets and thus creates positive country-of-origin effects.
7. The Twelfth Five Year Plan (2012–17) directs government support for innovation
towards meeting national challenges. In his 2012 speech to the National Science Congress,
Prime Minister Manmohan Singh clarified the drivers of science and innovation policy-“The
overriding objective of a comprehensive and well–considered policy for science, technology
and innovation should be to support the national objective of faster, sustainable and
inclusive development & research should be directed to providing ‘frugal’ solutions to our
chronic problems of providing food, energy and water security to our people. Science
should help us shift our mindsets from the allocation of resources to their more efficient
use.”
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