How to create value FROM & FOR emerging g g markets

© Rama Bijapurkar May 09

Future Story • Consumer society y with total absence off public goods • “Jugaad” “J d” patchwork t h k off solutions l ti • low formal job creation • Child “escape velocity” y obsessed • Do good > feel good • More complex l id identity tit , more heterogeneous g society y © Rama Bijapurkar May 09

Consumer wish list un - addressed • • • • • • • • • •

Low costt waterproofing L t fi Affordable Ready rice – soak and eat Affordable Ready chapatis – heat and eat Cheap disintegrating diapers for 21 mn babies each year Quick drying one day painting Less electricity consuming heater cum aircon Commuter Co er pain pa relief re ef aanything yh g Community lighting g Well and river cleaning Quick building material

© Rama Bijapurkar May 09

1. Mistakes developed market MNCs commonly co only make ake 2. Key challenges posed by Consumer India 3 Strategy and innovation agenda 3.

© Rama Bijapurkar May 09

Common Mistakes of MNCs 1. Theory off “same evolution path”

© Rama Bijapurkar May 09

“The Ugly Duckling will evolve i into the h Familiar ili Beautiful if l Swan and be ready for my GLOBAL strategy gy “

© Rama Bijapurkar May 09

Common Mistakes of MNCs 1. Theory off “same evolution path” 2 Value – arrogance or “how 2. how can they not want modernity”?

© Rama Bijapurkar May 09

Delivering Customer Perceived Value V = ∑B – C (as Processed b consumers)) by

© Rama Bijapurkar May 09

Suicidal Moves e Decrease price, decrease performance, make profit

Decrease functionality

RAMA © Rama Bijapurkar May 09 BIJAPURKAR :

Decrease styling

Offer old obsolete products with no adaptation

WE ARE LIKE THAT ONLY (PENGUIN) / WINNING IN THE INDIAN MARKET (WILEY)

Common Mistakes of MNCs 1. Theory off “same evolution path” 2 Value – arrogance or “how 2. how can they not want modernity”? 3. Theory of income thresholds for consumption “take take off off” 4. “Class market” ffirst,, then “mass market” at leisure © Rama Bijapurkar May 09

Many y Indias - equally q y big g economies,, but not equally rich, all contributing Income percentile Top 1% Top 10 % Next 30% Next 60%

Number of % of people (mn) income they have 11 8.6 109 34.1 326 36.1 653 29.7

Source: Indicus Analytics, Rama Bijapurkar, 07-08 © Rama Bijapurkar May 09

GDP Per capita USD 9164 3667 1294 367

Mass Markets will not sit around and wait. Someone else will get there

… maybe Nokia Nokia… Grey + Intel … Grid computing pay as you use .... White labelled store brands …

© Rama Bijapurkar May 09

1. Mistakes developed market MNCs commonly co only make ake 2. Key challenges posed by Consumer India 3 Strategy and innovation agenda 3.

© Rama Bijapurkar May 09

Economically Challenging Demand Structure

© Rama Bijapurkar May 09

Large economies of poor people PPP

Country

Population Rank

GDP Rank

GNI Per Cap Rank(% of USA)

China

1

2

India

2

4

Brazil

5

9

Russia USA USA

8

7

133(12%) 167(6%) ( %) 105(21%) 76(32%)

© Rama Bijapurkar May 09

33

11

3 10 (100%)

World Factbook 2008

Difficult Demand Structure, Unusual consumption i patterns A

LOT of people consuming a little bit each , adds upp to a LOT

Business economics of “global” business models don’t don t work © Rama Bijapurkar May 09

Many, y many, y distinctive Indias. Increasing in number. Requires i portfolio f i complexity i >> current market worth © Rama Bijapurkar May 09

Monster Consumers & local competitors p

© Rama Bijapurkar May 09

Consumers o e ex extract Valuee • Cut strips p off G Glucometer to minimum useful f size • “Missed call” all” communication i ati on cell. ell • Micro g glasses to serve cold drink. • Refill, recycle almost anything • Internet t t ki kiosk k utilization tili ti and d service i

© Rama Bijapurkar May 09

Poor, Rural, P l but b t nott backward: b k d embraces technology, technology information f hungry, g y striving g for better, highly innovative , unusual value processing Will reject j try low features at low price Remove luxuries, not decrease necessities © Rama Bijapurkar May 09

Insidious, hardInsidious hard toto read, read slow-burn slow burn change ; Prefer f “this as well as that” hybrid solutions

© Rama Bijapurkar May 09

Cell pphone is India’s central nervous system y : “the cell phone will change India the way the h automobile bil changed h d America”

Shiv Vishwanath Anthroplogidt

© Rama Bijapurkar May 09

1. Mistakes developed market MNCs commonly co only make ake 2. Key challenges posed by Consumer India 3 Strategy & innovation agenda 3.

© Rama Bijapurkar May 09

How do y you think about Market Potential i l? Size of market for my value proposition and business model? (potential offered ff BY the market) OR What value proposition and business model to maximize x e market ke opportunity? pp y (p (proposition p offered ffe e TO the market) Nirma, Nokia, Nano , Suvidha, Subhiksha, STD/ISD booths, Pre paid cards, SMS, Sachets, Cable Operators

© Rama Bijapurkar May 09

The Stressful f Economic Challenge • Price able to ppay y is ffixed = CHALLENGE PRICE Within ithi thi this challenge h ll price i • Deliver consumer acceptable performance (Product and service) • At a cost that makes you profitable RAMA © Rama Bijapurkar May 09 BIJAPURKAR :

WE ARE LIKE THAT ONLY (PENGUIN) / WINNING IN THE INDIAN MARKET (WILEY)

BIG Challenges

Company Mindset, beliefs, mental models Organization structure and governance for f EM

© Rama Bijapurkar May 09

Business Design Challenges

Business Design Challenges

Delivering consumer acceptable price – performance, PROFITABLY Demand structure requires new business economics, pportfolio f complexity p y Monster Consumer : Advanced products, products modest prices Patchy eco system – to walk d down a road, d build b ild it first fi t , © Rama Bijapurkar May 09

Creating Value Advantage over others

Innovative consumers & competitors Local pplayers, y even unorganized deliver high level of value to consumer

Delivering g Consumer Acceptable p Performance at a Challenge Price • Break through h h R & D - low l cost, good d performance f solution • Smart, Value Right product and service design g design g • Smart ppricing • Smart manufacturing processes, low cost sourcing • Smart market access, access market servicing • Smart credit • Customer acquisition, market development © Rama Bijapurkar May 09

Variables to balance • • • • • • •

Price - volume Performance f specs, p usage g model Cost of delivering performance Cost of market access & communication Cost of management and complexity Capital p costs ((including g R&D & costs)) Pay back period

© Rama Bijapurkar May 09

Some learning g on cost • L Low Cost C t needs d Hi High h Tech T h • High consumer capex can reduce variable costs – capex cost to be borne by company • Consumer variable costs is the silver bullet (100 kms / l benchmark) • Whole “eco system” y has to be pput in pplace not just one piece of it. © Rama Bijapurkar May 09

Well Established Methods off Cost Reduction

• Community use models. • Miniaturisation Mi iaturisatio for occasional occasio al use • Agg Aggregation eg o of “thin” ffront o eend customer facing people / machines at full service i mode. d • Market development via free information and knowledge and consumer credit RAMA © Rama Bijapurkar May 09 BIJAPURKAR :

WE ARE LIKE THAT ONLY (PENGUIN) / WINNING IN THE INDIAN MARKET (WILEY)

Investments with long payback • Advanced pproduct / service solutions at modest prices: Economic challenge to be solved by innovation • Patchy ecosystem – participate in building the road – alliance web master • Investment in innovation needed to win big time • Need d multiple l i l strategies i to be b supported d at the same time © Rama Bijapurkar May 09

Logic for investing in EMs • IPO • Snowball • Building robust growth engines that can ride the growth story, y long term

© Rama Bijapurkar May 09

Need ee to Re-Examine e x e “Evergreen” g Business Rules •Margin – volume mix for “healthy” business •Payback speed vs. long term growth and sustainability •Complexity allowed per unit of value. •Notion N ti off scale l and d scale l economics i •Low cost products = low tech, low capex • Capital – output ratios hence manufacturing f t i “b “bestt practices” ti ” © Rama Bijapurkar May 09

CO – CREATE WITH CONSUMERS – THEY INNOVATE BETTER THAN BIG BUSINESSES

© Rama Bijapurkar May 09

The End of Corporate Imperialism “While it is true that MNCs will change emerging markets forever, forever the reverse is also true……the opportunity y that big emerging markets represent , will demand a new way of thinking [and

offer new opportunities to change things] … requiring more than

developing cultural sensitivity sensitivity” C K Prahalad, HBR © Rama Bijapurkar May 09

Agenda for Global Businesses • Leverage existing competencies p to create new customized emerging market solutions / business models: “Make Make for India India” • Develop new competencies and new business models to strengthen value creation p y off the company p y capability • ADDRESS PROBLEMS OF “BLOCKBUSTER “ RELEVANCE © Rama Bijapurkar May 09

Thank You!

© Rama Bijapurkar May 09

Serve the rich and wait, or invest in creating mass markets?

© Rama Bijapurkar May 09

Emerging markets are not like developed markets were in their infancy y

© Rama Bijapurkar May 09

Winston Churchill had once dismissed India as "aa geographical expression expression"-aa land that was "no more a single country than the Equator." Churchill i was rarely y right g about India , but……. Competitive advantage comes from stitching together “MY TARGET INDIA“ f your bbusiness for © Rama Bijapurkar May 09

Different markets evolve differently based on : (a) environmental forces (b)supplier actions (b) their starting point (c) social, cultural DNA © Rama Bijapurkar May 09

Unorthodox competition

© Rama Bijapurkar May 09

Monster Consumer have been created • S Spoilt ilt bby: High g tech + high g touch “Better for cheaper” for 10+ formative yrs Deal making, brand cheapening suppliers Innovative small suppliers, suppliers gray market • Demands cued by y “real time” exposure p and information & smart local suppliers • Demands >> purchasing power © Rama Bijapurkar May 09