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The Schumpeter column in the recent Economist, “Mammon’s new monarchs” describes the emerging world consumer as king. It seems that Western companies are interested in knowing how to appeal to emerging world consumerism and compete with home-grown domestic rivals. Consultants from Boston Consulting Group (BCG) advise companies to jump in early. I agree that going in early can be useful, but according to my observations, this is not essential nor a panacea.

honda-city

Consider the automobiles industry – Honda started early in India, in 1998. Toyota started shortly afterwards in 2000. Their early start has certainly helped. Honda’s City and Toyota’s Innova enjoy stable market leadership in their respective segments. Though many thought Renault-Nissan to be a late entrant to India (over a decade later than Honda), given that automobile ownership is still at the lower tail of the S-curve, it still has potential to emerge a winner. Renault is already doing well with its Duster shining in the market this year.  The same applies with Volkswagen, which really kicked off with the Polo in 2010. So, coming in later, even a decade later can be okay. On the other hand, in the absence of quality offerings, coming in early is not a cure-all as Fiat has failed to learn in repeat attempts at conquering the market.

Similarly, in the appliances arena, Hitachi that started early in the upper end high quality air conditioner segment, continues to enjoy aspiration status. Panasonic that is just starting its big bang could yet do well. LG may have made early inroads, but eventually quality shall become the priority of the consumer. Already, at the “non-frugal” end LG finds it difficult to attract the well-to-do. Experience with air conditioners also demonstrates that starting early is fine, but quality is perhaps more important.

LG

My own feeling is that when deciding market entry into emerging Asian economies, companies shall do well to concentrate on two things. Firstly, they need to get the price point right and match local tastes, while matching the quality expectations. This is where Hyundai succeeded with Santro. The second point is to focus on a core competency. So, for example, Daimler Benz did well to first start with its Mercedes E-class, a core competency yet economically right for India. It’s A-class is only now being contemplated, over a decade later (the price point is no doubt more suitable, but not what Daimler is more commonly associated with).

Many people try to bring out a single point solution, such as “start early”. This pithy advice can result in disasters as the Fiat experience in India demonstrates. Instead, international business strategy needs to concentrate on what sells (the buyer’s desires), and what can be sold (the seller’s competency), which are perhaps more important to conquer the Asian consumer.

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I read recently in the Economic Times that Unilever finds innovations that have marked its growth in India, are now more relevant than ever, in recession hit parts of the world such as Europe.

As the Unilever CEO, Paul Polman, has rightly mentioned, “Learnings” from India such as lower price points for products in smaller packages or sachets, is gaining acceptance in the European market, poverty has returned as the local economies continue to reel under recession.”

It is transferability of such learnings that makes knowledge of international business practices so valuable. I remember my time in Toyota where we applied our learnings from implementation of kaizen principles for just-in-time (JIT) logistics across countries. Thus, Oman could benefit from learnings from Poland, and in turn teach a lesson (or two) to Australia and South Africa.

According to the newspaper, Paulman, also highlighted the success of the affordable water purifying product, Pureit.The product entirely developed in India, is now being sold by Unilever in at least 15 other countries, where according to him, it has become a popular brand. “

This reminded me of the concept of “reverse innovation” that was popularized by GE. Why is it called reverse? Previously, innovation occurred in developed markets, and products were sold across the globe. However, those markets are now saturated, or even in decline as Unilever is discovering. Undiscovered markets lie in populous emerging markets like, China, India and Indonesia. Thus, there is profit to be made by innovating for these markets. And, what sells here can also be sold in the fast-becoming-poor markets of the developed world. Learning frugal engineering has become so important that Carlos Ghosn of Nissan Renault invested USD 1 billion for starting a greenfield factory in India.

I suspect, eventually, as this becomes the mainstream model, the “reverse” will then be dropped from the nomenclature.

Most of my writings to date have recommended a course of action on a general basis that challenges the status quo of International business in the current scenario. However, earlier today, when I read The Economist’s recent article on Hitachi, I was gladdened to see that President Hiroaki Nakanishi is following my prescriptions, points that I made repeatedly to my then boss Mr. Yasunori Taga, the Chief Executive for Asia (CEA).

When I had joined Hitachi India, the sub-continent subsidiary was controlled by Hitachi Asia in Singapore. Despite my strong desire to relocate to Singapore, I remember telling Mr. Taga (against my personal interest) that it would be difficult to control an emerging economy like India from a developed city-state Singapore. President Nakanishi, finally upgraded Hitachi India to a regional Head Office in 2011.

I also agree with Nakanishi’s reported goal of attracting the best talent and allowing them the freedom to move around across business units. Other MNCs would do well to adopt this strategy. I often see foreign companies preferring to do things “their original global way”.  It takes some longer than others but eventually they have to adapt to local ways. It is either adapt or accept losses.

What can be true about human talent is also true about products. International business giant McDonald’s is good at this. It adopted vegetarian menu for India right from the start, and additionally was quick to give up the mutton offerings, substituting them by the more popular chicken. It has taken longer for America’s Kentucky Fried Chicken, or more lovingly known as KFC, to abandon its “original recipe”; they now serve only “Indianized” versions: spicy chicken or fiery grill chicken. The choice is between “hot” and “very hot”.  Hitachi’s appliances business unit has its own development center outside Ahmedabad, in the rapidly industrializing state of Gujarat. GE, Denso, Bosch etc. are leading global companies that are going native and understanding India better.

As European, especially German, companies look to Asia to grow business they would do well to heed these points about local talent and local products. Remember Brand India is noted for affordable products and superior global managers. Hitachi took over 50 years to learn such important lessons for doing business in India. Fortunately for European followers, they have a visible short-cut.

While going through my daily dose of news, I came across this article “Japan keen on nuclear cooperation with India: Montek Ahluwalia”that talked about the ongoing talks on civil nuclear cooperation. There are a lot of nitty-gritty’s involved in the whole of nuclear power cooperation, however my main concern is simple – “Is Nuclear Energy as important for India as it is portrayed to be?”

Prior to the Fukushima disaster, Japan got about 30% of its electric power from nuclear sources. However, since the Fukushima Daiichi nuclear disaster, Japan has not been able to avail energy from all its reactors till date and earlier this year it survived well with even zero nuclear power. If a developed and advanced nation like Japan can survive without nuclear power, certainly it becomes very apparent that nuclear power is not “essential” for India.

Recently, the Japanese government has made a proposal for demonstrating alternative energy solutions such as solar power for industrial parks in India. This government-to-government technical aid offer has been approved by the Ministry of New and Renewable Energy (MNRE), yet it lies mired in bureaucracy at Department of Economic Affairs of Ministry of Finance. In my opinion, the current need of the hour is to take the alternative route rather than simply taking what corporate Japan is offering us in a platter. I believe the alternatives to nuclear power should be investigated first lest we invite disasters such as the Bhopal gas tragedy or Chernobyl in our country. Our track record with road and railroad safety is ample indication of the low priority assigned to safety in our country. India has even started wearing the “jugaad” mentality as a symbol of pride!

Japanese government’s Energy and Environment Council has set a 28-year target for a nuclear-free Japan. Not only Japan, even Germany is also getting rid of nuclear and is venturing into the realms of wind and solar energy without even having sunshine like India.

It’s very similar to the scenario of Europe’s Airbus trying to convince us to buy airplanes because that is what they make. There is nothing wrong with the seller’s attitude. Is Japan trying to sell us its nuclear technology or is it merely their business lobby pressurizing our leaders to go ahead with it? The onus right now lies on the purchasing side to make the right decision. Indian leaders have been questioned a lot too many times for their weak decisions, be it the Bofors scandal,the Air Force land scam or even recently the Coalgate scandal.

Taking cue from countries like Germany and Japan itself, Government of India (GoI) must avoid rushing to accept big business’s proposals. They should well research all the available options or else there will be strong suspicion of a corruption once again. Irrespective of the money involved in the deal, we should consider alternatives of renewable energy in a better way rather than simply rushing into something that the whole world is getting rid of.

Just last week, I was making my travel arrangements for a trip to Mumbai. To find the right flight as per the timing of my visit, I first logged into the travel portal Yatra.com. Here, I noticed that the “budget flights” Jet Konnect, from the Jet Airways wing was priced higher than Jet Airways, the full services provider. Both Jet Konnect and Jet Airways carry the 9W code. Due to these discrepancies, my own preferences have recently has changed to Indigo (6E), and I wasn’t too perturbed about this. However, I mentioned this to my colleague and came to know that he too has been noticing this of late and has changed his preference to Indigo.

As I have been increasingly hearing about the growing preference of Indigo, this small incident got me thinking about how hard it is to stay on the top in international business. Though, Jet Airways is primarily a domestic route airline, with a few international routes, it is the main private airline whose tickets can be purchased from outside India. Thus, an international businessman in Europe planning a trip to India can make his booking conveniently on Jet as part of his British Airways or Lufthansa or other European airline itinerary.

Additionally, since the late nineties, Jet Airways has built itself as the leading brand in India’s domestic travel. It seems to me they decided to milk that brand name in the name of cost efficiency, a few years ago. Hence, they introduced their “budget” wing Jet Konnect

Pricing it essentially at the same level as the full service wing, they stripped value-adds such as blankets and newspapers and started to charge for catering services. Travelers who boarded for the Jet experience were shocked, but Jet could claim that Jet Konnect is their “budget” wing. Jet Airways still has a few flights on the full service, but instead of raising standards on Jet Konnect, they are now stripping away standards on the so called full service, removing refreshments on demand and so on.

As a result, people like my colleague and I now find airlines like Indigo more attractive. I suspect that half that battle was won by Indigo’s diligence keeping a young fleet etc. However, the remaining half was of the battle was lost by Jet, lulled by loss of competition from Kingfisher and Air India. It will be interesting to see if Indigo can remain on top; the challenge to do so will be tough.

In a similar vein, ITC Hotels that was one of three leading chains in India is also now showing signs of decline. Recently, there was a booking at one of their hotels through a travel agent. Later, when the hotel recognized the name of the expected guest, the Relationship Manager (or Sales Assistant) informed the travel agent that they would not honor the booking because the expected guest had previously stayed at the hotel at a higher rate.

This incident reminds me about roadside mango sellers in Delhi, who charge according to how they perceive the customers’ potential to pay. For example, if you approach in slippers, they may ask for Rs. 50/kg. But, if they see the potential customer stepping out of a chauffeur driven car the rate increases to Rs. 60/kg or more. They charge money according to the customer’s ability to pay. Despite the variable prices, the roadside vendor does not go back on the agreed price once the deal is struck, and this is important in the realm of international business too; honoring commitments. ITC Hotels should not compare itself to roadside mango sellers of Delhi, but, if it must, it should adopt their positive qualities too and retain commitments made.

As per the HBR (Harvard Business Review) blog piece – “Staying on Top Image

, Mancur Olson has suggested that the actions taken by Jet or ITC could lead to the classic corporate stall. Here, the companies are becoming captive to their own success and are facing vulnerability to low-cost rivals. They are probably in crunch of innovative ideas that could lead them out of it.

Lee Kuan Yew, Prime Minister of Singapore was visiting India last week. He talked about how difficult the business environment is in India. It does not help that even leading businesses such as Jet Airways and ITC Hotels do not keep up their end of the social contract. This is a primary Corporate Social Responsibility (CSR) and no amount of separate CSR programs can hide their fundamental shortcomings, as was proven in the famed Satyam scandal a few years ago.

My own former company Toyota allowed quality sag and was bashed (disproportionately, in my opinion) in American media a few years ago. This resulted in drastic drop of sales. I read recently that Toyota is now poised to gain World No. 1 spot after many years. I wish my friends and former colleagues the very best.

My message: Getting to the top is tough; staying there is tougher. Hence, maintain your social contracts to remain the leader.

Recently, Yamaha announced that it would make the cheapest ever bike in India for $500. This, along with other similar observations in the Indian market on the relentless pursuit for lower prices in the realm of B2B marketing, has convinced me that frugal manufacturing has now become a mainstay for the Indian market for years to come.

I was involved in such a process at Toyota as early as 1997, way before the term frugal manufacturing itself was coined by Carlos Ghosn of Nissan-Renault in 2006 on the Indian context. He was impressed by Indian engineers’ ability to innovate cost-effectively and quickly under severe resource constraints. More recently, other European companies such as Alten Group and Faurecia also announced the establishment of R&D centers in India – perhaps a confirmation of the sign of the times?

An important aspect of frugal manufacturing for India is to create good enough products that offer high value for money. Thus, it is not only about low cost but about meeting the Indian customers’ seemingly paradoxical expectations of “cheap and best”. Thus, Tata Nano could not succeed simply because of its low price. I have ridden in the car and it seems perfectly fine. However, for some reason it has failed to satisfy the desired perception level of high value for money.

Frugal engineering can be seen as a continuation of Value Analysis/ Value Engineering that became popular even at Toyota of the eighties and nineties. One important question that needs to be asked is, “Do customers value all the current features”? Even before Carlos Ghosn coined the term, I remember being involved at Toyota in such value analysis when bringing in the old Indonesian Kijang into the Indian market in 2000 christened as the Qualis. The car became the market leader in its segment because of the perceived value for money, despite its outdated design by both, international as well as domestic standards. We were well aware of the design considerations, but were also aware that the Indian consumer is also highly pragmatic, recognizing value for money.

In their HBR blog “Frugal Innovation: Lessons from Carlos Ghosn, CEO, Renault-Nissan” the authors Navi  Radjou et al rightly point out Ghosn’s effective policies of tapping partners in emerging markets and sending top management to emerging markets. In a kind of reinforcing coincidence, a recent McKinsey report titled “How MNCs Can Win in India” also emphasized the importance of top management visit to India and the need scale up via deals and partnerships. The authors of the McKinsey report Vimal Choudhary et al recommend a formula: Commit to products that have 30% less functionality and that cost 50–70% less without compromising quality.

Despite the battle at the upper end between German giants Audi, BMW, Mercedes the proverbial wisdom has it that the fortune is at the bottom of the pyramid. There is no doubt that people at the bottom of the pyramid want value for money. Hence, Frugal engineering is the new mantra in international business for making money in emerging markets.

BOOM! That is the sound reverberating throughout the Asian region.

This sound has nothing to do with gunfire or an attempt by terrorists to gain control of a vital installation. It is the sound of a booming economy. Yes, the economies in the Asian region are fast out pacing their western counterparts. The centre of economic power shift that started towards Japan in the eighties now seems to be moving to China and India. This has geo-political significance and there appears to be a lot of talk in the corridors of power about how best to react to this new shift in economic power. The American economy will take time to be back to its former glory and as Ben Bernanke said, “Over the years, the U.S. economy has shown a remarkable ability to absorb shocks of all kinds, to recover, and to continue to grow”. However, that will be some time in coming.

The first thing that anyone with an ear to the ground will notice is that there are increasing international business tie-ups with Indian companies. Collaborations with Indian companies seem to be the order of the day as western countries try to take advantage of the Indian connection. The Indian economy may have experience a slight setback recently as the expected growth has dropped from an amazing 9% to 6% but that is still higher than most of the western countries and European countries in particular. While European countries battle with austerity and spending cuts, India marches ahead in its quest for economic supremacy.

All this has made India a happy hunting ground for many western businesses. This is working the other way round as well. Many Indian companies are thinking of going global. Indian companies are making acquisitions on a global scale. Jaguar is a case in point. Today, Tata Motors, a leader in the Indian business environment has acquired Jaguar and this is no flash in the pan.

India is also likely to throw its doors open to foreign direct investments. As Anand Sharma, the Indian minister for commerce and industry said recently “For FDI, we have a policy which is stable and progressive and there have been changes made in the recent past, which has gone down well with investors.” This is great news for western businesses. Many companies that specialize in clean and green energy could also have a growing presence in India, as the demand for clean energy increases in India. For example the National Solar Mission is targeting 20GW of solar power by 2022.

Environmental degradation is the bane of some developed western countries. This could befall India as the country tries to gain economic supremacy. This could pose a huge challenge to Indian leaders.

Japan has had a series of natural disasters to contend with and the Tsunami washed away more than just some land and a lot of money. It washed away a lot of economic hopes. However, Minoru Masujima, director of macroeconomic analysis at the Cabinet Office said, “Domestic demand is relatively firm and the economy is gradually picking up”.

The Asian economies are growing rapidly and western economies are gravitating towards Asia and India in particular.

Developments in clean technology and environmental policy are a necessity for the growth of any nation. For many years, only the major economies of Europe could fund such development. However, major Asian countries such as China and India are currently dealing with the realities of rapid industrial expansion. In an effort to avoid the environmental crises of Japan in the 1960s and 70s, Asian countries can make use of the European sustainable development model to direct their efforts.

Japan’s environmental crises should inspire caution in the environmental policies of major Asian countries. Japan’s lack of strict policies concerning the disposal of toxic waste led to widespread health problems. In the 1960s, industrial waste containing methylmercury caused residents of Minamata City to develop a medical condition that caused approximately 6,500 deaths. The 1970s saw a dramatic rise in cases of chronic arsenic poisoning due to inadequate safety measure at arsenic mines in Japan. These events should direct the focus of technological research to key issues threatening the environmental health of Asia.

"Clean technology Asia", "Clean technology India", "Clean technology China","Clean technology Japan"

Clean technology Asia

China and India will inevitably encounter increasing greenhouse gas emissions. By taking a cue from European policies, major Asian countries could design efficient methods for combating increasing levels of these gases. The 20-20-20 Directive is an excellent example of European air quality control measures. This program sets a goal for the EU to increase renewable energy and reduce pollution by 2020. If China and India employ a similar policy, these countries could set an excellent foundation for their industrialization.

The European think tank, Bruegelhas also advocated measures for the environmental health of the EU. It is taking an active role in the EU’s Strategic Energy Technology Plan. They work to promote the use of sustainable energy, aiming for a 30% reduction in pollution. By setting emissions restrictions and encouraging innovation, China and India could begin to reduce pollution before it becomes uncontrollable.

The continual industrialization of major Asian countries is inevitable. Without proactive interference, equally inevitable are the serious pollution issues these countries will face. These serious problems will be rendered manageable and less harmful if a Europe-like program of environmentally responsible development is utilized. By carefully monitoring their growth, countries such as China and India can create energy policies that are as proactive and forward-thinking as those found in the EU. International business solutions could then help meet those policy goals.

Asian strategy for many businesses is pillared around Japan, the cash cow, China, the star and India, the next rising star. These are three huge continent sized markets –either in geographical or economic size. As a result, successful Asian teams need powerful central leadership, high decentralization and strong awareness of the field.

First, let’s talk about decentralization. Located in Asia, Japanese multinational companies are quickest to understand that Asia has several distinct markets. Leaders like Toyota have long had a separate China Department. Last year, Hitachi too delinked India into a separate regional Head Office, at par with its American or European Head Office.

When I looked after Toyota’s India project based out of Japan, I realised that Japanese have poor understanding of Indian business methods and the Indians too felt the same frustration. Coordination between Japanese and Indian teams became an important subtext of my job.  In terms of ease of doing business, in global rankings Singapore places in the top 10, Japan in the top 20, but alas India with its unhygienic conditions, pot holed roads and poor infrastructure doesn’t figure even in the first 100. Indian managers are therefore toughened to deal with adversity and are more likely to succeed in globally than the Japanese. It would seem that the Chinese would lie somewhere in between. This was confirmed recently when I asked Chinese visitors to an exhibition in India. They were shocked by India’s backwardness, just as Indian businessmen are surprised by China’s advanced infrastructure when they visit there.

For international business, fortunately common Asian values such as the hierarchical nature of society persist. This is where strong leadership becomes important. Fortunately for Toyota, its Head Office in Japan had a lot of know-how on global best practices, because they know what has been successful where. For example, in the area of just-in-time logistics I could explain to team members of South Africa, based on hands on experiencein Australia, Oman and Poland. Team members in other geographies, from China to Thailand to India could look up to Nagoya for advice on problem solving.

Adding strength to know-how, awareness of the field is imperative to team leadership. Hitachi’s Asia Head Office could not serve India sufficiently because of its inability to understand the field. Managers from cosmopolitan Singapore resisted visiting India with its heat, dust, poverty and disease. The same problem exists with other companies. An Australian manager working based in Singapore for the regional Head Office of a European company told me, “Ashok, it is difficult for me to travel in India. My customers visit me at my hotel. I cannot handle India beyond the local Hyatt, Hilton or Sheraton.” The same manager had problems with the raw fish of Japan. China was not yet a major market, fortunately. Another Englishman stationed in Singapore told me, “I can’t imagine living in India”.  I have seen only failure in all cases of armchair management of India, China and Japan from cosmopolitan comforts of Singapore and Hong Kong. I repeat, failure.

Successful team management in Asia requires a solid grasp of business fundamentals that establishes authority, and secondly a strong stomach to go out and get hands dirty in the field. 

A recent IMF report placed India as the third largest economy, overtaking Japan. When I heard this, I was shocked. It reminded me about what they say: there are lies, damn lies and then there are statistics. When I probed further, I understood that the size was being measured in terms of purchasing power parity (PPP).

Why was I shocked? Well, I recently spent three months in Japan, living in Tokyo. There is no way that anything in Japan, compares with India. During my stay, I had the opportunity to travel to within Japan as well as to Singapore, China and Thailand. As far as infrastructure goes, India is a long way away from Shanghai, Bangkok or Singapore, let alone Tokyo. So, this IMF report should best remain buried, until India reaches the same league as it peers in Asia.

However, there is a caveat. India is in the same league as other Asian countries in terms of its business potential with high requirements for infrastructure. Still lacking in high speed rail connectivity, India can be compared to Japan in the early sixties. That means there is a tremendous amount of investment potential in social infrastructure like roads, ports, power and water, lasting at least another 50 years. At the same time, to avoid the problems that Japan of the sixties and seventies faced and that Shanghai faces now, Clean Technology is the need of the times. European companies like, Siemens from Germany in renewable energy and Veolia from France in water are already leading the way. With 20GW of solar power targeted under the National Solar Mission, the total value of this sector alone is expected to be USD 35 billion. International business would do well to add India to its portfolio.

In anticipation of improved infrastructure, frontline automobile companies from Europe such as Renault, Volkswagen and BMW have followed Asian giants such as Toyota, Honda and Suzuki, starting manufacturing plants here to develop new markets. Companies like Bosch and Valeo, automobile components suppliers in Tier 1 are already active, and Tier 2 should also follow shortly. The auto components industry is expected to grow to over USD 110 billion by 2020, exporting up to USD 30 billion. Then to help these, auxiliary services firms such as those in IT systems developments would follow.

With a weakening market for infrastructure and automobiles at home in Europe, Western businesses would do well to have a tri-pronged Asian business strategy: India, Japan and China.

A half century of business opportunity waits.

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