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 The car became the market leader in its segment because of the perceived value for money, despite its outdated design by both, international as well as domestic standards.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.

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