India’s Innovation Front Lines 2009 (Part 3): A Continent, Not a Country

12/29/09Follow @vinit44

Mumbai, December 23, 2009—There are now 500 million cell phone subscribers in India. In the major metropolitan cities, penetration rates are close to U.S. levels. A golf caddy, who makes about Rs 300 ($6) per day, has a cell phone so golfers can reserve him for a round. The 500 million subscribers appears to be a large potential market for mobile value added services (VAS) such as cricket scores and Bollywood ringtones. However, unlike the U.S., where an iPhone app can reach tens of millions of consumers, India has a fragmented consumer demographic. There are five dominant cell phone operators in India, each with about 100 million subscribers.

But these operators have to be looked at as 60-80 “companies,” since each of India’s 28 states and 7 union territories is different in language, culture, and, therefore, consumer needs. Most of the cell phone growth is now in rural areas that still retain centuries old ways of living.

Indian startups have learned to operate in a high growth, low cost, and fragmented market. In practically every consumer category, India is the toughest market in the world: in telecom, India has the lowest ARPU (average monthly revenue per user). Which has gone from about $7 to $2-3. India is manufacturing the cheapest car in the world, the Tata Nano, which retails for Rs 100,000 ($2,000). A tandoori roti, which costs $2 in a Boston restaurant, can be purchased for Rs 2, or about 4 cents, in the alleys of old Delhi; a heart bypass surgery which costs $30,000-$50,000 in the U.S. is available for roughly $2,000-$6,000 in India with equal mortality outcomes.

China is following the Japanese and Korean economic model of supporting oligopolies of scale-size companies in every industry with access to low-cost capital. Indian companies, though, are engaged in vicious, even unhealthy, competition that requires constant innovation to bring costs down. Investment capital is costly. Therefore, most Indian companies operate with bare minimum up-front capital investments and a pay-as-you-grow investment model.

I visited an Akshay Patra kitchen, a charity providing free mid-day meals to school children, and marveled at how it is delivering over a million meals daily for $24 per child annually. Operating in 17 cities across India, each location customizes meals to suit local tastes. Such as rice in the south and wheat rotis in the north. Founded by a religious Hindu organization, it is being financially and organizationally supported by a number of IT millionaires, including Narayan Murthy of Infosys and Boston’s Desh Deshpande. Akshay Patra is innovating in manufacturing (specialized roti machines that spit out 30,000 rotis an hour), supply chain efficiencies, and IT infrastructure to manage and track health and success outcomes for the children.

Emerging from the chaos that is India are entrepreneurs who use juggar to get around daunting obstacles: an inefficient and corrupt government, consumers with very little buying power, and infrastructure that cannot keep up with demand. These entrepreneurs, once they establish scale operations in India, will be ready to compete in global markets.

Vinit Nijhawan, an entrepreneur, angel investor, and former venture capitalist, is Lecturer and Executive-in-Residence in the Boston University School of Management. Follow @vinit44

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