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Advantage affordability

The Harvard B-School Professor says Indian entrepreneurs have an edge but they have to absorb as well as contribute ideas to the world.

Octavio Paz, the Mexican ambassador to India and Nobel Prize-winning poet, referred in his 1995 collection of essays, Vislumbres de la India, to Hinduism as a large, "metaphysical boa," devouring all influences that came its way. He was referring to India's tendency to assimilate and absorb hordes of foreign cultural and societal influences over the centuries.

I found myself thinking that, in the next generation, Indian entrepreneurs will also have to be like boas and quickly assimilate the skills honed by their counterparts around the world. This includes the assembly-line manufacturing attributed to Henry Ford, the scientific management techniques first popularised by the likes of Frederick Winslow Taylor in America, the more recent attention to style from Europe and the quality revolution from Japan. Each of these groups of entrepreneurs - American, European, and Japanese - has brought something new to the global entrepreneurial table, as it were.

But the boa simile is insufficient to articulate what India's entrepreneurs have yet to accomplish. The assimilation phase must be followed by the contribution of a momentous set of ideas to the rest of the world, comparable in significance to what others have done.

What might these ideas be? One candidate for such a set of ideas has to do with what I have heard referred to as the affordability revolution, that is, rethinking products and services so as to make them much more available to the masses. After all, the number of people living below India's official poverty line is still in the hundreds of millions. A service that caters to the masses, in any area of human endeavour, ought to find a use among lower income consumers worldwide, and perhaps also lead to the rethinking of how services are provided to all consumers.

What are good examples? Tata's Nano, the first so-called '1 lakh Rupee' car ($2,200, or close to this) and its Ace, the mini-truck, are surely impressive attempts to create affordable transport for India's masses, with immediate resonance for several consumers worldwide. The Nano might well find a home in other countries, and the re-engineering and tabula rasa design approach taken by the company might also prompt the rethinking of automotive design. The results will be useful products and services that expand the range of choice for lower income users worldwide.

Consider a very different area, paediatric heart surgery, at Narayana Hospitals in Bangalore. The hospital has a much lower cost structure than its counterparts in the West because of its greater scale, which also means its staff are more proficient because of the much larger number of operations performed by them. Beating-heart surgeries, where portions of the heart muscle are operated on while the heart continues to function, are more common there than in the best hospitals in the West, where surgeries require stopping the heart and sustaining the patient on a complex heart-lung machine.

The lower cost structure, at outcome levels that are as good as those of the best in the West, facilitates access to heart surgery. I realised the worldwide significance of this from Dr Devi Shetty, the hospital's founder, when he told me that a century after the first heart surgery, less than eight per cent of the world's population can afford this treatment at the conventionally offered rates. Of the 650,000 such surgeries done annually worldwide, 450,000 are done in the United States alone. Obviously, large numbers of sufferers in poorer nations have to do without the treatment.

 

Affordability improves economic inclusion by allowing the masses to consume not just basic needs but intangibles such as information, education and health.
This panache for re-engineering products and services for affordability, I feel, raises a more fundamental issue that goes to the heart of the compact between business and society. Given the angst against business worldwide following the financial meltdown of 2008 and the spate of corporate corruption scandals, it is fitting that the societal compact with business be revisited everywhere, and not just in the West. India is as fitting a laboratory as any, with its enormous diversity and the medley of corporate experiments under way.

Affordability improves economic inclusion by allowing the masses to consume. Think of consumption here not just as the indulging of basic and not-so-basic human wants, but more eclectically of the consumption of intangibles such as information, education and health care. Heart surgery, by going from inaccessible to available because of an affordability revolution, is a great example.

The Nano and cutting-edge-yet-affordable paediatric heart surgery have been perfected over time. They require dedicated resources for sustenance while they are coming to fruition. Private entrepreneurs and their financiers can systemically plough resources into such innovation aimed at affordability only if societies allow them to earn a healthy return. Yet there is something about providing affordable goods and services at a profit - especially when it comes to the likes of education and health care - that raises the hackles of many in society.

The trade-off is clear. Allowing a return on 'innovating for affordability' will likely enhance economic inclusion, but will allow some enterprising entrepreneurs to become wealthy (by providing intensely affordable products). Restricting the profits that can be earned by entrepreneurs will, ceteris paribus, lower the attention to 'innovating for affordability'.

Even reasonable people can differ on how much wealth an individual should be allowed to accumulate by providing products for the economically disenfranchised. Societies must come to terms with these views. If they do, and business does manage to regain its position as the engine that innovates its way to affordable models, my view is that commerce will be well on one way to reaffirming its societal legitimacy. And this idea of profiting one's way, with moderation, towards economic inclusion, could be what the Indian entrepreneurial boa, to return to Paz and his simile, could contribute to world commerce.

(Tarun Khanna is Jorge Paulo Lemann Professor at Harvard University and the co-author of Winning in Emerging Markets: A Road Map for Strategy and Execution)