Business Today

Innovator India

The professor at Tuck School of Business says not just the Nano, Indian ingenuity in health care and energy, housing and banking wait in the wings of the world stage.

Vijay Govindarajan | Print Edition: Jan 9, 2011

Historically, multinationals innovated in rich countries and sold those products in poor countries. We are witnessing a new phenomenon where this innovation paradigm is turned upside down. Breakthrough innovations will next happen first in poor countries and they will flow uphill to rich countries.

This is the essence of reverse innovation. Consider the innovations in transportation, energy, and health care from India. Transportation. India's GDP per capita today is roughly equal to that of the United States in the 1880s, an era in which the horse-and-buggy was the primary mode of transportation. The mainstream consumer in the US waited for a few more decades for cars.

With today's technology at hand, however, Tata Motors has launched the Tata Nano, the world's cheapest car at a price point of about $2500. In doing so, Tata has unlocked a huge untapped market: cars for middle class Indians. The automobile ownership in India is about 10 cars per 1,000 population - in sharp contrast to the US where about 750 Americans out of 1,000 own cars.

The Tata Nano is, of course, lower in quality than even the low-end cars of the rich world, which sell at prices near $15,000. The difference in quality, however, is much less than the difference in price suggests. Tata Motors practised "frugal engineering" to radically rethink the five major areas of costs in an automobile: interiors, engine and transmission, suspension and wheels, electricals, and the body. Tata partnered its suppliers - Bosch for powering the car, Lumax for lights, Sona for steering and so on - in front-end design.

The Nano features a no-frills design with the use of lighter components, simple door levers, single wiper, and so on. Its 624 cc two-cylinder engine not only lowers costs turning in up to 26 km to a litre of petrol but is also appropriate on grid-locked Indian roads where the average speed is 16-32 km per hour. But the real breakthrough is yet to come - it is about taking the Nano global. Already, Tata is preparing to take the Nano to other emerging markets. Even more important, the company plans to scale up the Nano platform and launch it in Europe and the US. Imagine for a moment that Tata Motors invests another $2,500 to make the Nano the world's most intelligent car - with integrated navigation, entertainment, and information. Even at $5,000, the Nano would be the cheapest car and could well take the low end of the US auto market by storm.

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