This content relates to : EMERGING ECONOMY – INDIA
Jagdish Sheth
Emory University
I think there’s a lot of potential for reverse innovation. At one time, we believed that scientists in emerging economies may not be capable or may not have the infrastructure, laboratory, instruments, etc. which is partly true. But today, you can see examples after examples where reverse innovation is not only possible, but maybe even desirable. And the main reason, there are two reasons:
The first reason is that more leapfrogging is taking place in emerging economies, they’re skipping one generation of technology. So, for example, India did not go through the PC revolution. They leap-frogged into phones, cell phones, and smartphones. Today an average Indian knows more about how to use the smartphone or just a cell phone, they are on WhatsApp. And in America, we still don’t know what WhatsApp is. And it’s capabilities. And so I think one key area would be …, it is true for cell phones we have seen, because again, we had no credit cards, quite often. So, we leap frogged into online payments. Paytm is an excellent Indian company. You can learn quite a lot about more innovation, from what they have done. Very similar to Alibaba, Alipay in China, for example, or Tencent. It’s the same phenomenon. Many of these emerging economies are leapfrogging the technology to the next generation because they did not have an incumbent technology that will resist the change. There’s capital involved right? One of the best examples I find fascinating is Kenya, which is a very interesting country, M-Pesa that they have created which is a national currency like the digital payments or cryptocurrencies nowadays, about 30 or 35 percent of the total GDP of the nation does business on M-Pesa; double leapfrogging almost. So emerging economies are quite ahead in many areas than what we thought. Also true of infrastructure quite often They’re thinking about the next generation of infrastructure. And if you take countries like China in railways alone, there have been so much more innovation than one could imagine that the railway of tomorrow and of course we have legacy systems. So, I think advanced countries who are locked into the legacy systems, especially in healthcare, for example, banking, etc., legacy systems, they can learn a lot from emerging economies. How to do leapfrogging, in many ways. And I think it’s going to happen so this, clearly, to me is one key area; technology in other words.
The first reason is that more leapfrogging is taking place in emerging economies, they’re skipping one generation of technology. So, for example, India did not go through the PC revolution. They leap-frogged into phones, cell phones, and smartphones. Today an average Indian knows more about how to use the smartphone or just a cell phone, they are on WhatsApp. And in America, we still don’t know what WhatsApp is. And it’s capabilities. And so I think one key area would be …, it is true for cell phones we have seen, because again, we had no credit cards, quite often. So, we leap frogged into online payments. Paytm is an excellent Indian company. You can learn quite a lot about more innovation, from what they have done. Very similar to Alibaba, Alipay in China, for example, or Tencent. It’s the same phenomenon. Many of these emerging economies are leapfrogging the technology to the next generation because they did not have an incumbent technology that will resist the change. There’s capital involved right? One of the best examples I find fascinating is Kenya, which is a very interesting country, M-Pesa that they have created which is a national currency like the digital payments or cryptocurrencies nowadays, about 30 or 35 percent of the total GDP of the nation does business on M-Pesa; double leapfrogging almost. So emerging economies are quite ahead in many areas than what we thought. Also true of infrastructure quite often They’re thinking about the next generation of infrastructure. And if you take countries like China in railways alone, there have been so much more innovation than one could imagine that the railway of tomorrow and of course we have legacy systems. So, I think advanced countries who are locked into the legacy systems, especially in healthcare, for example, banking, etc., legacy systems, they can learn a lot from emerging economies. How to do leapfrogging, in many ways. And I think it’s going to happen so this, clearly, to me is one key area; technology in other words.
The second area is just the opposite, which is my excitement. If you go to emerging economies, especially India, which is so diverse. It’s more diverse than European Union put together. Not just in languages, not just in faiths, but in the way each locality behaves, it is very local, local many ways. And it’s surprising to see how united we are as Indians or India, you know which is interesting, Europeans still cannot think themselves as Europeans. I’m a German first European second, I’m a French first European second, I’m an Italian first European second. I think we think we are Indian first and then second whatever subculture it is. That transition that took place during the freedom fighting days of Mahatma Gandhi, I think has been very like a unification in diversity. So what does that all mean? Street foods. Every street has a unique recipe. The vendor selling on the street, people line up, whether it’s paan that we eat in India, you know, after dinner. Kolkata, for example, is famous for paan, different varieties that they make. Or whether it’s some mithai or sweet that we make. Or whether it’s a namkeen that we make, which is a savory of some sort, or anything, especially snack items in South India where I grew up, Idli Dosa, you know especially Idli, you don’t make it at home. Somebody makes it so good that you line up. Ifit, if the lady is ready at 7 o’clock people wait, I’m yeah …, we’re talking about advanced, well-educated people wait in line from 6:30 onwards to get the fresh Idli. Now what if we can package, brand, and promote it? Which leads to the very important concept that we are now trying to understand. You know at one time we thought “think global, act global.” Then we said no, no, we have to localize it so we said “think global, act local.” I think now the new paradigm is “think local act global.” I can unlock the brand values of this homemade recipes to a level that’s unimagined.
To me, that’s the wealth creation mechanism in countries like India. And we have done that. This is not just conceptualizing or aspiring or you know inspiring to do. But there’s a reality. Haldirams, a snack company is a multi-million dollar corporation. Similarly, Patanjali, as a retailer and a manufacturer, is like an ungodly amount of money, an unorganized sector; made it into organized and going all over the world actually, because ayurvedic based medicine is becoming more popular worldwide. Just goes on and on. I can give you examples after examples. So to me, street foods. And the part, nice part about consumer products which is my passion; is that brand value commands more premium than an IT service company will command – as a multiple of revenue. An IT service may command a multiple of revenue, maybe one to one, one to one and a half, maybe two. Brands, consumer product brands command, their multiple of revenue, not profits, almost five times minimum to about 10 times, that’s the range. People are willing to pay that much premium for a consumer packaged with brand and the opportunity is just infinite in all of India.
Every time I go, I want to watch that vendor and why people line up late at night in Bombay near Chowpatti, which is the sea coast area or early in the morning in South India …, doesn’t matter. It’s just fantastic to see how much possibilities are out there.
Dr. Jagdish Sheth
Emory University