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Technology and Business in India

Technology and Business in India. Ashok Jhunjhunwala Tenet Group, IIT Madras ashok@tenet.res.in. I. Market. Untapped Market. Developing countries have large untapped Market India has 1 billion people 180 million households What is the market size ?. Example 1. In mid 1980’s

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Technology and Business in India

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  1. Technology and Businessin India Ashok Jhunjhunwala Tenet Group, IIT Madras ashok@tenet.res.in

  2. I. Market

  3. Untapped Market • Developing countries have large untapped Market • India has 1 billion people • 180 million households • What is the market size ?

  4. Example 1 • In mid 1980’s • detergent market was small • Surf was used by 1 to 2 percent households • Nirma reduced the price by a factor of three • market size increased immensely • detergent reaches almost 15 percent of Indian households today

  5. Example 2 • Cable TV • did not exist in Indian homes in 1992 • today reaches 40 million homes • costs Rs 60 to 150 per month • affordable to almost 50% of households • TV reaches about 75 million homes in India • Black and White TV at Rs 1200

  6. Example 3 • Less than 5 million homes had telephones in 1990 • Introduction of • one fourth rate STD tariff in the night • STD PCOs everywhere • As a result • over 20 % of Indians today make STD calls • STD PCO available on every street and in every small town • PCOs contributes to 20 % of total income for DOT and MTNL

  7. Market Size depends on Affordability • Nirma made detergent affordable • low operation cost made cable TV affordable • STD PCO coupled with night-time STD tariff made STD calls affordable on the other hand . . .

  8. Is Telecom and Internet Affordable ? • Investment required to install a telephone and Internet line: Rs 35,000 • with 15 % finance charges, 10 % depreciation and 10 % operation and maintenance cost • Rs 12,000 annual recurring revenue (Rs 1000 per month) required per line • not affordable to more than 2 - 3 percent of Indians

  9. Telecom Affordability in India 64%, 6500 32%, 12500 8%, 25000 1.6%, 40000 Total number of Households = 180 million Assumptions: 7% of family income spent on communications 35 % of investment required per year to break even

  10. Affordable Telecom and Internet • India requires Rs 10,000 per line Telecom and Internet connection • will be affordable to 50 % of Indian households • India will then be a market for 150 to 200 million Telecom and Internet connections

  11. sum up - market • Indian and developing countries market is very large • but at affordable prices

  12. II. Technology

  13. R&D focus in West • Telecom connection in West costs $ 1000 per line • needs a $ 350 annual recurring revenue • $ 30 per month affordable to 95% of population in West • Bringing down costs does not further expand market in the West • focus of R&D shifts to providing a larger basket of services at same cost

  14. Enhancing features and services • Same phenomenon in Personal Computer in 1983 : PC with 8088, 128 KB memory, mono monitor costs $ 1000 today : PC with Pentium processor, 128 MB memory, color monitor, large HD, CD costs $ 1000 • but there is no low-end $ 100 PC • because $ 1000 is affordable at large in West • focus on enhancing features rather than reducing costs

  15. Technology from West • Technology developed for Western market and affordable in West • affordable to only 1 to 5 % of Indians • not affordable at large

  16. R&D tasks for India • costs of products need to be brought down further by a factor of 3 to 5 • will make it affordable at large • market size in hundreds of million in India • large market in other developing countries

  17. But is such cost-reduction possible ? • Why not ? • A challenge for R&D • attempt what does not appear to be possible and make it happen • Rewards are great • large Indian and developing countries market In bringing down costs by a factor of 3 to 5, one becomes technology leader

  18. that it is possible…. an example • Efforts of TeNeT group at IIT Madras • aim to bring down cost of Telecom and Internet connection • from Rs 35,000 to Rs 10,000 per line • last five years of effort • incubated five product companies at IITM • developed WiLL, DIAS, FiLL and NMS products • brought down costs to Rs 18,000 per line

  19. corDECT Wireless in Local Loop  To PSTN 35/70 kbps Internet plus simultaneous telephone To Internet

  20. Direct Internet Access System dsl on copper to PSTN Internet Always ON permanent Internet connection

  21. In a similar way . . . • Technologically possible to bring down cost of home PC • from current Rs 25 - 30 K to Rs 5 - 10 K • has a large market in India

  22. sum up - technology • Developing countries require • Disruptive technological Innovation* • expands market drastically with an inferior product • soon the new product overtakes the old even in quality • The Innovator’s dilemma : Clayton M. Christensen

  23. III. Distribution

  24. Indian economic sectors • Organised sector • works 200 to 225 days a year, 6 to 8 hours a day • self-employed sector • works 300 to 325 days a year, 9 to 12 hours a day • manpower costs 1/3 to 1/4 of that in organised sector • STD PCO, cable TV, milk distribution, roadside shops • make goods and services affordable at large • a challenge to make business plan for this sector

  25. Large Market penetration • To make a product or service affordable at large require • the use of self-employed small sector • to achieve 150 to 200 million telecom and Internet connections • imperative that Access network, the most expensive and difficult part of telecom network, is franchised • operated like cable TV connection

  26. Sachet economy boom • Pay and use in very small quantity • affordable, even though expensive in long run • shampoo, paan-masala • PCO • Internet Kiosk • Can technology provide low-cost telecom and Internet access for infrequent use • shared infrastructure

  27. sum up - distribution • Innovative distribution mechanism required to expand market • involving self-employed small sector a must

  28. IV. Business Challenges

  29. From Services to Products • India has made a mark in service sector • providing sophisticated and simple service • but with quality • can we take service sector to small towns • Can we make a mark with products in the world • without having significant home market for these products • or can we tap potential home market • and prepare for world market

  30. sum up • India presents a unique business challenge • has a large potential untapped market • of size equal to that of the rest of the world (excluding China) • require affordable products to be designed • innovative mechanism to produce and distribute • sound business built on values

  31. Old and New Economy Values • employees are naukars • or partners in every sense • shareholders taken for granted • management is a trustee of shareholders • where will customer go • customer is God • vendors to be squeezed • strong vendors make you strong • one has to manage law • business conducted legally in letter and in spirit

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