Lessons from the East

    Zahedul Amin
    Zahedul Amin

    It was raining, and Mr Ratan Tata, head of the Tata conglomerate, was running late for a meeting. He asked his chauffer to drive faster so he could reach his destination in time.

    In their frenzy to speed up, and thereby overtake other vehicles, they came across a family traveling on a scooter. And before anyone knew what happened, the scooter maneuvered in front of the car and lost control, sending the family of four spilling onto the pavement.
    Fortunately, no one was hurt in the near collision, but this event sent Ratan into contemplation mode. He had an epiphany of sorts. Call the action incidental or coincidental, but what came out next changed the future of transportation.
    Ratan wanted to make travelling safer for Indian families. He stumbled on to the simplest and most audacious idea of all.
    Why not simply build a tiny car? A car that is just big enough to carry a family like the one that crashed in front of him that fateful day, but cheap enough for a scooter-driving family to afford. Soon afterwards, the Tata Nano was born — the world’s cheapest car, tagged at INR100, 000.
    The advent of the Nano not only heralded the emergence of India as a driver of innovation but also re-introduced to the world the term “frugal innovation,” the means through which functional solutions are provided with few resources for those with less means.
    The developing world has become the hotbed of frugal innovation, as many products manufactured in the West are way beyond the purchasing power of an average developing world citizen.
    To address this concern, developing world entrepreneurs have been resorting to reverse engineering to manufacture a stripped down version of the same product with minimal resources, similar product functionality and, within the income range of the majority.
    This has worked wonders for the people living near the poverty line as they can directly benefit from the wonders of global advancement.
    In 2004, the potential of frugal innovation was first highlighted by the late CK Prahalad, a management guru, in his book “Fortune at the bottom of the Pyramid.”
    He felt that a huge market existed at the lowest rung of the country’s economic pyramid. However, the existing entrepreneurs were ill equipped to meet this latent demand.
    In the following years, the concept of “the bottom of the pyramid” had slowly gained traction as companies increasingly focused on the once-neglected segment.
    For example, companies like GE introduced Vscan — a portable ultrasound device – in India at $1,000, which is ten times cheaper than the actual device. Similarly, Unilever sells smaller packs of soap and shampoo to individuals with less purchasing power.
    The importance of frugal innovation has further precipitated in the aftermath of the global financial crisis.
    This is especially true for EU and US markets where the average income of the population has markedly declined. All EU members are suffering from recessionary bouts, with the exception of Germany.
    In such precarious conditions, with sales sliding in Eurozone countries, companies have adopted proven frugal innovation techniques to meet customer demands. Unilever is now offering smaller packets of detergent to the cash-strapped Portuguese and shampoo mini packs to impoverished Cypriots.
    In the near future, Europe’s shrinking middle class will further highlight the importance of the lower income population as a viable target segment.
    The breakthroughs in frugal innovations, first made in developing economies, will slowly make its way into developed ones.
    The epiphany that Ratan Tata had during his near accident opened doors to make the frugal innovation concept highly popular around the world.
    Apparently, the smallest of incidents, can give birth to groundbreaking ideas.
     
    Source: Dhaka Tribune

    Zahedul Amin

    Zahedul Amin is the Co-founder and Director of Finance at LightCastle Partners, an emerging market specialized business planning and intelligence firm. Earlier, he worked as the Assistant Vice President, Risk Analysis Unit, in HSBC. He completed his E-MBA at the Institute of Business Administration (IBA), University of Dhaka, and completed his undergraduate degree from the same institute. He can be reached at [email protected], Twitter: @amin_zahed