Lessons from the East

Zahedul Amin
June 12, 2013
Lessons from the East

It was raining, and Mr. Ratan Tata, head of the Tata conglomerate, was running late for a meeting. He asked his chauffeur 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 traveling 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 afterward, 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 fewer 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 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

WRITTEN BY: Zahedul Amin

Zahedul Amin is an entrepreneur and consultant with 14 years of experience working for development agencies, private enterprises and government entities. He co-founded LightCastle Partners—a consulting firm looking to foster inclusive economic growth for Bangladesh and beyond. He has extensive research experience and loves to solve development challenges adopting a systemic approach. He holds a Bachelor’s and Master’s degree from IBA (Institute of Business Administration), University of Dhaka. Zahed has extensive experience in private sector development, landscape studies, impact assessment, financial assessments, market entry studies, banking, non-profit, and private & development sector consulting across 20+ sectors in Bangladesh including the Apparel Sector. He has successfully led 120+ projects while working with top-tier clients like The Gates Foundation, WFP, IFC, H&M Foundation, The World Bank, UN Agencies, EKN, BRAC, SNV, Ashoka, WaterAid, among others. Zahed is an International Visitors' Leadership Program (IVLP) alum, an entrepreneurship Fellow at the State University of New York (SUNY) and an Acumen Fellow.

For further clarifications, contact here: [email protected]

Want to collaborate with us?

Our experts can help you solve your unique challenges

Join Our Newsletter

Stay up-to-date with our Thought Leadership and Insights