India Inside. The Emerging Innovation Threat to the West – LBS Professor Nirmalya Kumar
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Transcript of India Inside. The Emerging Innovation Threat to the West – LBS Professor Nirmalya Kumar
From Obama to Singh, leaders worldwide cite innovation as crucial to the future
prospects of their respective nations. During this session, Nirmalya Kumar will
contend that the long held monopoly of the West with respect to innovation is over.
Drawing on extensive research and in-depth interviews with India-based executives
(including AstraZeneca, GE, Infosys, Intel and Wipro), Nirmalya will unveil the dramatic
rise in so-called “invisible” innovation occurring in India. This innovation takes a rich
variety of forms—from novel B2B offerings and R&D services outsourcing to process
improvement discoveries and fresh approaches to management. To the sceptic's
contention “where are the Indian Googles, iPods and Viagras?”, Nirmalya proposes that
despite some challenges, most significantly the mirage of mighty labour pools, India has
emerged as a global ‘invisible’ innovation hub.
India Inside. The Emerging
Innovation Threat to the West Nirmalya Kumar
Professor of Marketing and Co-Director of Aditya Birla India Centre at
London Business School
The Emerging Markets
Challenge to MNCs
Nirmalya Kumar
Copyright © Nirmalya Kumar
Power Shift
Copyright © Nirmalya Kumar
“We are serving 3.5bn people today …. and I am confident we can reach at least another 1bn or more in the decade ahead.”
“If, over time, we increase per capita consumption [of P&G products] in both China and India to the rate we see in Mexico, it would generate an incremental $40bn in annual sales.”
© Nirmalya Kumar Source: P&G growth in emerging markets eyed, Financial Times (11 June 2009)
Bob McDonald CEO, Procter & Gamble
Copyright © Nirmalya Kumar
© Nirmalya Kumar
Lead Markets?
Product Range?
Future Competitors?
Location of R&D?
Corporate Headquarter Location?
China and India: Issues for MNC
© Nirmalya Kumar
India’s Global Powerhouses
?
Future Competitors
© Nirmalya Kumar
Essel Propack
- following a global customer
Mahindra, VIP, Suzlon
- leveraging India’s scale
Godrej, Marico, Tata Motors
- unique product competence
Hindalco, Tata Steel, Tata Tea
- transformational merger
Infosys, Wipro, TCS
- born global
© Nirmalya Kumar
Indian Globalisation Strategy
Hindalco: Climbing the Acquisition
Competence Ladder
© Nirmalya Kumar Source: How Emerging Giants are rewriting the rules of M&A, Harvard Business Review (May 2009)
2000 2001 2002 2003 2004
2005 2006
2007
Novelis North America
ACQUISITIONS
Indal; Annapurna Foils India
Nifty; Mount Gordon Australia
St. Anne Nackawic Pulp Mill Canada
Minacs Worldwide Canada
How to bid for, negotiate with, and integrate companies in India
How to manage a large customer-focused, value-added products business
How to turn around a small Indian company in receivership
How to take over, turn around, and operate companies in a developed market
How to list companies on a stock exchange abroad and manage investor relations
How to manage a global supply chain as a buyer and seller
How to manage price fluctuations and foreign exchange risks across countries
How to acquire, assimilate, and delist a company in North America
How to manage a large, HR-intensive multinational operation
Two Approaches to M&A
© Nirmalya Kumar
Traditional Approach Emerging Giants Approach
Rationale The aim of a takeover is to drive consolidations sometimes to obtain technologies, enter niches, or break into new countries.
The aim is to obtain drive market combination
Synergy Levels Shared - The acquirer and the acquisition usually have the same business model.
Unique - The acquirer is dominant in home market, while the acquisition is a value-added branded-products company in developed market.
Integration Speed The buyer makes several changes in the acquisition soon after the takeover. It slows the quest for synergies thereafter.
Integration is slow-moving at first. After a while, the buyer starts pulling the acquisition closer.
Organizational Fallout
High executive turnover and head-count reduction at first. Culture clashes occur and productivity declines, but things settle down over time.
Little interference, executive turnover, or head-count reduction right after the acquisition. Focus on business process integration.
Goals The buyer has clear short-term aims but may not have though through long-term goals.
The acquirer’s short-term objectives may be fuzzy, but its long-term vision is clear.
Source: How Emerging Giants are rewriting the rules of M&A, Harvard Business Review (May 2009)
© Nirmalya Kumar & Phanish Puranam
Friedman’s Prognosis Free trade based on comparative advantage will benefit the developed world ..with “more sophisticated tasks being done in the developed world and the less sophisticated tasks in the developing world—where each has its comparative advantage.”
The World is Flat (p. 271)
© Nirmalya Kumar & Phanish Puranam Source: The World is Flat, Thomas Friedman (2005)
???
Where are the
Indian Googles, iPods, and Viagras
© Nirmalya Kumar & Phanish Puranam
“Indians don’t do innovation”
© Nirmalya Kumar & Phanish Puranam
Invisible Innovation
VISIBLE INNOVATION
INVISIBLE INNOVATION
New products/services for end users
1. Innovation for business customers - made in India, branded elsewhere
2. Outsourcing Innovation - value added R & D services on demand
3. Process innovation - an injection of intelligence
4. Management Innovation - global services delivery model
© Nirmalya Kumar & Phanish Puranam
“The beauty of the Indian market is that it pushes you in a corner…it demands everything in the world, but cheaper and smaller”
Guillermo Wille
Former Head of John F. Welch Technology Centre
GE Bangalore
Indian Visible Innovation
© Nirmalya Kumar
"Designing for simple solutions at the lowest possible cost is in many ways more challenging than designing a very advanced, high-tech solution”
Unmesh Kulkarni
Senior Design Manager, Philips India
© Nirmalya Kumar
Frugal innovation:
“Nano Effect”
© Nirmalya Kumar
Robustness
Portability
De-featuring
Leapfrog technology
Mega scale production
Service ecosystems
Invisible Innovation
VISIBLE INNOVATION
INVISIBLE INNOVATION
New products/services for end users
1. Innovation for business customers - made in India, branded elsewhere
2. Outsourcing Innovation - value added R & D services on demand
3. Process innovation - an injection of intelligence
4. Management Innovation - global services delivery model
© Nirmalya Kumar & Phanish Puranam
From services to innovation……
© Nirmalya Kumar & Phanish Puranam
Research Design
© Nirmalya Kumar & Phanish Puranam
The Internal Impacts Do Not Differ!
Impact on: EE Patents
US patents
Difference
mean (fwd citations)
mean (fwd citations)
All 2.71 3.39 -0.68**
MNC Network 0.38 0.47 -0.09
External Firms 2.33 2.92 -0.59*
*p<.05, ** p<.01, *** p<.001
There is a
difference in the
overall impact of inventions
There is no
difference in the
internal impact of inventions
© Nirmalya Kumar & Phanish Puranam
Source: Integrating distributed work, K. Srikanth and P Puranam © Nirmalya Kumar & Phanish Puranam
“People usually don’t trust their counterparts who are sitting 11,000 miles away. If you think about it, though, few companies have the luxury of having their technologists sitting in one building….The behavioural reality is that if people are sitting in different buildings, they already pick up the phone or communicate through computers. If you understand that, and have created a culture of treating your teams in the next building or those 11,000 miles away the same, you have it. The only caveat is the time difference, which generates issues in work/life balance. That’s the problem you face.”
Guillermo Wille Former Head of John F. Welch Technology Centre
GE Bangalore
© Nirmalya Kumar & Phanish Puranam
Management Innovation: Global Service Delivery Model
January 24, 2009 5:18 PM PST IBM quietly lays off North American staff News March 12, 2010 Computerworld: IBM stops disclosing U.S. headcount data
IBM’s Dilemma
IBM Headcount
2003 2009 Now
World 310,000 400,000 433,000
USA 135,000 105,000 98,000
India 9,000 100,000 150,000
© Nirmalya Kumar & Phanish Puranam
Lead Markets?
Product Range?
Location of R&D?
Future Competitors?
Corporate Headquarter Location?
China and India: Issues for MNC
© Nirmalya Kumar
Browning of the TMT
Sinking skill
ladder
Evolution of MNC Structure
Export
Local subsidiary
Transnational
T shaped structures
© Nirmalya Kumar & Phanish Puranam
Mighty Labour Pools
Currently, India constitutes one-third of the world’s low-cost labor supply, and more that half the population are under the age of 25.
Over the next 5 years, India will account for a quarter of the increase in the working age population across the globe.
© Nirmalya Kumar & Phanish Puranam
The Mirage of Mighty Labour Pools
• Indian R&D talent pool is between 100,000 and 300,000 people, compared with 925,000 in China, 477,000 in Russia, and 150,000 in Korea
• India produced about 6,600 science and technology PhDs in 2007,compared with 8,000 in China and 12,000 in the USA in 2003
• Only 10% of the college-age population (18-24) attend college in India, compared with 20% in China and 60% in the USA
• Employable undergraduates: “less than 30%” (McKinsey estimate)
• IIT’s and IIM’s are notoriously understaffed
• Indian Universities are invisible in the record of US patents involving Indian inventors
• Management research: Total number of Indian author appearances between 1990-2009 is 132 (compare: HKUST is about 30 per annum)
• %GDP spending on R&D: India (0.6%); China (1.3); USA (2.6%)
© Nirmalya Kumar & Phanish Puranam
32
Have You Restructured for Global Success? (with Puranam) - October 2011 The Upstart’s Assault (with Bertini) – July 2010 Don’t Be Undersold! (with Steenkamp) - December 2009 How Emerging Giants are Rewriting the Rules of M&A - May 2009 Strategies to Fight Low-Cost Rivals - December 2006 Kill a Brand, Keep a Customer – December 2003 Profits in the Pie of the Beholder (with Corsten) - May 2003
Harvard Business Review