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


“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

http://images.google.co.uk/imgres?imgurl=http://www.gs1.ie/x/Image/GS1_Staff_Photos/Bob_McDonald_54.JPG&imgrefurl=http://www.gs1.ie/sid/1105&usg=__rL6b1zulNbCzWntH4WNOCHzZ6wY=&h=2100&w=1500&sz=298&hl=en&start=5&um=1&tbnid=Ml3dX1GKgwc8jM:&tbnh=150&tbnw=107&prev=/images?q=Bob+McDonald&hl=en&sa=X&um=1

http://www.pg.com/en_US/index.shtml


© 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


“Indians don’t do innovation”


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


“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


From services to innovation……


Research Design


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


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


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


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


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.


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%)


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