Current Issue • August 2018

The Innovation Nudge

The Innovation Nudge

By Rajendra Srivastava

ISB Dean Professor Rajendra Srivastava is one of the world’s leading authorities on Marketing Strategy and Innovation. A highly cited scholar with works published in leading marketing journals and recipient of several awards and honours, Dean Srivastava has also advised and trained senior management at global multinational corporations. How can India make the innovation leap? Dean Srivastava’s argument is edited and extracted from his inaugural address at the India Innovation, Intellectual Property and Competition Conference.

Why are so many companies and people interested in India at the moment? Frankly, one of the reasons is that we have an asset called ‘the marketplace’. Research ideas must ultimately find their way to this marketplace. Our management research focus should not be just on invention. How do we take these ideas further to shape them from the viewpoint of usability? How do we address the challenges of consumers, design and manufacturability to meet supply and demand chain requirements? How do we find ways to exploit inventions with appropriate go-to-market strategies that may include customer education and solutions that make inventions simpler and more useful? In order to take an idea from the lab to the marketplace, we cannot just stop at invention without thinking of innovation and entrepreneurship. We need to embed these ideas into the marketplace. That is the balance between theory and practice.

Let’s talk about the flagship ‘Make in India’ programme as an example. In the telecom sector, we are assembling rather than making in India. How can we reverse the situation?¹

If you look at the Indian mobile telecommunications market, we have several players that are big. But the technology that we are using originally came from Ericsson or Nokia. Increasingly, it is coming from Chinese players such as Huawei and ZTE.² When will we start investing in technological innovation?

Or look at clean energy. India has made a lot of commitments to renewable energies, wind and solar. But where is the technology coming from? Except for a little bit from India, most of it is coming from places like Germany and particularly of late, China. Despite having the market, why are Indian companies not generating the technology? We need product innovation, not just service innovation. Otherwise, we will end up with a very small stake in the payoffs. A company like Amazon in 2017 spent more on research and development (R&D) than India does. We need to correct that.³

Consider Start-up India. Do we have the policies in place to help entrepreneurs get off the ground? It is not just starting capital that they need. They need the elbow room to establish themselves in the marketplace.

In general, we have a situation where we have the innovation, the ideas, the intellectual property (IP) policy and the competitive setup. Yet something is going wrong. There is a lot of complexity here. A balance is needed between product innovation, service innovation and process innovation. Then there is the question of design and innovation: do we manufacture or assemble, innovate or exploit existing technologies? For example, if an industry in India operates on third-generation technology, do we really need to worry about fifth-generation technology? Or can process innovations and product simplifications help increase productivity and make third or fourth generations available to everyone?

Whether it is household appliances, automotive sector, consumer electronics or pharmaceuticals, companies from emerging – or rather “growth” markets – have typically started at the low end of the price continuum and fought their way up. This is true of Toyota, Samsung, Foxconn, or Eicher Motors. Related is the whole issue of value migration. How do we capture value? Let us not view the issue in terms of products or patents alone. A lot of the value lies in the reputation generated by a company’s commitment to quality and service. This value is embodied in the trust placed in brands and trademarks.

How do we go up the value ladder, without simply relying on the human cost factor as a way to compete? How do we develop more trust in the marketplace? These questions must be part of our innovation discussion as well.

Bridging East and West

There is so much going on in the East. We must come up with appropriate frameworks that can integrate how business is done in the East and in the West. If a Taiwanese company such as Foxconn can think of investing billions of dollars in India, they must have done something right.⁴ Taiwan Semiconductor Manufacturing Company (TSMC) has given Intel a run for their money.⁵ We need to understand how and why. Partly as a contract manufacturer for multiple Original Equipment Manufacturers (OEMs), they learned and integrated design and process insights from across their business-tobusiness (B2B) customers.

If a Taiwanese company such as Foxconn can think of investing billions of dollars in India, they must have done something right. Taiwan Semiconductor Manufacturing Company (TSMC) has given Intel a run for their money. We need to understand how and why.

The issue of product innovation in the West versus process innovation in the East also deserves some attention. Let me explain with an old example: Henry Ford did not develop the internal combustion engine. That was the invention. What he developed was the assembly line. He generated a process to improve productivity which reduced the time for manufacturing a car from over 12 hours to about 90 minutes.

That same kind of logic can, for example, be extended into healthcare. Medical networks like Mayo Clinic or MD Anderson Cancer Centre or Sloan Kettering may be doing a lot of very original work in medical research. But one must come to Aravind Eye Care to see how to do cataract operations for less than $20 per person.⁶ Essentially, Aravind Eye Care brings the assembly line from Ford Motors into healthcare (Thomas 2017).

Let me share an anecdote. I was travelling from Singapore to Hyderabad a few months ago. Sitting next to me was a surgeon from the National University of Singapore Health Centre. He did liver transplants. He said he was very envious of his Indian colleagues.

I asked him why. There are plenty more research resources available in Singapore, compared to India. “You don’t understand, Raj”, he said. “If I am lucky, I get to do one or two operations, a month. My colleagues in India are doing one or two every day.

“If practice makes perfect, and there is value to refining the processes as well, India can certainly be in a position to capture that.

The Institutional Tussle

It is critical to understand competitive assets, beyond IP. In fact, IP can be hard to define sometimes. With this complexity, there needs to be a dialogue between multiple parties, having different objectives.

There is a tussle between different bodies involved in the management of innovation. At one end, we have people who are responsible for ensuring competition for public good. On the other hand, we are looking at the protection and exploitation of IP assets. These two goals are at odds with each other. The more we protect, the less is available to the public.

In the market, the government represents the citizens. It looks at innovation through a particular lens, which is: how do we make the product or the idea more accessible and more affordable in the market? On the other hand, the corporate sector has made the investment. They are looking for ways to recover and generate benefits for shareholders and employees in addition to making the products available to the consumers.

In addition; there are global pressures, from national interest, whether of the United States, China or Australia for that matter.⁷ So we have many competing interests here. We need to manage these competing interests on at least three levels. One is at the societal and the government level, the second is at the corporate level and the third is at the individual level. Each of these levels requires very different kinds of thinking.

It is in this context that we are hosting the ‘India Innovation, Intellectual Property and Competition’ Conference. These are starting steps in these directions. I hope this conference helps lay the road map for what needs to happen. We hope that more universities and corporates will join us and that we will get more support from the government agencies.

Endnotes

¹ “Currently, more than 90% of the mobile components are imported in India and the segment relies heavily on shipments from China anvd Taiwan for handsets manufactured in India,” according to a Forbes India article (Kashyap 2017).

² An E T Telecom story claimed that Chinese “telecom gear maker ZTE” is increasing its investment in India (Khan 2017). “The operations of China’s Huawei Technologies Co and ZTE Corp in India are growing like ‘gangbusters’, noted Choudhury (2014). “China’s Huawei, the world’s second-largest maker of routers and other telecommunication gear, plans to invest $2 billion in India. It is eyeing more business from Bharti Airtel, Vodafone and Idea Cellular.”

³ According to a report by the Press Trust of India (2018), the 2017-18 Economic Survey estimated India’s investment measured in terms of Gross Expenditure on R&D at Rs 1,04,864 crore in 2016-17 or about US$15.24 billion. In contrast, Amazon’s 2017 expenditure on R&D was US$ 16.1 billion, as per data from the PricewaterhouseCoopers 2017 Global Innovation 1000 study (Jaruzelski et al 2017). Interestingly, Jaruzelski et al (2017) estimate India’s total R&D spending at $28 billion in 2015, but that number includes “companies from other countries”.

⁴ According to Aulakh (2018), “Foxconn had signed an MoU with the Maharashtra government in August 2015 to set up a large mobile phone and phone parts manufacturing factory over 1,500 acres near Mumbai-Pune expressway.”

⁵ “For the first time the world’s most powerful chips will be made by TSMC, not by Intel, its American rival,” according to The Economist (2018). ⁶ Treatment in the Arvind Eye Care System Hospital is either free or subsidised for the poor. For example, the cataract operation for a poor daily wage labourer, including medication and stay at the hospital cost US$16 (Karmali 2010).

⁷ See, for example, Weightman (2018).

Know More

Aulakh, G., 2018. Committed to investing $5 billion in Maharashtra: Foxconn. Economic Times Finance, 17 February.

Choudhury, U., 2014. How Chinese telecom firms will thrive in India despite ‘spy alert’. FirstPost, 20 December.

Jaruzelski, B., Schwartz, K. and Staack, V., 2017. Will Stronger Borders Weaken Innovation? s+b, 24 October, Winter, Issue 89.

Karmali, N., 2010. Aravind Eye Care’s Vision for India. Forbes India, 5 March.

Kashyap, K., 2017. Here’s How India Is Becoming a Hub for Smartphone Manufacturing in South Asia. Forbes India, 22 February.

Khan, Danish, 2017. China’s ZTE increasing investments in India to capture 5G opportunity. ET Telecom, 17 October.

PTI, 2018. India’s R&D spend stagnant for 20 years at 0.7% of GDP. Economic Times, 29 January.

The Economist, 2018. TSMC is about to become the world’s most advanced chipmaker. Retrieved 13 June 2018. https://www.economist.com/business/2018/04/05/tsmc-is-about-to-become-the-worlds-most-advanced-chipmaker

Thomas, M., 2017. With an assembly line approach, an Indian hospital chain performs 250,000 eye surgeries a year. Quartz India, 3 October.

Weightman, W., 2018. Why China Won’t Abandon Its Controversial Trade Policies. The Diplomat, 24 May.

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