India - A Lead Market for Frugal Innovations? Extending the Lead Market Theory to Emerging Economies

Abstract

India has emerged as a vibrant and versatile source for cost effective, "disruptive innovations" of various varieties. Price-sensitive consumers in a large and growing market keep inducing firms to apply "frugal engineering" for creating affordable products and services without compromising excessively on quality. Because, as The Economist asserts: "Frugal does not mean second-rate". Such innovations are characterized by high affordability, robustness, and "good enough" quality in a volume-driven market. Resource constraints motivate firms and entrepreneurs to think out-of-thebox. The trick lies in creating solutions that are able to circumvent given environmental constraints in a cost effective way. India's large and enormously young population faced with limited budgets, but well-endowed with high aspirations, provides an ideal experiment ground for many firms. Solutions created for the Indian market are often suitable for other developing countries in Asia, Africa and Latin America that frequently face similar socio-economic conditions. In some instances they succeed even in developed country markets by enabling significant cost reductions. This emergence as a hub for "frugal innovations" possibly suggests a "lead market" role for India.On the other hand, lead markets, as understood today, are characterized by high per capita income, great customer sophistication and high quality infrastructure. Such assumptions imply that lead markets, almost by default, can only exist in economically developed countries because only they can finance the development effort. Using two anchor-cases of product innovations aimed at pricesensitive segments in India we generate preliminary evidence to challenge some of the core assumptions of the "lead market" theory and propose that lead markets can emerge in developing countries too because market attractiveness (e.g. volume of demand, export possibilities) and technological capabilities are able to offset many other deficiencies. The supposed absence of customer sophistication is channelized into a challenge for supplier-side sophistication to design cost effective, "good enough" solutions ("low-cost, thin-margin") that can meet the aspirations of consumers in a highly competitive market. In order to master this challenge companies need access to a competent and sufficiently large technical base with first-hand knowledge of the ground situation of targeted customer groups ("social capital").

Assessing India's lead market potential for cost‐effective innovations

“…Table II shows some key factors that impact the lead market potential of a country (Tiwari and Herstatt, 2012) India's lead market potential…”

“…The lead market potential, as illustrated above, is a function of five groups of national advantages originally proposed by Beise (2004) and modified by Tiwari and Herstatt (2012): whereas "demand advantage" concerns market attractiveness (e.g. the number of potential customers, the expected economic growth and government procurement, etc.…”

“…For a more precise economic profile of India (RBI, 2011). Further references to developments, opportunities and challenges in India can be found in Tiwari and Herstatt (2012). India's lead market potential 3.1 Small commercial vehicle: Tata Ace Tata Motors Limited (TML), a publically -listed company of the Tata Group and known for introducing the world's cheapest car, the "Tata Nano", has another successful frugal innovation to its credit, namely the mini truck "Tata Ace", which was launched in May 2005. The Tata Ace is a small commercial vehicle (SCV) with a payload capacity of 0.75 tons (TML, 2005).…”

“…In the present study, we address this research gap by assessing India's lead market potential for frugal innovations and build on works by Beise (2004) and Tiwari and Herstatt (2012). We undertake in-depth studies of four product innovations from India and analyze the product characteristics, development process and market success both at home and where applicable also abroad.…”

Innovations for reaching the green sustainable development goals –where will they come from?

“…This can imply that a more downsized good is needed, which is only able to deliver the most basic functions in a low factor environment. Lately this strategy has been also discussed under the label of frugal innovations (Agarwal and Brem 2012;Tiwari and Herstatt 2012). Designing such a good requires, however, not the typical cutting edge technological capabilities, but the ability to understand the low factor environment and to adapt the product to it.…”