Technology and Businessin India

Ashok JhunjhunwalaTenet Group, IIT Madrasashok@tenet.res.in

I. Market

Untapped Market

• Developing countries have large untapped Market

• India has 1 billion people– 180 million households

• What is the market size ?

Example 1

• In mid 1980’s– detergent market was small

• Surf was used by 1 to 2 percent households

– Nirma reduced the price by a factor of three• market size increased immensely• detergent reaches almost 15 percent of

Indian households today

Example 2

• Cable TV– did not exist in Indian homes in 1992– today reaches 40 million homes

• costs Rs 60 to 150 per month• affordable to almost 50% of households

• TV reaches about 75 million homes in India

• Black and White TV at Rs 1200

Example 3

• Less than 5 million homes had telephones in 1990

• Introduction of– one fourth rate STD tariff in the night– STD PCOs everywhere

• As a result– over 20 % of Indians today make STD calls

• STD PCO available on every street and in every small town

• PCOs contributes to 20 % of total income for DOT and MTNL

Market Size depends on Affordability

• Nirma made detergent affordable• low operation cost made cable TV

affordable• STD PCO coupled with night-time

STD tariff made STD calls affordable

on the other hand . . .

Is Telecom and Internet Affordable ?• Investment required to install a

telephone and Internet line: Rs 35,000– with 15 % finance charges, 10 %

depreciation and 10 % operation and maintenance cost• Rs 12,000 annual recurring revenue (Rs 1000

per month) required per line• not affordable to more than 2 - 3 percent of

Indians

Telecom Affordability in India

Total number of Households = 180 millionAssumptions: 7% of family income spent on communications

35 % of investment required per year to break even

0

10

20

30

40

50

60

70

6500.00 12500.00 25000.00 40000.00

Network Cost per line (in Rs)

% o

f H

ou

se

ho

lds

(C

um

ula

tiv

e)

64%, 6500

32%, 12500

8%, 25000

1.6%, 40000

Affordable Telecom and Internet• India requires Rs 10,000 per line

Telecom and Internet connection

– will be affordable to 50 % of Indian households

– India will then be a market for 150 to 200 million Telecom and Internet connections

sum up - market

• Indian and developing countries market is very large

– but at affordable prices

II. Technology

R&D focus in West

• Telecom connection in West costs $ 1000 per line– needs a $ 350 annual recurring revenue– $ 30 per month affordable to 95% of population

in West

• Bringing down costs does not further expand market in the West – focus of R&D shifts to providing a larger

basket of services at same cost

Enhancing features and services

• Same phenomenon in Personal Computerin 1983 : PC with 8088, 128 KB memory, mono

monitor costs $ 1000

today : PC with Pentium processor, 128 MB memory, color monitor, large HD, CD costs $ 1000

• but there is no low-end $ 100 PC– because $ 1000 is affordable at large in West– focus on enhancing features rather than reducing

costs

Technology from West

• Technology developed for Western market and affordable in West

– affordable to only 1 to 5 % of Indians

– not affordable at large

R&D tasks for India

• costs of products need to be brought down further by a factor of 3 to 5

– will make it affordable at large

– market size in hundreds of million in India

– large market in other developing countries

But is such cost-reduction possible ?• Why not ?

– A challenge for R&D• attempt what does not appear to be possible

and make it happen

• Rewards are great– large Indian and developing countries market

In bringing down costs by a factor of 3 to 5, one becomes technology leader

that it is possible…. an example

• Efforts of TeNeT group at IIT Madras– aim to bring down cost of Telecom and

Internet connection• from Rs 35,000 to Rs 10,000 per line

• last five years of effort– incubated five product companies at IITM– developed WiLL, DIAS, FiLL and NMS

products– brought down costs to Rs 18,000 per line

corDECT Wireless in Local Loop

To PSTN

To Internet

35/70 kbps Internet plus simultaneous telephone

Direct Internet Access System dsl on copper

to PSTN

Internet

Always ON permanent Internet connection

In a similar way . . .

• Technologically possible to bring down cost of home PC

– from current Rs 25 - 30 K to Rs 5 - 10 K

– has a large market in India

sum up - technology

• Developing countries require

– Disruptive technological Innovation*• expands market drastically with an inferior

product• soon the new product overtakes the old even in

quality

The Innovator’s dilemma : Clayton M. Christensen

III. Distribution

Indian economic sectors

• Organised sector– works 200 to 225 days a year, 6 to 8 hours a day

• self-employed sector– works 300 to 325 days a year, 9 to 12 hours a day– manpower costs 1/3 to 1/4 of that in organised

sector– STD PCO, cable TV, milk distribution, roadside

shops• make goods and services affordable at large• a challenge to make business plan for this sector

Large Market penetration

• To make a product or service affordable at large require– the use of self-employed small sector

• to achieve 150 to 200 million telecom and Internet connections– imperative that Access network, the most

expensive and difficult part of telecom network, is franchised

– operated like cable TV connection

Sachet economy boom

• Pay and use in very small quantity– affordable, even though expensive in long

run• shampoo, paan-masala• PCO• Internet Kiosk

– Can technology provide low-cost telecom and Internet access for infrequent use • shared infrastructure

sum up - distribution

• Innovative distribution mechanism required to expand market

– involving self-employed small sector a must

IV. Business Challenges

From Services to Products

• India has made a mark in service sector– providing sophisticated and simple service– but with quality– can we take service sector to small towns

• Can we make a mark with products in the world– without having significant home market for

these products– or can we tap potential home market

• and prepare for world market

sum up

• India presents a unique business challenge– has a large potential untapped market

• of size equal to that of the rest of the world (excluding China)

– require affordable products to be designed– innovative mechanism to produce and

distribute– sound business built on values

Old and New Economy Values• employees are naukars

• or partners in every sense

• shareholders taken for granted• management is a trustee of shareholders

• where will customer go• customer is God

• vendors to be squeezed• strong vendors make you strong

• one has to manage law• business conducted legally in letter and in spirit