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The Rediff Business Special/C K Prahalad

A new opportunity for entrepreneurs

Emerging conglomerate discount in India

India is experimenting

There is a new opportunity for entrepreneurs. These changes will generate an unprecedented opportunity for entrepreneurs in India. But in order to exploit these opportunities, they have to confront the assumptions that underlie the industrial infrastructure that they created during the last five decades. These assumptions are so ingrained in the managerial psyche in India that it is almost like the genetic code. We have to understand and change that code.

I believe that the following were some of the key assumptions behind the industrial regime of the past:

We can become a modern nation even if we ignore 700 million people. Most of the focus of the organised corporate sector was on the top tier customers. The poor were excluded and did not constitute a market.

As we look at the opportunity in the next millennium, we have to convert the problem of poverty into an opportunity to create a consumer market. Tier #2, #3 and #4 markets are crucial for sustained development. We have to recognise that the bottom of the pyramid may be the engine of growth and change in India.

We have to recognise that we can solve the problems of India with appropriate technologies. "Appropriate" often meant that we imposed low-technology solutions -- like improving the bullock cart. It is obvious that the Indian consumer is increasingly rejecting this assumption. Whether it is the acceptance of the Internet or the cellular phone, flocking to distance education, or in demanding the best available technology for cars or shampoos, Indian consumers are rejecting old solutions.

Further, it is obvious that we cannot serve 700 millions in the bottom of the pyramid with the minimum levels of quality and functionality with old technologies. In food production (new seed, new farming methods and new methods of food preservation), in cleanliness and hygiene (water management), or in healthcare (eyecare for the millions of prematurely blind), we need a new approach.

State-of-the-art technologies -- genetically enhanced seeds, closed loop water management, new forms of detergents, or low-cost laser surgery are the answers. What is appropriate for India may be the indigenous development of high technology approaches at low cost.

We have to recognise that low scale of operations is appropriate. Scale and scalability are critical if we have to create a mass market. Operation Flood, establishment of the Centre for Development of Telematics and the Green Revolution suggest that scale and scalability are crucial.

Small-scale sector in pharmaceuticals, in telecom infrastructure or in food distribution may be inappropriate. We have to selectively marry small-scale and decentralised approach (milk origination, micro lending) with large-scale management of operations (milk processing, risk management). Ideological approach to industrial policy, especially as it relates to scale, must give way to pragmatic view of economies of scale and scope along the value chain.

Sustainability of solutions -- ecologically -- is a must. India cannot provide minimum services to its people without a deep concern for sustainability of the environment -- be it in water use, packaging or land management. Opportunity to create a mass market of 700-800 million active consumers is not about replicating the products of the West but is about developing the same level of functionality and services with new and innovative solutions that do not devastate the environment.

Price-performance levels have to be different in order to create a mass market. The price levels will have to reflect a deep understanding of the nature of the Indian market. For example, a $ 4,000 car, a $ 0.05 ice-cream, a $ 2,000 home, a bank account with less than $ 25. These are new challenges. They are also new opportunities.

The new opportunity horizon challenges the basic assumptions that the public policy-makers and the industry have jointly accepted in India for more than four decades. As managers, we need to challenge these key assumptions that have informed our industrial development -- appropriate level of technology, disregard for the environment, small-scale and high (real) cost solutions.

Most importantly, we need to challenge the assumptions that the poor are destined to stay there and the only remedy is subsidies and 'hand-outs'. We have to bring them into the market economy.

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