Thursday, August 27, 2009

Want to grow rich in India? Think poor.

Economic crisis has turned the attention of India's corporate honchos to some of the country's biggest challenges.
By Jason Overdorf - GlobalPost
Published: August 26, 2009 06:29 ET

NEW DELHI — In India, the economic crisis may actually be good news.
During the salad days of the past decade, India's entrepreneurs grew fat selling gas guzzlers and palatial homes to the country's new rich, while ignoring the needs of the biggest segment of Indian consumers: the poor. It was an expatriate Indian, the University of Michigan's C.K. Prahalad, who first posited that there were millions to be made selling to the “bottom of the pyramid.”

Now that's starting to happen.

The rich aren't buying, and Indian businessmen are finally starting to look at the teeming masses as something more than cheap labor. The result could be the solution of some of India's most persistent problems — an abysmal housing shortage, chronic underemployment and an unsustainable rate of rural-urban migration, for instance.

“The slowdown was a great thing to happen to India,” affirmed management consultant Harish Bijoor, who said the downturn has encouraged companies to look beyond the “low-hanging fruit” in the urban market to the vast multitude of consumers in India's rural heartland — which still accounts for more than two-thirds of the country's population and some 60 percent of its gross domestic product.

“There are a whole slew of energy products, both solar and thermal, and cook stoves and all types of things, all of which are aimed at reducing fuel consumption or replacing traditional fuels,” said Vijay Mahajan, founder of BASIX, a microfinance company that provides credit to more than a million poor customers. “And there's a whole slew of clean drinking water products. These have both health and economic benefits.”

The best example of the upside of the downturn, so far, comes from the real estate sector. Throughout the boom years, posh high rises were the name of the game in Indian real estate. But as the buyers for $200,000 to $1 million apartments have dried up and falling property values have left builders scrambling to finance the completion of existing projects, a dozen-odd companies have begun to take interest in building housing for the nearly endless market represented by the urban poor.

Led by Tata Housing's so-called “Nano homes,” which will go for as little as $8,000, these ventures represent the entrance of respected business leaders into the low-income housing market, including figures like Jaithirth Rao (founder of outsourcing heavyweight Mphasis), Ramesh Ramanathan (founder of the citizen's action group Janaagraha) and established companies like Bangalore's CSC Constructions. The trust factor that these players bring has given this sector new viability, according to Subir Gokarn, chief economist at Crisil, the Indian arm of Standard & Poor's.

“The focus on the base of the pyramid to create scale businesses was overdue,” Jaithirth (Jerry) Rao said. “You can sell millions of homes in this category, whereas in the upscale category you can only sell tens of thousands.”

But real estate isn't the only sector where the financial crisis has had an unexpected upside for India's future. Almost every type of business — from refrigerators to motorcycles to computers to mobile phones — is now looking to the vast market represented by India's urban poor and the legions living in its villages. By increasing competition, this expansion lowers prices, connects the dispossessed to the broader economy and makes new, income-generating products affordable.

“Telecom is a great example. The kind of price at which a rural poor person can now talk to their migrated family members and so on is incredible,” said Mahajan. “That's all happened because of the penetration rush and price competition, and the same thing is beginning to happen in microfinance, it's beginning to happen in solar energy. The volumes attract new suppliers and as more suppliers come in, then competition sets in, and it's a win-win for all sides.”

The push to widen the footprint of broadband internet and boost the average revenue per user from low-income mobile subscribers, for instance, has put more muscle behind the network-based computing devices like Novatium's NetPC — which provides a computer, broadband access, software and support to consumers for a bundled price as low as $25 a month. Recently Airtel, India's largest integrated telecommunications company, launched a similar service, while Nokia has rolled out its Nokia Life Tools range of agriculture, education and entertainment services for consumers in small towns and rural areas. Samsung has launched Solar Guru, a solar-powered mobile phone.

The sales network for fast-moving consumer goods and products like motorcycles and refrigerators is also expanding into the rural hinterland. Motorcycle maker Hero Honda, for instance, has boosted its “touch points” in rural areas from 2,000 in 2006 to 3,500 in 2008, while Godrej Consumer Products Ltd. will appoint 1,500 wholesalers in small towns and villages this year, up from 500 last year.

Eventually, Godrej plans a presence in 50,000 of India's 650,000 villages. And the impact of this expansion on Indian villagers goes beyond simply being able to buy a greater range of products closer to home. With the purchase of a motorcycle or mobile phone, for instance, a rural Indian gets much more than a leg up on the Kapurs next door. He gets a “prosperity creator” that connects him to the job market 28 miles away, said Bijoor.

Next on the docket: clean drinking water, cheap electricity, basic healthcare and other bottom of the pyramid products and services that may attract the attention of big firms, as marketers “rob the rich” for premium products so they can also sell basic necessities to the poor.

“It's a Robin Hood marketing which is going to capture the hearts and the emotive imaginations of the largest numbers of consumers in this country,” Bijoor said.

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1 comment:

Anu said...

The poor do seem to have gained focus, with Outlook business bringing out a complete edition on businesses focusing on them, and its just 50 stories they say.

I like reading your blog.