Table Of ContentIndia Studies in Business and Economics
Rajnish Tiwari
Cornelius Herstatt
Aiming Big
with Small
Cars
Emergence of a Lead Market in India
Aiming Big with Small Cars
India Studies in Business and Economics
The Indian economy is considered to be one of the fastest growing economies
of the world with India amongst the most important G-20 economies. Ever since
the Indian economy made its presence felt on the global platform, the research
community is now even more interested in studying and analyzing what India
has to offer. This series aims to bring forth the latest studies and research about
Indiafromtheareasofeconomics,business,andmanagementscience.
The titles featured in this series will present rigorous empirical research, often
accompanied by policy recommendations, evoke and evaluate various aspects of
the economyand the business and management landscape inIndia,with aspecial
focusonIndia’srelationshipwiththeworldintermsofbusinessandtrade.
For furthervolumes:
http://www.springer.com/series/11234
Rajnish Tiwari (cid:129) Cornelius Herstatt
Aiming Big with Small Cars
Emergence of a Lead Market in India
RajnishTiwari
CorneliusHerstatt
InstituteforTechnologyandInnovationManagement
HamburgUniversityofTechnology
Hamburg
Germany
ISBN978-3-319-02065-5 ISBN978-3-319-02066-2(eBook)
DOI10.1007/978-3-319-02066-2
SpringerChamHeidelbergNewYorkDordrechtLondon
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Thereisnoletterinthealphabet,with
which(atleast)somemantradoesnot
begin;
There is no plant on earth, whose
rootsarecompletelydevoidofmedic-
inalproperties;
There is no human being, who is
completelyincapable;
Rather, it is the promoter, with the
abilitytorecognizethishiddenpoten-
tial,whoisrare.
(Ancient Sanskrit saying from India,
attributedtoShukracharya)
ThiSisaFMBlankPage
Executive Summary
With this book we address decision-makers in business enterprises and policy-
making institutions, as well as scholars of economics and related disciplines.
Inrecentyears,especiallysincetheturnofthemillennium,theworldhaswitnessed
a tremendous and still on-going shift in the global center of economic gravity.
Developingcountriesasagroup,andmorespecificallysomelargeandfastgrowing
economies, such as the BRIC nations, are increasing their share in the global
economy.Decreasingpovertyandagrowingandincreasinglyaffluentmiddleclass
are driving the consumption in unsaturated markets still faced with infrastructural
deficiencies.Thisiscreatingnewbusinessopportunitiesforfirmstodevelopproducts
thatcanfuelgrowthwhileraisingstandardsoflivinginthosenations.However,to
benefitfromthoseopportunitiesfirmsneedtoacquirefirst-hand(technical&market)
knowledgeintherespectivegeographicalregions.
Thetraditionalconceptsbuildingupontheinternationalproductlife-cycletheory
have been rendered redundant in a globalized world, where consumers, thanks to
television and the Internet, become aware of products as soon they are launched.
NotwithstandingthewarningsgivenbyscholarslikeC.K.Prahalad,whocompared
the traditional approach to “corporate imperialism” and advocated the need
fordifferentiatedproducts,thetheoryofleadmarketshascontinuedtoemphasize
the importance of highly developed nations as the source of globally successful
innovationsthatthentickledowntodevelopingnations.However,oflate,wecan
observeatrendof“reverseinnovations”thatdiffusefromSouthtoNorth.
Inthisbook,wechallengesomeofthecoreassumptionsofthepresent-daylead
markettheoryandthe“dominantlogic”thathaveevolvedovertheyears.Usingthe
example of India’s automobile industry we investigate, whether the existence of
lead markets continues to remain confined to industrialized countries or whether
they can actually emerge outside economically highly developed nations; and if
yes,thenunderwhichconditions.
With in-depth case studies of successful product innovations from India we
identify factors that can help a firm offset the given, inherent disadvantages of
operatinginadevelopingeconomy.Thisway,businessenterprisescanidentifyand
exploitlocalstrengthsforsuccessoutsidetheirownnationalboundaries.Fromthe
vii
viii ExecutiveSummary
theoretical perspective, the objective has been to update/extend the model to the
changed (and changing) ground realities in a globalized world. The results of the
studyhaveconsiderableimplicationsfororganizationalandlocationaldecisionsin
multinationalfirmsofallsizesandvarioussectors.
We discovered that even a developing country can emerge as a lead market
forcertainproducts,providedtwomajorconditionsarefulfilled:
(a) Thesizeofthepotentialdemandinthedomesticmarketcansufficientlyoffset
thedisadvantagecreatedbythelowper-capitaincome;
(b) The country is endowed with significant technological capabilities that allow
substantialpartsofproductdevelopmentprocesstobeperformedlocally.
Both these findings are potentially significant because of their implications for
thepracticeofinnovationmanagement.
First,iftheconstraintsoflowper-capita incomearetobeoffsetbya“low-cost,
thin margin” product, then economies of scale become crucial. This implies that a
leadmarketinadevelopingcountrywilltypicallyemergeiftheproductconcerned
eitherdoesnotrequirepath-breaking,highcostresearch;oriftheinnovationprocess
can be contextualized in open global innovation networks to reduce market and
technological uncertainty. Proactive identification and use of existing technologies
invariousfields(analogies)becomesacriticalsuccessfactor.Inthisrespect,itwas
also discovered that a developing-country lead market often complements and not
completelyreplacestheexistingleadmarket,asagreatdegreeofinterconnectedness
betweentheGermanandIndianautomotivesectorrevealed.
Second, the lead market research has so far tended to “ignore” the role of
technology for the commercial success of an innovative product. The reasoning
has been that all industrialized nations are more or less on a comparable techno-
logical footing, so that technological capabilities in isolation cannot explain the
success of an innovation. As a result, the lead market theory has traditionally
believed that the place of invention is not a key factor for a lead market. This
assumption suggested that the market and the process of product development
can be decoupled from each other. In case of developing-country lead markets,
however,wefoundlocaltechnologicalcapabilitiestoplayacrucialrole;notonly
for cost reasons but also because of their “social embeddedness”. Only those
product developers, who have own, first-hand experience of customer needs and
mind-set in resource-constrained environments, can conceptualize and design a
productthatmeetstheaspirationsofthepotentialconsumer.
Another contribution lies in identifying the type of innovation, which an
emerging country lead market supports. A blind rush to cut costs by stripping
down functionalities or by compromising quality was found to be counter-
productive.Productsthatweresuccessfuloffered(atleast)“goodenough”quality
for an affordable “cost of ownership” (and not just the purchasing price) and an
attractivebrandvalue.Theproductswereconceptualizedinawaythatthecustomer
couldrather“stripthemup”byaddingadditionalfor-feefeatures.Thefreedomto
customizeone’sownproductaccordingtoone’sdisposableincomeseemstobea
keysuccessfactorinanemergingeconomylikeIndia.
ExecutiveSummary ix
Finally, this study also contributes to the overall theoretic model; in that it
identifies the “emergence process” of a (potential) lead market. The largely
expostcharacterofthepresent-dayleadmarkettheoryhasbeenamajordrawback
and point of critique. We propose a process model that could potentially signal
the emergence of a lead market at an early, fuzzy stage, potentially helping firms
in location decisions for their overseas innovation/R&D activities. While lead
markets so far have been predominantly used either by academic institutions for
macro-level economic studies or by government institutions for policy purposes,
theframeworkdevelopedhereenablesgreaterusageoftheleadmarketadvantages
bybusinessenterprises.
