Low cost innovation is the future

With a shift in the global balance of power to Asia and a surge in growth of the region’s middle class, demand for low-cost technological innovations will be one of the key business opportunities in the coming decades.

That was the word from Girija Pande, Asia-Pacific chairman for Tata Consultancy Services, India’s largest software exporter, in a talk on leadership at NUS Business School.

Asia’s middle class – defined as households with daily expenditures of US$10 to US$100 per person – is projected to jump from 28 per cent (525 million people) of the world in 2009, to 66 per cent (3.2 billion people) by 2030, he said. Furthermore, the region’s share of world spending is predicted to climb from 23 per cent in 2009 to 59 per cent – or some US$32.5 trillion – by 2030.

Leading that charge will be the phenomenal growth of China, whose economy is expected to overtake the US by 2020, with India following not far behind.

‘Bottom of the pyramid’

Speaking at a seminar on leadership, Pande said the emergent Asia-Pacific middle class would be built on a much lower purchasing power parity than was seen in the West.

Factfile: Tata Consultancy Services
Tata Consultancy Services (TCS) is India’s biggest IT outsourcing firm.
TCS is part of the giant Tata Group, which has 28 listed companies ranging from car production to tea plantations.
TCS is one of the largest private sector employers in India, with more than 238,000 staff according to its 2012 annual report.
In April 2012 TCS announced annual revenue in excess of US$10bn for the first time, while reporting profits up 22 per cent on the previous year.

That will mean the driving force for innovation will come from “the bottom of the pyramid” he said.

“It will be low-cost innovation, which will be led by India and China because the business models are completely different.”

TCS currently derives about 53 per cent of its US$8bn global revenue from the United States, but expects that to fall below 50 per cent over the next three years, as growth from other markets led by Asia continues to increase.

And while the fallout from the financial crisis has created much uncertainty, Pande said it has also opened up big opportunities in these emerging markets for new industries, products and leaders with vision.

“Out of this doom and gloom we believe that there are going to be opportunities,” he said. “Business leaders have to look ahead, you have to far sight on this one”

The Asia-Pacific region, which currently accounts for eight per cent of the firm’s business, has been TCS’s fastest-growing market with a growth rate of 35 per cent over the past decade.

Affordable

On the back of that growth is a massive surge in urbanisation – in turn driving a growing demand for sustainable low cost technologies and infrastructure, Pande said, citing the US$2,000 Tata Nano car produced by Tata Motors as an early example.

urban280Rapid urbanisation means Asia will need smarter citiesThe car was designed first with low price in mind so as to make it an affordable mode of transport for as many Indians as possible, Pande said.

“That’s an example of innovation, which is looking at the bottom of the pyramid and providing products and services for that segment, which is a mass segment,” he said.

Other examples include Tata’s US$20 rice husk-based drinking water filter, which is sold across Africa and Asia, and a mobile application for farmers to access agricultural information on soil conditions and the amount of fertiliser to use.

With resources under pressure from growing populations – especially urbanised populations – he said companies and governments will face growing social demands that their businesses and services are environmentally sustainable.

That will spur demand for new developments in renewable energy and cleaner electric cars ­– projects in which TCS is already involved in.

For instance, Asia’s urban population is expected to grow by 500 million people in the next five years driving the growth of 100 new cities by 2025, Pande said. Consequently, that would create huge demand for sustainable and affordable housing, transportation, utilities, health care and information technology services.

That will produce a new kind of smart city, an area where China – which is now 51 per cent urbanized – is taking the lead. Chinese authorities recognise that building cities in the same way as before is simply not sustainable, Pande said, “so we have to do things differently”.

Innovation labs

Last year, China invested US$34bn in the renewable energy industry. And in the next decade, it is projected to spend US$900bn on clean energy infrastructure such as ‘smart’ power grids, electric vehicles, nuclear plants, high-speed trains, and carbon-capture storage technology.

TA6 no borderIn view of the future demand for low-cost innovative products, Pande said TCS has set up an innovation forum which involves all its information technology subsidiaries, and the firm also established 19 innovation labs across the world in partnerships with universities and start-up companies.

“We believe we can provide some smart and intelligent solutions to cities of the future as urbanisation grows,” Pande said.

Much of that, he said, would be built around developments in information communications technology such as mobile IT, internet or ‘cloud’ computing, online businesses and social networking.

Citing figures from Ericsson, Pande said an estimated US$800bn would be spent in the development of next generation, or 4G, mobile internet capability alone.

For companies like TCS looking to tap into this market, Pande said recruiting and retaining talent will be key in keeping the company competitive.

“Nothing will be possible in the years to come if companies cannot manage talent,” said Pande.

“And acquiring, discovering, training and retaining talent is going to be the most difficult task because of the opportunities. We’re going to have a war for talent.”

Young talents from generations Y and Z in particular will be in great demand, he said, and managing these generations will take a different style.

“If you cannot manage them, all these opportunities will mean nothing.

“Leadership is the ability to listen and process feedback. A prescriptive management style does not create innovation. A collaborative one does.”

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