"India to follow $2,000 car with $20 laptop" was the headline in a Financial Times article on February 1, 2009. According to the article, about 550 million of India’s population is under the age of 25 and the country needs to find cost-effective ways to teach contemporary skills to this group. The laptop will have 2GB of memory and built-in wireless networking. The secretary of secondary and higher education, Mr. R.P. Agarwal, told reporters last week that he expected the eventual cost of the laptop to fall below $20.

The Financial Times understands the magnitude of the event and the trend. The $2,000 Tata Nano is a revolutionary product in its scope and global impact. A huge number of families in India make do with a scooter for their family's transport. Even in Mumbai, it is fairly common to find a family of four traveling on a scooter with the smaller child standing between the husband driver's legs while the older child sits on the lap of the wife seating in the passenger seat of the scooter. Highly unsafe, but the only choice for hundreds of millions of families all across India. The Tata Nana brings affordable automobile ownership to this huge market. The scale of the market is such that other manufacturers like Nissan and Suzuki have announced their own plans to manufacture cars at similar prices.

The combination of an unbeatable price and a pent up demand from a huge local market can create huge efficiencies for Tata,Nissan, Suzuki. This scale and efficiency will enable Tata and others to export these cars to the entire emerging world and perhaps even to urban centers in Europe and America. Besides opening up global markets, such inexpensive cars will make India the global hub of a new generation of automobile component design and manufacturing.

If the $20 laptop becomes a commercial reality, it will similarly change the nature of technology manufacturing. After all, you cannot have a $25 Sandisk flash drive for a $20 laptop. Every component will have to redesigned and manufactured for a price that is a fraction of today's price - the LCD screen, the disk drives, the chips etc. The pent up demand for a $20 laptop in India is enormous and this product could catapult India into a global hub for durable, low-cost technology manufacturing. Schools in every emerging market country and in lower income communities in developed countries will line up to buy such inexpensive laptops.

A Product Revolution in India

These two products are the most visible examples of a revolution that seems to be taking place in the Indian market. Ironically, the factors that used to be considered as India's intractable problems are now being regarded as India's core strengths.

For decades, Indians were told that India's population growth was its biggest problem. They were told to emulate China which implemented a draconian one-child only policy in the 1980s. That has proved to be a major mistake. Thanks to the one-child policy, Chinese society is rapidly getting older, even older than American society which is being rejuvenated by immigration.

India, on the other hand, will have the world's largest consuming population by 2015. Today, this translates into an enormous  market with substantial buying power and huge pent-up demand. This is why the race is on to supply this market with the products it needs. Though poor, the Indian consumer demands durability and a basic level of quality in the products they buy. After all, they cannot afford to buy the same product twice.

The companies that can make durable, desirable products at an inexpensive price do very well in the Indian market. This is why Nokia has been so successful in India. They sold relatively inexpensive phones that had two advantages; any Nokia charger could be use to recharge the battery of any Nokia phone and the products were so durable that they worked even when dropped on the road or in a pool of water.

The Indian market presents another huge challenge to product designers. India is a diverse, multi-ethnic, multi-cultural society with 26 official languages and several scripts. To complicate matters, a large segment of the Indian population is illiterate. The challenge is to make products that work across this diversity. Again, the size and the buying power of the market is worth the trouble, at least to global giants like Microsoft and Citibank.It has been reported that Microsoft is developing language independent software that can be used by illiterate users and Citibank is experimenting with a product that works with thumb prints.  

A product that meets the cost, durability, multi-language, multi-script demands of the Indian market can work anywhere in the world. A product that is successful in the huge Indian market will have cost efficiency to compete against any local or regional market in the world. This is why, Indian companies with a dominant presence in India are expanding their operations to the rest of the world and this is why, smart global multinationals are investing so much to become successful in the Indian market.

Who would have thought that the relative poverty and the chaotic diversity of India would translate into an enduring competitive advantage to Indian multinationals or Global Multinationals with a large Indian presence.

Parallels to how and why America won over Europe 100 years ago

This reminds us of how America came to dominate Europe. Think back to a 100 years ago, when Europe was the world's dominant market. European companies made high end products and consumers around the world raved about their design and quality. That is, consumers who could afford to buy those products. Europe had the highest standard of living and European companies were content to market to European consumers and rich global consumers.

America, on the other hand, was a relatively fledgling economy teeming with a large and growing population of modest means. The high quality European products were beyond the means of the average American consumer. Dominant European companies of that time did not wish to sully their brands by reaching down to the average American consumer. 

These companies missed the reality that the American market was growing into the first mass market in the world. This enabled the early American companies to focus on the American market without any competition from European giants. American companies began making basic but durable products for the multi-ethnic American mass market. Europeans derided these products just like the American TV anchors who scoff at the $2,000 Indian car.

Supplying the large and growing American market provided American companies unbeatable efficiencies of scale and price that European companies could not match. Slowly but surely, the quality of American products improved and matched that of European products. Supported by the American mass market, American companies could sell their products at prices that Europeans could not match. This enabled American companies to export their products to the middle and lower segments of the European markets and from there to the rest of the world. The era of the American Multinational had begun. Europe could never recover and became restricted to being a niche player at the high end.

Is this cycle being repeated with India presenting the same challenge to America that America posed to Europe over 100 years ago? To a certain extent it already has. The Indian Software Development Sector has already become so dominant that no software company in the world can survive without a major Indian presence. The success of Bollywood has been so spectacular that Hollywood is now forced to follow Bollywood's lead and be content to provide capital and technical knowhow to Indian made films. (see our article "First Snoop Dogg And Now Sylvester Stallone - Everyone Is Getting Aboard The Bolly-Holly Train" - February 7, 2009 - http://cinemarasik.com/2009/02/07/first-snoop-dogg-now-sylvester-stallone--everyone-is-getting-aboard-the-bollyholly-train.aspx)


We think the Indian market poses the same existential challenge to American companies today that the American market posed to European companies a century ago. The best American companies clearly concur. That is why smart American companies like IBM, Microsoft, NBC are increasing their presence in India despite the slowdown and cutbacks in America.

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