Four decades ago, there was no internet, no world-wide-web, no laptop, no mobile, no space vehicles, no iPods, no iPads, no stem cell technology, and yet all these dominate our lives today. So it is a difficult exercise to predict the technological landscape of Asia during four decades from now. However, we will make an effort to have a good guess as to what the future technology could be and how that technology could influence the future Asia.

Rapidly Changing Asia

One of the most dramatic changes taking place in Asia pertains to the changing scenario in India and China. China already is critical for the wellbeing of the global economy. India soon will be. China is today world’s third largest trading nation. India was being considered as a third world country. Today there are confident predictions that India will move from being a third world country to the third most powerful country in the world. By 2050, almost 50% of world’s GDP will be contributed by India and China. This means India and China will have the same share as they enjoyed in around the seventeenth century. Indeed, India and China are being considered as the Tiger and Dragon of the global commerce. According to Goldman Sachs, India’s economy could be larger than Japan’s by 2032, while China’s could be larger than Unites States by 2039. And their astounding growth rates, if maintained over the next four decades, will create a special position for them, that will alter the geopolitical balance in a way that the commonly expressed view that 21st century will belong to Asia will no more be a wishful thinking but a hard reality.

Asia as a whole has undergone a growth in the GDP per capita by seven folds in the past 40 years and this trend of growth to varying extents depending on the specific Asian country will continue over the next 40 years. The advancements made by Japan, Korea, Taiwan, Malaysia, Singapore, besides India and China will be joined by Indonesia and Vietnam.

Asia will, however, continue to remain an uneven innovator with an uneven growth pattern.

For example, the study carried out by the Centennial Group (supported by the Asian Development Bank) shows that by 2039, India could be one sixth of the global economy with one sixth of the population. But the study also shows that the average per capita income in India could be seven to fourteen times higher than its south Asian neighbors.

In terms of technological innovations also, Asia has moved unevenly.  Japan had made a head start after the Second World War with such a rapid progress that it could be called a technological superpower and joined the OECD in 1962 itself. South Korea and Taiwan became technologically advanced nations, thanks to the emphasis on and investment in higher education, and science and technology. Singapore joined the club of technologically advanced nations by carving out a niche in specific areas (e.g. biotechnology) and also making innovative changes in public policy on welcoming and encouraging foreign nationals, who had achieved eminence in science and technology so that it did not suffer from the disadvantage of having a small human capital base because of its small size.

India and China chose their own way of growth in science and technology.

India had to face two adversities in its journey of technological innovations after it got its independence in 1947. First, as a poor country, there was a lack of financial resources, so India had to resort to “Frugal Engineering” meaning creating “more from less” all the time. Secondly, India had no access to technology ranging from satellites to nuclear power to supercomputers. So the technological development had to be based on a sort of denial driven innovation. India opened up to the rest of the world, when it liberalized its economy only in 1991. Competition brings the best of technological innovation. Lack of competition in the pre-liberalized era in India meant technological development for import substitution only.  A closed economy also meant a lack of access to foreign direct investment and a lack of access to foreign technology.

A good illustrative example is what Mr. J.R.D. Tata had said in February 1978. He said “If Telco (which was the auto manufacturing company of the Tata Group, now called Tata Motors) was allowed to manufacture cars, we would have been as good in it as it was in Tata trucks”. But then Tatas were not allowed to do so. It was only in 1993 that Ratan Tata, the Head of the Tata Group was allowed to make ‘Indica’, an indigenously created “Indian Car”. And its success led to the design, development and manufacture of Tata Nano, world’s cheapest car priced at US$2,500. Tata Nano is a product that is first to the world, from a country which was busy in creating products so far that were first to India. This is just illustrative of the impact that the opening up in 1991 had even on the technological landscape. But the real impact is even more, when one realizes that it was a post liberalized India that allowed Tatas to acquire Jaguar and Land Rover, not only making it a global auto company but also giving it an access to the superior and cutting edge high technology.

China opened its economy two decades earlier than India did. And it has reaped huge benefits from that. China is way ahead of India in all technology areas, excepting in computer software. Their own prowess in all high technology areas such as advanced space technology, aerospace technology, nuclear technology, etc. is well known. Their achievements range from the high speed bullet train to the advanced fighter jets, to the navy carrier to the advanced nuclear reactors. Massive investments in clean technology are already showing rich dividends. China has acquired a second position after the leader United States in Nano technology even after a late start.

In fact, starting late and taking a leading position is not uncommon for China. Take the case of supercomputers. After USA denied the supercomputer technology to India in mid-eighties, India created a Center for Development of Advanced Computation (C-DAC). And C-DAC created India’s first supercomputer PARAM 8000 in late eighties. China started its supercomputer initiative ten years later. Yet interestingly, China has taken a huge lead. In the recently announced list of world’s top 500 supercomputers. China has 41 of its indigenously developed supercomputers listed, as against India’s only 4 supercomputers. Even more impressively, China tops the list!

In summary, in the Asia’s march in the technology space, although both India and China are making progress, the Chinese Dragon is way ahead of the Indian Tiger.

Future Biotech

It is now commonly agreed that the twenty fist century will be the century of biology just as the twentieth century was dominated by information and communication technology (ICT). These two technologies will continue their strong influence till 2050. Therefore, we will examine the game changing influence of these two technologies in the Asian context.

Similarly, it has been argued that the twenty first century will belong to Asia. Then what will be the Asian position in this century of biology. Or from a technological angle, where will Asia be in modern biotechnology? Asia could be a leader in modern biotechnology by 2050. It could have a dominant position in a variety of frontier fields like stem cell technology, synthetic biology, pharmaco-genomics and so on.

Let us take the case of stem cell technology first. We have moved from preventive medicine (vaccines) to curative medicine (antibiotics), to predictive medicine (gene therapy) to regenerative medicine (stem cell therapy).

Fundamentally, what is stem cell technology? In the earliest stages, when embryo gets developed own cells are only general purpose building blocks. They can become any kind of specialized cells that the body needs. These are the stem cells and their versatility makes them uniquely important for clinical therapy. If one has a heart attack, stem cells have the potential to replace the damaged tissue, turning eventually into a specialized heart muscle as needed. If there is a spinal damage, stem cells can potentially replace the lost nerves and restore the ability of a paralyzed patient to walk. It can create a paradigm shift in the way diabetic patients are treated. Stem cells can become pancreatic islet cells, thus enabling a diabetic patient to have normal supply of insulin.

Some of the Asian countries took an early lead in stem cell technology. Today South Korea and Singapore are counted as being among the leaders. India and China are beginning to build on the easy promise created through judicious investment in human capital and infrastructure.

In India, more than 20 research centers are carrying out basic stem cell research. They are building stem cell based therapies for cancer, diabetes, heart disease and brain disorder such as Alzheimer’s disease. Although China so far has less than ten major stem cell research centers, yet in Taizhou, a spinoff of Beijing University called Beike Biotechnology is already using stem cells to treat more 250 patients for diseases ranging from cerebral palsy to optic nerve damage. Many of their patients come from the United States, where therapies based on stem cells are difficult to find.

And this clearly shows the early advantage that countries such as Singapore, Korea, China and India had done thru less restrictive policies concerning stem cell research.  For politically powerful minority of Americans, any therapy based on a material that has been called from the human fetus is intolerable, because it might encourage abortion to get access to the necessary cells. Most biomedical cuttings edge or frontier research in the United States got stalled. In the first few years after the near-total ban on federally funded research in stem cells, several of the leading biologists and research physicians moved to Europe and Asia, who did not suffer from restrictive policies.

In short, Asia has all the competitive advantage to become a leader in stem cell technology and therapy. This unique positioning in regenerative medicine can have an interesting consequence in medical tourism, with a few Americans coming to China for stem cell therapy with the Beike Biotechnology in Taizhou, being just a trickle that can potentially become a torrent.

Another area where Asia could lead is in the new age of “pharmaco-genomics”, personalized medicine, in which physicians can select the drugs that are most likely to help a specific patient, while at the same time ensuring that unwanted side effects are not caused. And there are two factors that are in favor of Asia. The first is that the costs of sequencing an organism’s genetic material have plummeted dramatically. The dream of sequencing an individual’s genetic makeup in perhaps 15 minutes at a cost of US$15 is not too far off. So extreme “affordability” provides ready access of such sophisticated technologies.  The second is the vast genetic diversity in Asia which aids research in pharmaco-genomics.

Gene based prevention, diagnosis and treatment could revolutionize the treatment of HIV-AIDs, cancer and so on. Genetic sequencing may be particularly useful in combating infectious diseases through the so called “reverse vaccinology”. This refers to the design of vaccines based on the computer analysis of the pathogen’s genome. Already there is a recent success of the production of a vaccine against group B meningococcus, which had escaped conventional vaccine production methods for over 40 years. And remarkably, developing this vaccine took just 18 months. So reverse vaccinology is far faster and cheaper than previous techniques.  A lot of vaccine production work is already shifting to countries such India. Aided by such affordable but advanced technologies, Asia could be a world leader in research, technology and production of modern vaccines.

The field of “synthetic biology” is developing ways to build living organisms. Simple bacteria can be made routinely by inserting synthetic genomes into empty cells. These organisms will not merely duplicate their natural predecessors but will incorporate whatever traits their designers wish to include in them. From triggering an immune response to conveying new generic material into human cells to repairing hereditary diseases to carrying out industrially useful chemicals – the promise of synthetic biology looks awesome.  Although United States has a clear lead on this, it would not be surprising if India and China take a leading position starting with the decade of 2010-20.

The replacement of traditional chemistry by processes modeled on biology will lead the way to biomimetic synthesis and closely allied to it is bio-manufacturing, the use of cells themselves to produce medically and industrially useful compounds. Cells will be genetically engineered to deliver compounds that the nature overlooked. In many cases, the cells themselves become the producer. Already scientists have produced universally acceptable blood from stem cells. Medical researchers have successfully altered complex organs in human body such as skin, liver, heart and even pancreas. By 2050, these organs will be grown in the laboratory from recipients own tissue after appropriate genetic repair and then inserted into the recipient’s body.

Another advance by 2050 will be combining engineering and electronics with biological parts to make complex systems. For example the recent work on creating artificial retinas for the blind that can link to the optic nerve and send message to the brain. Other experiments are using cells as the serving elements in detectors for pollution, bacteria, nerve agents and many other targets.

By 2050, “biogeneology”, which is the study of fundamental processes of aging, could have so advanced that a considerable progress would have been making in preventing, delaying or reversing the aging process. By 2050, Asia will see a dramatic extension in life expectancy, as the sanitation standards improve, as more effective treatments become available for infectious diseases, but also through a deliberate effort to treat biological aging as a disease and prevent it.

The following specific life –extending developments are expected to be available even before 2050.

•    Almost everyone will have their own DNA sequences. This will give access to a vast database that describes the risks, therapies and best practices based on the characteristics of their own specific genes.
•    Mitochondrial DNA will be replaced when damaged by disease or aging.
•    Most genetic disorders will be curable through gene therapy, which by 2050 will be a mature technology.
•    Age damaged immune systems will be replaced by using fresh cells grown from patient’s own bone material.
•    To replace diseased or worn out organs, doctors will grow new ones from patient’s own cells.
•    Tissue regeneration will take place without rejection. This will be made to happen, by creating, manipulating and transplanting pristine cells from patient’s own body.

These and other anti-aging therapies will make life spans of over 100 years common place.  More importantly, based on the animal studies underway at the moment, the “quality of life” will not suffer as it does today and it will be possible to retain more vigorous mid-life health and energy. This will have a direct effect on the much talked about “demographic dividend” in some Asian countries, as more productive human talent event in later stages of life becomes available.

Computers, Communications and Information Technology

Gordon Moore predicted that the computer power will double every two years but also suggested that the law may not survive beyond 2020, because transitions would have reached the atomic level limits of miniaturization. It took 42 years from 1959 to 2001 for computer speed to increase by a factor of a million. Accordingly to Denis Bushnell, who was Chief Scientist at NASA’s Langley Research Center, by 2030 the computer power is likely to grow by a factor of 100 over that in 2001.

Today’s Silicon chips will be nowhere relevant by 2020. They would have been supplanted by newer, much faster technologies. These will include optical computers, molecular computer, bicomputers and perhaps event quantum computers. Before the end of the first decade of the twenty first century, we saw the launch of IBM’s petaflop machine, which is capable of performing 1 million billion floating point operation per second. But within a year, came the announcement of Chinese joining the race with their petaflop supercomputer. As remarked earlier, China has 41 supercomputers listed in the top 500 already, as against India’s 4. Clearly by 2050, both these nations would have consolidated their position in top league.

An evolutionary change is the growing bandwidth and the use of internet. By 2020, it is predicted that a combination of fiber optics, satellite based internet backbone services and universal high speed “last mile” connections will shift all communications to the internet. Traditional telephones would have been replaced by Voice-Over-Internet protocol (VOIP). Use of what is called as Natural User Interface (NUZ) technologies, which do not employ a keyboard but use a touch or gesture would bring dramatic shifts. Similarly early successes in conversational computing (CC) will occur in narrowly focused applications such as in toys and pre-school computer tutors. Within five years, many professional and technical workers will be carrying a chatty cyber-assistant in their cell phones, capable of responding to a large number of routine verbal instructions and work related requests. Conversational computers would have become common in customer help lines, tracing lost luggage, citizen complaints, public crime reporting, and warranty fulfillment, etc. By 2050, we will be having a dialogue with our cars, appliances and houses, as conversational computer technology keeps on improving with mature Artificial Intelligence (AI).

Concurrently, the challenges of labor shortages in countries that are having aging populations are being dealt with through the use of robotic technology. In Japan and South Korea, the Government is promoting R&D in robotics for the specific purpose of reducing or eliminating their dependence on immigrant labor. It is safe to assume that widespread use of robots will occur in agriculture, transportation and healthcare.

Similarly, limited use of Artificial Intelligence is being made in specialized application such as medical diagnostics, interpretation of photo-imagery and student counseling. AI based systems would have displaced a growing range of technical and para professional workers, whose jobs involve rather routine applications of normative and cognitive skills. Evolution of such systems has the potential of reducing significantly off-shore routine while collar work requiring customer support services, back-office financial service operations, etc.

It is conceivable that by 2050, the integrated robotics, artificial intelligence and conversational computer capabilities would have measurably reduced the labor requirements in agriculture, food processing, manufacturing, in factory built housing, transportation and service sector, etc. This will have two effects. In mature industrial economies, it will free up the scarce live workers for higher value jobs. But intelligent machines and on-line cyber servants would take away jobs from semi-skilled functionaries in Asia. The cheap skilled workforce had given a great comparative advantage to many Asian countries. But as advances in IT continues to take out the routine work from labor intensive economic activities, these could cause significant paradigm shifts in the geopolitical scenarios.

Changing Landscape of Science, Technology and Innovation

There are clear indications that centre of gravity of scientific research and technological innovation is shifting towards the Asian region. This is due to several reasons.

First, there is a massive expansion in the educational and research institutions in some of the Asian countries, notably in India and China in recent years.

Second, there is a step jump in the level of R&D funding by the more advanced economies, especially, in the rapidly expanding economies in Asia, especially in the past decade or so.

Thirdly, the abundant availability of scientific talent at low cost has meant that the companies are setting up their R&D centres in countries like India and China. For instance, in India, over 760 companies from abroad have set up R&D centres, employing around 130,OOO scientists, engineers and technologists. These centres have started generating significant intellectual property (IP) for the parent organization. Companies see the advantage of the highest intellectual capital generated per dollar spent in India as Jack Welsh, the legendary CEO of General Electric had put it at the time of the inauguration of the Jack Welsh R&D Centre in Bangalore, the second biggest R&D centre of GE after their R&D centre in the US.

Fourthly, with opportunities opening up in these leading Asian countries, the reversal of brain drain is taking place. A significant number of employees of the multinational R&D centres happen to be the returning highly trained Asians in some of the best centres of excellence in scientific research. The improved economic conditions in these countries has led to availability of more sophisticated equipment. Advances in information and communication technologies has also meant an opportunity for uninterrupted continuity of contacts with their peers overseas.

Finally, tightening of intellectual property laws in most Asian countries has meant that these scientists now have an opportunity to create products that are new to the world (such as entirely new drug molecules) rather than the old way of just doing reverse engineering (such as copying existing drug molecules). Availability of such exciting intellectually stimulating challenges in their countries of origin has created a great impetus towards driving this great movement from brain drain to brain gain. Apart from this, the countries themselves have adopted proactive strategies. For example Taiwan brought back the Nobel Laureate Prof Y.T. Lee by first making an extraordinary offer to him and then making him the Minister of Science and Technology. China has special and extraordinary schemes to draw the top talent back creating special high tech facilities around them and even giving them differentiated privileges as well as remuneration. Singapore has drawn some of the world’s best leading researchers from all around the world by offering them extraordinary facilities and remuneration.

All this augurs very well for setting a stage for Asia becoming a leader in science, technology and innovation by 2050.

Potential Game Changing Technological Breakthroughs

The technological revolutions can bring a major change in the life and work of the generations to come after 2050.

The major challenge is only removing the limits that one sets on one’s own imagination. It was Wright brothers, who first thought that a human need not be restricted to a ground transport and one could fly. Their first attempt to fly took place over hundred years ago. Today we have the transatlantic flights. It was John Kennedy, who said “man on the moon”. And a great nation, United States of America, used all its technological prowess to make it happen. And one can go on with many such examples of human adventurism in thinking. With the current pace of technological change, one could conceive major breakthroughs appearing by 2050 and beyond, with the Asian miracle not only restricting itself to an economic one, but a technological one.

How does one build for the humankind a sustainable energy future? There are several “incremental” technological innovations that are currently underway, ranging from increasing the cost effectiveness of solar thermal and solar photovoltaic based energy systems. And alternative energy systems are being extensively researched on. It is predicted, for instance, that by 2035, 50% vehicles will be either electric or they will run on hydrogen. By 2050, it is predicted that 30% of our transport could be on alternative fuels, as against near 100% being on fossil fuels today. It is also predicted that 30% of all liquid fuels will be bio-fuels by 2050.

However, all this picture can change dramatically with innovations that will be “disruptive” and not merely “incremental”. For instance, the research group of Daniel Locera at MIT in USA has already got a breakthrough on splitting water at room temperature. Tara Motors from India has already partnered with his group to examine the feasibility of doing on board hydrogen generation by splitting water, which could possible run world’s cheapest car, Tata Nano, developed by Tata Motors as mentioned earlier. If that happens, Tata Nano will run on water! As we write this, it looks like a dream but who knows, within a decade it may become a reality!

After the Nobel Prize winning breakthrough by Bednorz and Muller from the IBM labs in Zurich showing that transition metal oxides could give a superconductor at temperatures that were much higher than attained earlier, the expectations were raised about  superconductor working at ambient temperatures. Last two decades intensive research work has taken place but as yet this  breakthrough has eluded us. But by 2050, if such a breakthrough occurs, then we will use such room temperature superconductor to design and develop levitating trains, which could break all the current barriers on the speeds of such trains.

Similar revolutions could occur in other areas. For example, with the ongoing incremental innovations alone, agriculture will become increasingly automated. Robots will appear in agriculture and fisheries to replace human farmers. Sensor and electronic tagging systems will monitor growth rates, nutrient levels as well as their circulation processes. Results will produce models, which study plant structures from root to tip and their growth patterns to increase the intensity of agricultural output and to feed the ever growing global population. Let us not forget that by 2050, we will have to feed around nine billion people, a significant portion being from Asia!

As the land and water become scarce, modern biotechnology will continue to make advances to give us the breakthroughs to create crops that can be grown under saline conditions and that can use just a fraction of the water and nutrients that we use today.

The danger of climate change will again be tackled through technology. Physical carbon sequestration could be aided significantly by “biosequestration” through microalgae, which use carbon dioxide most efficiently and convert the carbon dioxide, water and nutrients to lipids by photosynthesis, which in turn are converted to bio fuels. Thus coal based power plants with the biosequestration by microalgae could produce a closed loop system with no carbon dioxide release and mitigation of climate change.

Most significant discoveries and breakthroughs during the twentieth century came from the Western world exclusively. They comprised integrated circuits, which brought the information and communication technology revolution, which changed the world. They comprised the discovery of the structure of DNA, which has led to recombinant DNA technology, which is game changing for the whole humanity. With the changing landscape of science , technology and innovation in Asia, it is not unlikely that some of the potential breakthroughs that we have described above and that will be game changing might come from Asia!

But before such dreams become realities, we have to look at some harsh Asian realities at the ground and act on them innovatively and with determination. We describe both the problem and the solution in the following.

Asia as an Inclusive Innovation Leader by 2050

Despite the rise of Asia as an economic power there will be a disparity of income as well as opportunities for a vast number of Asians by 2050. The challenge will be to not only aim for growth but inclusive growth. This will require Asia to master and lead in what might be termed as ‘inclusive innovation’, which creates products and services which are available, affordable and accessible to the Asians, who, for various reasons, will continue to remain at the Bottom of the Pyramid (BoP).

Enterprises had always tried to get more (performance) from less (resource) for more (profit). This needs to change to getting more (performance) from less (resource) for more and more (people), or those billions of have nots, whose income levels are less than 2 to 4 US dollars a day. This constitutes the essence of inclusive innovation.

The examples of inclusive innovation include world’s cheapest car, Tata Nano (priced at just US$2,500), world’s cheapest mobile phone sets (priced at US$20), world’s cheapest phone call rates (costing just one cent per minute as against eight cents in the US), world’s cheapest cataract surgery (costing just US$30 as against US$3,000 in the US), world’s cheapest laptop (costing just US$35 ) and so on. And these are not dreams, they are reality. And they have been achieved by using ingenious technological innovations, business process innovations and work flow innovations.

And these great feats of inclusive innovations help firms do well (for their shareholders) as well as do good (for the society at large). It helps the nations achieve competitiveness for their firms as well as achieve the creation of a more inclusive nation comprising a much needed equitable society.  Since affordability and sustainability are the two strategies on which inclusive innovation is firmly anchored, it helps the global leadership deal with the challenges of  the crisis of global economic meltdown (and no one can guarantee that there will not be another one before or around the year 2050) or deal with the crisis of climate change (with the world still  grappling with this challenge as the currently emerging economies continue to consume more and more as 2050 draws near).

And inclusive innovation is not just good for Asia. It is good for the whole world. Jeffry Immelt, the CEO of General Electric and R. Govindarajan, a leading thinker of our times wrote a paper in the Harvard Business Review recently. They propounded an idea of ‘reverse innovation’. The GE Medical team in India had developed a portable electro cardiogram (ECG) machine at a cost that was much less than that of a similarly performing machine in the West.  Similarly, the GE Medical team in China had developed a portable Ultrasonic machine at a cost that was a fraction of the cost of a similarly performing machine in the West. And GE found that a market was emerging for these machines in the Western world. They observed that this phenomenon was the reverse of the usual phenomenon, wherein the western researchers would develop an expensive machine in the West and make it affordable to the resource poor world by dropping out certain features and functionalities that were adding to the high cost. They recognized the reversal of this phenomenon by arguing that Asian countries such as China, India and others are going to be the hotbeds of global innovations in the future.

Whether it is reverse innovation or inclusive innovation, it is clear that the Asian businesses of the future will achieve the twin objectives that are as valuable today as they will be valid in 2050 for the reasons we have explained earlier. And that pertains to the leadership that the Asian firms would have achieved in doing good while they are doing well and creating value for many, when they are creating value for money. These should form a strong foundation on which the Asia 2050 Technology Vision should be based.

December 9, 2010

Why Inclusive Innovation

Innovation today is widely recognized as a major source of competitiveness and economic growth for all countries – advanced and emerging economies alike. Its significant role in creating jobs, generating incomes and improving living standards is now well-understood.

However, instead of viewing innovation strictly in terms of competitiveness and as a strategy to support high value-added employment, it should also be conceived as a means of promoting `inclusive growth’.  Inclusive growth embraces the have nots and brings them into the mainstream of the economic system as customers, employees, distributors and intermediaries. Inclusive growth will lead to resource poor people gaining access to essential necessities of life at affordable prices. Inclusive growth can be accelerated through inclusive innovation.

For achieving `truly’ inclusive innovation, we will have to cater to the needs of 4 billion people, whose income levels are less than $ 2 per day. For this, we need to make some paradigm shifts. For instance, getting more (performance) by using less (resources) for more (profit) is a well known strategy of industrial enterprises. However, when we achieve more (performance) by using less (resources) for more (people) then alone we can  create ‘inclusive growth’. Let us call this “more from less for more people” paradigm as an MLM paradigm1.

The Challenge of MLM

The objective of MLM type of innovation would not be just to produce low performance, cheap knock-off versions of rich country technologies so that they can be marketed to poor people. Rather, the objective is to harness sophisticated science and technology know-how to invent, design, produce and distribute high performance technologies at prices that can be afforded by majority of people2,3.

If the MLM paradigm is made into a reality then the poor can potentially have the same ‘functional and emotional experience’ as the rich have for a fraction of the price. For example, a two wheeler scooter owner in India today can afford to buy world’s cheapest car, Tata Nano, costing $ 2,000.  And this car is a proper car.  It is comfortable, fuel efficient and environmental friendly.  So this is an example of an innovation that is truly ‘inclusive’.

The challenge of serving these billions of people lies in moving from ‘low cost’ to  ‘ultra low cost’ and from ‘incremental innovation’ to ‘disruptive innovation’, so that not just `affordable’ but `extremely affordable’ products and services can be created for these billions.

The Indian MLM Strength

Contextual factors have undoubtedly facilitated the growth of Indian MLM capacity. There are five factors that stand out.
First, the country’s political leaders experimented with socialism for more than four decades, which kept out foreign capital and technologies, but spurred local innovation. Indian engineers, backed by government funding, developed some of the lowest cost nuclear weapons, rockets, imaging techniques, supercomputers by depending only on their own ingenuity.
Second, the Indian economy didn’t start growing until the 1990s, so local companies were small. For example, in 2008, India’s then largest pharmaceutical company, Ranbaxy, made $800 million in revenues, which was 60 times less than the $48 billion that Pfizer made and nine times less than what the U.S. giant budgeted for research. Indian entrepreneurs, therefore, developed a penchant for undertaking small projects and using capital carefully. They’ve changed their approach to scale since 1991, but they maintain an unwavering focus on capital efficiency.
Third, local companies know that while India has both rich and poor people, catering only to the rich limits their market. Most target the aspiring middle class family, which lives on $5,000 a year. As a result, they were forced to develop value-for-money products and services by changing the price-performance equation.

And fourth, the most important driver happens to be India’s innovation mind-set. Some Indian leaders had the audacity to question the conventional wisdom. With increasing frequency, these leaders were rejecting established ways of doing business in favour of new practices. The mix of miniscule research budgets, small size, low prices, and big ambitions had created the need to think and manage differently. Indeed it is fair to say that the combination of extreme scarcity and extreme aspiration ignited the Indian innovation.

From `Low Cost’ to  `Ultra Low Cost’

To how many of the following questions can we answer in ‘yes’?
•       Can we make a Hepatitis-B vaccine priced at US$20 per dose available at a price that is 40 times less?
•       Can we make an artificial foot priced at US$10,000 available at a price that is 300 times less?
•       Can we make a high quality cataract eye surgery available, not at US$3,000, but at a price that is 100 times less?
•       Can we make a mobile phone call at not 8 cents per minute but at a price that is 8 times lower.
Incredible as it may sound, all such MLM targets have been met in India.  Let us explain as to how such impossible looking targets have been met by just citing a few representative examples.

MLM innovations

The MLM challenge involves inclusive innovation centered around creating extremely affordable products as well as offering extremely affordable services through business process innovations, workflow innovations and so on. We must remember that innovation is all about doing things differently to make a big difference.

And here are some brilliant examples of such MLM innovations that have been successful in India.

MLM through Product Innovation: Tata Nano

The idea of Tata Nano was conceptualized by Ratan Tata himself. He gave a challenge of designing and developing a very low cost four wheeler to the young engineers in Tata Motors4. The tight price-performance envelope was such that the price of $ 2,000 was emphasized with all departments, namely design, development, production, materials, logistics and sales.

The Tata Nano team drew ideas from different sources, from helicopters to two wheelers.  For example, the mechanism of helicopter seats was used to get a solution for the design of Tata Nano seats. Window winding mechanism was inspired by helicopter windows.  The dashboard, fuel lines and lamps drew inspiration from two wheelers.

Tata Nano has contemporary styling, spacious interiors and high standards of performance.  Tata Nano has a rear mounted 624 cc, 35 bhp engine, a maximum speed of 125 km/hr with a fuel consumption of 23 km/litre.  It meets the Euro IV emission standards.

The low cost assembly line of Tata Nano, its innovative partnership with component manufacturing and the innovative business model for automobile dealerships have set new benchmarks for the global automobile industry.

MLM through Product Innovation: Chhotukool, a Nano Refrigerator

Tata Nano was produced by considering the constraints on costs that people with lean resources have. But India is full of other constraints too. India hosts the world’s largest population deprived of electricity. Some 92% of this population lives in rural India, 380 million people or 71.7 million households. The quality and quantity of power these people have access to, is very poor. The power situation in rural India cannot be fixed overnight. On the other hand, Effective refrigeration in rural areas can help people extend their access to not only food, but also essential drugs.

Godrej and Boyce took up this challenge5. They launched ChotuKool, world’s cheapest refrigerator with a $69 price tag in the spirit of Nano. The portable, top-opening unit weighs only 7.8 kg, uses high-end insulation to stay cool for hours without power and consumes half the energy used by regular refrigerators. This product had to cross several technological and social barriers.

To achieve its efficiency, the ChotuKool does not use a compressor; instead it runs on a cooling chip and a fan similar to that used in computers.  Like computers, it can run on batteries.  In a true MLM spirit, it has only 20 parts as opposed to more than 200 parts in a normal refrigerator.

The ChotuKool was co-designed with village women to ensure its acceptability. It is distributed by members of a micro-finance group. There are other business process innovations also coupled with product innovation.  For instance, the villagers will act as marketers and will earn a commission of approximately US$3 per fridge sold. This fridge is targeted at households, who earn approximately US$5 a day, of whom there are almost 100 million in India. A true MLM story!

MLM through Product  Innovation : Nano Laptop

Tata Nano and Chhotukool are examples of MLM innovations by private sector. What about the public sector?  Well, there are many.  Let us just cite the latest excitement.

On July 22, 2010, India unveiled a $30 laptop which is designed specifically for students. The laptop, designed in the spirit of Nano, is promised to be available for the students in 2011.  The device has been designed by scientists from India’s premier science and technology institutions like Indian Institute of Technology and Indian Institute of Science6.

This Nano Laptop will be no bigger than a conventional laptop. It is a single unit system with a touch screen and a built in key board along with a 2 GB RAM memory, WiFi connectivity, USB port and powered by a 2-watt system to suit poor power supply areas. The low cost laptops are proposed to be distributed in millions in schools by the Government of India.

MLM through Business Process Innovation : Indian Telecom

The telecom industry revolution in India, specifically in wireless communication, is another example of MLM, with brilliant business process innovation. This industry now adds around 20 million subscribers per month. The cost of a minute of a cell phone time is less than one cent, the lowest in the world. A mobile handset is available for as little as US$20. The cost of one SMS text message has dropped down to as little as two by thousandth of a dollar!

This journey began with an audacious dream of a visionary leader Dhirubhai Ambani, who challenged his team to innovate and bring down the cost of a phone call to that of a post card in India7.

The Reliance team said that it did not understand telecom but it did understand refining.  So the team used an innovative “refining model of telecom.” Rather than following the traditional model of purchasing telecom equipment on a cost per subscriber basis, which meant paying a massive upfront cost per subscriber fee to vendors, Reliance paid them for the volume of traffic of voice that flowed through the equipment per unit time.

Reliance also pioneered some groundbreaking marketing strategies including free text messages, free phones, free incoming calls, and more. With Reliance’ entry, outgoing call rates dropped exponentially thus creating a revolution in the Indian telecom industry. Reliance’s deal with equipment suppliers set the benchmark for the lowest equipment prices in the world. And this initial movement of providing value for money plummeted the prices and costs to the ultra-low levels that we have achieved today by leading companies like Airtel.

Indeed, the remarkable success of Airtel is a testimony to the idea that it is not the product innovation alone but the business model innovation that counts3.   At a superficial level, Airtel looks every bit like another telecom firm.  But Airtel broke the telecom paradigm. It started with two major conceptual breakthroughs.  It shifted the focus from Average Revenue Per User (ARPU) to contribution per minute and from vertical integration to outsourcing. Then it was creative in operationalizing these concepts in a systematic fashion.  Its goal was to seek the best partners in the world such as IBM, LM Ericsson, and Nokia.  With each vendor, it negotiated agreements that was a “win-win” and focused on growth.  Further, capital expenditures (fixed costs) were converted into operating expenses (variable costs).  It built rapidly an ecosystem of value added application developers and a large distribution channel piggy backing on existing small Indian retailers.  It also built a system of contract governance that provided for flexibility, learning and change.  Airtel has become one of the most benchmarked firms in the telecom industry and many telecom firms are now trying to imitate the Airtel innovation.

MLM through Work Flow Innovation: Aravind Eye Care

Aravind Eye Care system was started by G. Venkataswamy8.  His mission was to eliminate ‘needless blindness’.  The cost of a typical cataract surgery in the U.S. is around $3,000. Aravind has managed to bring down the cost to $30, performing around 300,000 surgeries per year. Aravind Eye Care has developed a cost-effective revenue model so that thousands of blind poor can be operated on for free or nearly free.  Revenues were generated from a small percentage of paying patients6.

How did they achieve this MLM feat? Instead of increasing the number of surgeons Aravind decided to find ways to increase a surgeon’s productivity9.  And it perfected an assembly line technique of surgery that increased this productivity by a factor of ten.  The inspiration for this MLM innovation was drawn from McDonalds – delivery of the same quality of products in diverse regions through highly trained staff by an assembly line operation.  The high cost of imported ophthalmic supplies was countered by setting up one’s own manufacturing unit. The costs of lenses were reduced from $100 to $2!

Manpower costs were dramatically reduced through innovative means.  Aravind hired paramedical staff with lower educational qualifications than those in other institutes, hired them from rural and backward areas and yet gave them far more responsibility than the other institutions did.  And the paramedical staff delivered.

But can such cheap eye surgery deliver quality results? A comparison of the data on some post-surgery parameters shows that Aravind Eye Care outperforms Royal College of Ophthalmic Surgeries in UK7.  So, Aravind Eye Care innovation is not about getting `less from less’. It is about getting `more from less’. And that too for `more and more people’.

MLM by Involving Masses

Since MLM innovations are for masses, an interesting question is this. Can we get the masses involved in doing the MLM innovation? The answer is in the affirmative.
India’s National Innovation Foundation (NIF) set up in the year 2000, recognized that India just does not have one billion mouths to feed, it has one billion minds that can think! NIF started scouting, promoting and rewarding the grassroots innovations and innovators. Thousands of such innovations have been documented and encouraged10.
Let us cite just one typical example. NIF identified an innovation on a rural washing machine,that can work without electricity because it is pedal driven. A Kerala school girl, Remya, developed it because she had this incredible combination of constraints coupled with her aspirations. Her father was down with cancer. Her mother was perennially ill. She had to change three buses to go to the school. She had to come home, wash her clothes and do her studies. She created this washing machine, so that she could read, while the clothes were being washed, while she pedaled away.
Interestingly, such MLM innovations meant for constrained conditions are taking place not only in a village in Kerala, but also in an institution like MIT in USA.  MIT D-Lab too has created a portable pedal powered washing machine11. With an estimated prototype price of US$127 MIT hopes that this innovation promises to vastly increase the productivity of wash women, and bring some of the benefits of an appliance often taken for granted elsewhere in the world at low-cost and without reliance on electricity. Interestingly, both Remya and the MIT team did the same MLM innovation, but their drivers were fundamentally different.

Does MLM Make Business Sense?

MLM products and services will no longer be motivated by the concerns on fulfilling the obligation of corporate social responsibility by the enterprises.  To the contrary,  MLM products and services are emerging as perhaps the biggest business opportunity of the coming decade.

Most of the growth in consumer spending is expected to come from people in emerging markets, who have a much lower spending capacity than traditional middle-class consumers in developed countries. The fastest-growing consumer class in the emerging markets of Asia consists of people spending US$2 to US$4 a day, according to a recent report from the Asian Development Bank11. This market can be served only by MLM products and services.

Indian companies are particularly well positioned to take advantage of this opportunity. They have direct access to the world’s second-largest emerging market, one in which a huge low-income group is poised to enter the middle class. By 2030, the share of the total population in the emerging middle class, those earning $4 to $20 a day, will triple, to 49 percent, or 725 million people – exceeding for the first time the number of those earning under $4 a day. An explosion of consumer demand, spread across a range of low- and middle-income segments, will allow Indian businesses to experiment with different scaling strategies, making the cost of pursuing MLM business models much lower for firms in India than for many competitors in other emerging markets.

MLM Leadership

If MLM business innovation models have to thrive,  and in turn drive accelerated inclusive growth what kind of leadership qualities will be required?  Prahalad and Mashelkar3 have identified at least five.

First, MLM CEOs must develop a deep commitment to inclusive growth, which will force them to think of unserved customers, be they rural poor, who don’t have access to telephones or urban poor, who don’t get emergency medical services.  Companies often start by asking: “Given our cost structure, which segments can we serve?”They should ask: “Given that we need to cater to the unserved, what should our cost structure be?

Second, MLM CEOs must have clear vision with a human dimension: for example,  helping poor Indians travel safely and affordably with their families; using connectivity to improve people’s work and  lives; and enabling patients to buy cheap medicines.

Third, MLM CEOs must establish ambitious goals and clear time frames for achieving them. Companies should ask: “What is our on-the-moon project?” Or, as they do in India’s boardrooms: “What is our Nano project?”
Fourth, MLM leaders must force project teams to work within self-imposed boundaries that stem from a deep understanding of   consumers. That will result in a novel, outside-in view of innovation.  The language inside their organizations should be about consumers as people, suppliers as partners, and employees as innovators.
And finally, MLM CEO’s must continuously ask “What if we change the way we operate to reduce costs and focus on return on capital employed, not just on operating margins? If we reduce prices enough and make our products available to the poor, won’t there be explosive growth as they quickly find uses for and buy our offerings?”

Finally
MLM Getting Universal Attention

The concept of MLM was first proposed by me in April 2008 in my `Prestige Innovation Lecture’ in Canberra at the meeting of Australian Academy of Technological Sciences and Engineering1. Along the way, it got enriched to an extent that the legendary C.K. Prahalad and I wrote a paper `Innovation’s Holy Grail’ in the July-August issue of Harvard Business Review3. It is getting further traction now with the World Economic Forum  meeting in New Delhi in November 2010 having a full session on MLM.
It must be emphasized that inclusive innovation through the MLM strategy forces  us to measure opportunity by the ends of innovation—what people actually get to enjoy—as opposed to just an increase in their means. In important ways, this rationale invokes a return to the traditional case for innovation—its ability to produce break-through improvements in the quality of life—alongside the usual objective of competitiveness.

We have shown as to how the combination of constraints and aspiration can provide an explosive trigger for extreme and disruptive innovation. It is clear that the MLM way of innovation, anchored  on the solid foundation of affordability and sustainability, will help us design a sustainable future for the mankind.  Finally, `doing well’ while `doing good’ will be the  mantra that the corporate world can benefit from, since then it will be able to  provide not only `value for money’ but `value for many’.