Domino effect of scale and Indian cost competitiveness
The landscape of geopolitics is evolving and will inform and influence geo-economics.
Earlier this week, a multinational pizza brand set media ovens humming with the launch of a pizza at Rs 49. The seven-inch pizza, priced at $0.60, is apparently the lowest cost avatar in the world -- the cheapest in Shanghai is around $3.80 and a meaty version in outlets at home base Michigan cost around $6.00. Characteristically, the launch arrived with click-bait of inflation pricing – makes one wonder if slices would arrive as the next level of cost economics.
Pricing is the preferred weapon for the expansion of difficult-to-carve market share. This month, Harley Davidson got headline attention when it launched the X440, a bike with a smaller 429CC engine, at Rs 2.29 lakh or around $ 2790, probably the smallest tag any of the Harleys carry. The nearest price competitor would be the Chinese-made X350 at CNY 33,388 costing around $ 4840.
History shows that a few seasons after arrival global brands discover the price-conscious Indian consumer and make amends to pre-conceived notions of product offerings and pricing. The Indianisation is manifest not just in McAlooTikki but across the a la carte of coffee shops and neon-lit delis fancied by yuppies. The customisation is just as visible in the offerings of wearables and the driveable!
Indian brands are pioneers of price engineering through product design. After all, it was the Cuddalore-based CavinKare, a blend of the Tamil phrase for beauty and care, which introduced the world to the scale of opportunity embedded in sachet marketing of products with Chik shampoo. Over the years both Indian and multinational brands have adopted sachets as a vehicle to expand market share—from paste to hair dyes to biscuits and oils to offer single-digit rupee price to the consumer.
The scale of India’s domestic market, informed by India’s value-for-money warriors, has enabled the scope for Indian companies to go global. A good way to chart penetration is to check out the Made-in- India branding which appears in apparel, athleisure, footwear and informal clothing sold under brands in Indian and global malls.
Scandinavian brand Ikea, popular for its ready-to-assemble furniture and home décor goods, works with 48 suppliers from India to stock their shelves across the world. US retail giant Walmart, which hopes to export $10 billion of goods sources pharmaceuticals, apparel, home textiles, food and consumables from India. Walmart and Ikea are but two of the giants scaling up sourcing of products in India.
India’s track record of cost competitiveness is not limited to daily-use goods. Its capability to engineer frugal costs in complex scientific and engineering projects is best illuminated by India’s space missions launched by ISRO. India’s Mars Orbiter Mission at $74 million cost less than the $100 million Hollywood spent in making the movie Gravity. The latest Chandrayaan 3 Mission similarly is estimated to cost Rs 615 crore or $75 million which is barely a fourth of the $291 million it cost Tom Cruise and team to produce Mission Impossible – Dead Reckoning Part One.
India’s capacity for innovation and price engineering to deliver population-scale solutions is visible across its digital infrastructure. The success of Aadhaar to enable ease of living, doing business and ease of governance is well established. India currently boasts of a digital payment system that is the envy of the world. The not-for-profit entity National Payments Corporation of India enables payments across platforms to billions. Just one platform, the Unified Payments Interface, logged over 9.3 billion transactions in June 2023.
Indeed, in recent years global majors have tapped into the ecosystem of innovation to expand operations. India, as per Nasscom, is home to over 50 per cent of the world’s Global Capability Centres. A recent Ernst and Young report estimates that by 2030 India will host over 2,400 Global Capability Centres and yield $ 110 billion in revenues. The surge is not just in the services arena.
Following the unveiling of the production-linked incentive scheme, multinationals set up shop to source electronic goods, ranging from mobile phones to laptops, from manufacturing facilities based in India. Last year, exports of smartphones crossed the $10-billion mark, led by Samsung and Apple – indeed the iPhone maker’s exports out of India jumped four-fold to cross the $5-billion mark.
The landscape of geopolitics is evolving and will inform and influence geo-economics. Last year, India’s manufacturing exports touched $ 418 billion and services exports rose to $322 billion. Indian companies supplying global players such as Walmart and Ikea and tech majors enabling the expansion of global capability centres are struggling to expand capacity. India is at the cusp of a transformative opportunity, which as per a study by Bain Capital could deliver trillion dollars in exports.
The challenge is how to scale up given the schisms in the political economy. India needs to liberate its power sector from rent-seeking electoral sops and free land and labour to enhance employment and productivity. Much rests with the states. The quest for social equity demands the installation of efficiency. Above all economic progress calls for harmony. India’s politicos must dismantle the mindset of opportunistic polarised rhetoric for short-term electoral gains and induct a strategy for long-term prosperity which a billion Indians aspire for.
Author of The Gated Republic, Aadhaar: A Biometric History of India’s 12 Digit Revolution, and Accidental India