October 1, 2008
Strategy expert C.K. Prahalad says driving sustainability in emerging markets requires a new approach.
“Most discussions in the U.S. about eco-issues and innovation tend to be very U.S. centric. When we talk about China or India, it is mostly accusing these countries of polluting the Earth instead of saying ‘Maybe there is a solution there – and not just a problem.’”
C.K. Prahalad sees a big opportunity for eco-innovation in the rapidly growing and increasingly affluent populations of India and China. The noted business strategist and author of The New Age of Innovation and The Fortune at the Bottom of the Pyramid urged attendees at the Corporate Eco Forum Annual Meeting to rethink their preconceptions about sustainability in emerging markets. (Watch the complete keynote on the CEF video page.)
“It is my job to ask ‘Is there a more level global playing field to find solutions for our pollution problem?’” said Prahalad. “Pollution does not know any borders. It is useful to think of a solution that transcends borders.”
Prahalad shared his insight with corporate eco-strategists, including frameworks for what factors will determine sustainability success in emerging markets, and why marketing’s “Four Ps” will give way to the “Four As” in these important regions.
“Every minute, 30 Indians leave rural India for urban India. For the next 20 years, that migration will take place. That means 300 million Indians will go to urban India. There is no more space – 40-50% of large cities are already shantytowns – so Indians will have to build 500 new cities, at a minimum, in the next 20 years.”
Prahalad outlined a corresponding increase in the need for energy: “If all Indians consume 25% of what the U.S. consumes in 20 years, [India] would create another U.S. – that is the amount of energy that will be needed.”
As affluence increases in emerging nations, consumption of water, processed foods, meat and sugar increases. Prahalad cites one example. “If all Indians change their diet just a little bit –adding meat 2 times per week, for example – it will require a doubling of agricultural output.” The energy footprint of packaging is a major consideration.
Transportation is another consideration. With roads already crowded to capacity, the new Tata Nano, $2,500 car is set to hit the Indian roads shortly compounding traffic and pollution problems.
Innovation is the Solution
Prahalad explains three potential responses to rapid growth in emerging markets. 1) Keep the people poor and avoid the problems – not realistic. 2) Pressure India and China to minimize their ecological footprint – not possible. Or 3) look to emerging markets as fundamentally new sources of innovation – a real solution.
Home-grown, breakthrough innovation in emerging markets is already happening. Prahalad attributes this innovation to several factors. “The mental models in India are very different from here. We have not had 100 years of socialization. [The Western world suffers from ‘legacy mindsets.’ Indians don’t.”
“India lacks a large infrastructure. When you start with a clean sheet of paper, you only have a learning curve. In the U.S. and Europe and Japan, the bigger problem is the ‘forgetting curve.’ I spend a lot of time worrying about the forgetting curve. I believe the learning curve may be steep but the forgetting curve in most countries is flat.”
But to make eco-innovation successful in emerging markets it must be “constrained innovation.” While the idea of “innovation” in the developed world involves keeping minds and options open, eco-innovation in a country likes India start with constraints.
“Think of yourself as starting with a sandbox bounded by four sides,” explains Prahalad, outlining the following four factors as innovation constraints:
- World Class Quality - “We must have world class solutions. The assumption that ‘just-okay’ solutions are okay for China and India is not going to work. In order to solve these problems, you must apply the most advanced technology.”
- Affordability - “You have to create a level of affordability that fundamentally changes the value equation. The price performance levels have to be totally different from what they are in the U.S.”
- Scalability - “A billion people is a large market by any standard.”
- Sustainability – “ All solutions must be ecologically sustainable.”
The “Four Ps” Become the “Four As”
Can this be done? Prahalad says yes and offers the cell phone market as an example. “India represents 10 million new subscribers per month (If you are from Scandanavia, we can take over the whole market in two months…). The cost is 1 rupee (2 cents) for an overseas call. A local call is almost free... Do you know how much you pay for Verizon and Sprint here? None of you know… There is a message here: [customers in developed countries] don’t care about those costs. But if you are poor, you do.”
“Therefore the [Indian solution uses the] same cellular technology, the same device makers, and the costs are 1/10 of what they are in the U.S. – and the market is exploding.”
For companies to deliver on the four factors, executives need to begin with a new framework for marketing. “We have to start with the ’Four As’– not the ‘Four Ps’ that you all learned [as the essentials of a marketing mix.]” Prahalad described the Four As as follows:
- Awareness – How do you create awareness on a massive scale?
- Access – How do you provide universal access to all people?
- Affordability – How do you create world-class technology at a fraction of the price?
- Availability – How do you make it available to billions of consumers?
In closing, Prahalad underscored the value of technology as a facilitator for eco-innovation in emerging nations.
“Information technology will be the single most important facilitator of innovation in these countries. It is not how to reduce the use of energy in server farms but how to use information technology to fundamentally change the dynamics of innovation and get people energized.”