A few years ago, I listened to management guru C K Prahalad (Harvey C Fruehauf professor at the Michigan Business School and now co-founder of Praja) deliver an excellent and thought-provoking talk on how he sees India's future.
Prahalad spoke presciently about how a thousand incremental changes were taking place in India all the time and most of these were happening at the bottom of the pyramid. He had said that India was not changing, but morphing. Later, he told rediff.com in an interview that although change and transformation always take place from the top, "what is happening in India is autonomous experience and in a highly decentralised fashion".
He predicted dramatic changes happening in India from within and not from the top --- "Over the last 40 years, we have looked up to the central government for ways of mandating change and providing public policy. I think the consumers are changing in this country faster."
All this was before the information technology boom saw Indian IT experts, at least Indian-born IT experts, take the world by storm and rake in billions of dollars. In the process they created awe and respect for India's IT prowess even among the world's most developed nations. Prahalad was not talking about IT.
A little later, he went on to publish a paper called "Raising the Bottom of the Pyramid: Strategies for Sustainable Growth" with fellow professor Stuart Hart of the UNC Kenan-Flagler Business School. The authors had argued in the paper that the 4 billion poor people at the bottom of the economic structure represented a valid, vibrant market for goods and services --- and that large multinational companies could make big profits by meeting their needs.
"The challenge for managers is to visualise an active market when what exists is abject poverty," they wrote. "With all due respect to the importance of wetlands, it is like visualising a theme park where you see only swamp."
When Prahalad visited India this time he would have noticed that the thousand incremental changes are indeed taking place. But there is a big difference. The change isn't limited to multinational companies or the organised sector discovering new rural markets. It is about ambitious new companies mushrooming across the country and offering high quality products by taking advantage of cheaper technology, easier imports, lower duties, and access to better raw material and packaging.
Whether it is oil, biscuits, packaged tea, salt, detergent, or even hosiery they are giving the large manufacturing companies a run for their money by selling quality products at significantly lower prices, albeit to niche regional markets. These are not companies that are producing fakes, counterfeits, or look-alike products. They are confident enough to create their own identity. Speaking at a national FMCG conclave, titled "moving consumer goods faster" last week, Prahalad mentioned just one of them --- a Kanpur-based detergent company (Ghadi detergent), which was playing Nirma to the giant Hindustan Lever. Maybe Prahalad has yet to notice the others. But there are literally a thousand Nirma's that are snapping at the feet of large FMCG companies. They are offering equally good products at prices that the MNCs can never dream of. In several product categories the threat is not from China, but right here from local brands.
"Why don't people have economic opportunities? Because there's no information," Prahalad had said in his rediff.com interview. The Internet has changed all that. Today small manufacturers have all the information they need; they can access global suppliers of raw material, key ingredients (perfume, flavours and other additives) and source their packaging and labels from anywhere at competitive prices.
Initially, the big advantage of these companies is that they hardly pay any taxes, their wage bill is substantially lower, and there are no major advertising costs. All this accounts for a very high chunk of costs for large companies. Also, every time the MNCs spend on education and promotion to expand the market, the smaller companies piggyback on their efforts.
If you find this difficult to believe, just take a look at the language news channels, which offer cheaper television advertising. Or just look at the advertisements on the Hindi news channel Aaj Tak and other regional channels in the South. They are awash with high decibel advertisements for a range of products that do not come from any MNC stable. Dandi salt, Ghadi detergent, Kunwar Ajay sarees, Friendly Wash detergent, 502 Pataka chai and shoes (Campus, Lakhani, and Action).
At the FMCG conclave (organised by the Confederation of Indian Industry) in Mumbai, Prahalad correctly dismissed the FMCG sector's excuses about products not moving fast enough because of: a) a bad monsoon; b) drop in rural spending; c) shift to consumer durables; and d) fragmentation of the market.
Is it possible that the rural market has switched to other products? Over the last few years, the Indian consumer has seen a flood of products from international companies clutter the shop shelves. To many Indians, these foreign brand names are no more familiar than local brands available at far lower prices. Are they switching to the unknown brands that are cheaper and of comparable quality? Brands that market research companies would probably lump under "others" because they have a tiny localised market and no national or regional reach.
Also, in their effort to cut costs but hold up the price line, have the MNCs cut quality so much that they are providing a natural advantage to local soaps, chai brands, and oils? It would certainly seem so. A couple of weeks ago I wrote in another column that maybe Hindustan Lever ought to pay more attention to its product quality.
Speaking at a CII summit on manufacturing, HLL chairman Vindi Banga said HLL was the lowest cost producer in each of its product segments in Unilever's global empire. But is this at the cost of quality? I have stopped using HLL's Liril after finding gravel on several pieces of soap and not getting a satisfactory reply from the company. When I published my experience, several readers wrote to me with similar experiences with HLL products.
Maybe all this is helping the Indian market change even faster. Maybe rapid changes are taking place at the bottom of the pyramid which the top companies haven't noticed. Maybe people are still spending, but aren't buying the bigger, better known brands.
And maybe the companies who are proving Dr Prahalad's prediction and truly catering to the bottom of the economic structure are smaller, unknown companies and not the MNCs.