SOMEDAY YOU WILL REAP WHAT YOU SOW
India: The New Global Business Opportunity
Arun Maira
The Boston Consulting Group
San Francisco
PRESSURES ON COMPANIES IN DEVELOPED COUNTRIES
Need for innovations in products and business models
Intense competition between firms in developed countries in their own
developed country markets
Competition between firms for customers in developing countries
Emerging of new competitors from developing countries
Pressure on prices and margins
CII- Symposium on “India!-The New Global Business Opportunity - 11 Apr '05, San Francisco
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THREE OUT OF FOUR EXECUTIVES PLAN TO INCREASE
INNOVATION SPENDING IN 2005
How will your company’s investments in innovation change this year?
Percentage of
respondents
2004
2005
100%
74%
80%
64%
60%
40%
31%
21%
20%
5%
5%
0%
Decrease
No change
Increase
Source: BCG 2005 ITC Survey
CII- Symposium on “India!-The New Global Business Opportunity - 11 Apr '05, San Francisco
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MOST EXECUTIVES ARE NOT SATISFIED WITH THE RETURN ON
INNOVATION SPENDING
Are you satisfied with the financial return on your investments in innovation?
Percentage of
respondents
100%
80%
51%
48%
51%
52%
49%
52%
49%
48%
World wide
Asia
Europe
North America
60%
40%
20%
0%
Source: BCG 2005 ITC Survey
No
Yes
CII- Symposium on “India!-The New Global Business Opportunity - 11 Apr '05, San Francisco
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Case Study: Automobiles
INCREASED COMPETITION IN DEVELOPED MARKETS REQUIRES
INCREASING INVESTMENTS IN NEW CAR MODELS
Average life of new models (Europe)
Number of vehicle models(1)
Life (years)
16
14
Increasing models and decreasing
sales per model (US Market)
1500
14
1050
1000
12
550
500
9.7
9.2
10
8
0
8.0
7.5
6
7.5
7.4
9.1
7.2
7.2
8.0
1980
6.7
Avg. total sales per model(2)
5.1
7.2
4.5
6.0
4
1999
5.1
30000
4.6
2
20500
15000
20000
10000
0
0
80
82
84
86
88
90 92 94 96
Year of introduction
1980
1999
(1) Total number of models of cars and light trucks
(2) Average total annual sales per model
Source: Automotive News
CII- Symposium on “India!-The New Global Business Opportunity - 11 Apr '05, San Francisco
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Case Study: Automobiles
INDIAN AUTOMOBILE INDUSTRY HAS DEVELOPED CAPABILITIES
UP THE VALUE CHAIN
Global average development cost of new car > $600m
R&D/Product
development
Tata Indica- $350 m
M & M Scorpio- $150 m
Very high quality: 1 Japan Quality Medal and 5 Deming Prize
Winners- largest number outside Japan
Component
manufacture
Exports growing 30% per annum; 80% to 'developed' countries
Low capital intensity, BEP <100k units/ annum
BEP is 150-200k units/ annum)
Assembly
(Global
Total Manufacturing Cost 20- 30 % less than USA
CII- Symposium on “India!-The New Global Business Opportunity - 11 Apr '05, San Francisco
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Case Study: Healthcare and Pharma
COSTS OF MEDICINES AND HEALTHCARE SOARING
IN DEVELOPED COUNTRIES
1.8
1.6
CAGR UK: 9.2%
CAGR Ger: 6.2%
Total USA Healthcare Spending
US$ Trillion
US$(‘000s)
Annual Household Expenditure on Healthcare
1.4
1.2
1.8
1.4
1
1.2
0.8
1
0.6
0.8
0.4
0.6
0.2
0.4
0
0.2
2001
2002
UK
2003
Germany
2004
(EST)
CAGR: 10.9%
1.6
0
2000
2001
2002
Source: EIU, Literature Review
CII- Symposium on “India!-The New Global Business Opportunity - 11 Apr '05, San Francisco
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Case Study: Healthcare and Pharma
R&D COSTS & PRODUCTIVITY OF US PHARMA PROBLEMATIC
CII- Symposium on “India!-The New Global Business Opportunity - 11 Apr '05, San Francisco
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Case Study: Healthcare and Pharma
LOW COST, HIGH QUALITY MEDICAL CAPABILITIES
AVAILABLE IN INDIA
Healthcare Cost Differential
Cost Saving
Quality a Key Factor
850
Gall Bladder
Transplant
80%
8000
4400
Heart Surgery
91.2%
50000
Bone Marrow
Transplant
30000
400000
92.5%
600
Salary: Nurse
50000
98.8%
4000
Salary: Doctor
180000
0
40000
20000
USA
60000
80000
US$
97.7%
Not just cost
advantage:
•The success rate
in the 43,000
cardiac surgeries
till 2002 was 98.5%
•India's success in
110 bone marrow
transplants is 80%
India
Source: IBEF, Literature Review
CII- Symposium on “India!-The New Global Business Opportunity - 11 Apr '05, San Francisco
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Case Study: Healthcare and Pharma
COST EFFECTIVE AND GOOD QUALITY DRUG
DEVELOPMENT AND MANUFACTURE
DEVELOPMENT
(Example: Disease- Psoriasis)
USFDA Approved Plants Outside USA
DRUGS IN USA
• Cost of developmenthundreds of million dollars
India
61
Italy
60
• Amgen antibody- $10.00/
dose
Spain
• Cost of treatment- $20,000
China
INDIAN DRUG
• Time for development- 3
years
• Cost of development- $4 m!
• Cost of treatment- $50 !!
CII- Symposium on “India!-The New Global Business Opportunity - 11 Apr '05, San Francisco
25
22
Taiwan
9
Israel
7
Hungary
5
0
20
40
60
80
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INDIA HAS A LARGE RESERVOIR OF HUMAN RESOURCES
Reaping What You Sow
Potential surplus population in working age group (2020)
Ireland
Russia
0M
U.K.
-2M
-17M
-3M
France
U.S.
Czech
Italy
2M
2M
-2M
Turkey
Israel
4M
5M
0M
Egypt
Mexico
-6
M
-1M Republic
Iraq
Iran
3M
China
Pakistan
19
M
47
M
India
-10
M
-9M
Japan
7
M
Bangladesh
5M
Vietnam
4M
Philippines
Malaysia
1M
5M
3M
Indonesia
Brazil
Note: Potential surplus is calculated keeping the ratio of working population (age group 15 – 59) to total population constant
Source: U.S. Bureau of the Census International Data Base; BCG Analysis
CII- Symposium on “India!-The New Global Business Opportunity - 11 Apr '05, San Francisco
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SOMEDAY REAPING WHAT YOU SOW
INDIA'S LEGACY
INDIA'S OPPORTUNITIES
• Vertical
integration
• Small
volumes, but
growing
• Logistics &
infrastructure
problems
MASS
MANUFACTURING

CII- Symposium on “India!-The New Global Business Opportunity - 11 Apr '05, San Francisco
Small
volume,
high
variety,
low cost
mfg

REMOTELY
PROVIDED
SERVICES

INDIA'S
STRENGTHS
• Domain
knowledge
• Software
capabilities
• Remote
delivery
possible
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INDIA EMERGING AS A "KNOWLEDGE SERVICES" HUB
IN THE WORLD
Skilled people; Low costs; IT capabilities; English
Remotely delivered services
Industry
Transaction
processing
Design and
analysis
Information Tech


Research
and
developmen
t

Pharma/Healthcare



Education Services




Chemicals



Value
added
tourism

Leisure
tourism

Auto/ engineering
Financial Services
Import of customers
to service in India

Source: BCG Analysis
CII- Symposium on “India!-The New Global Business Opportunity - 11 Apr '05, San Francisco
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