Monday, September 22, 2014

Business at the Bottom of Pyramid and secular stagnation

The Times has a nice story about how multi-national companies are investing in developing lower cost consumer durables besides exploring channels to reach out to consumers at the "bottom of the pyramid".

Two things stood out. The first is the trend of innovations for the "bottom of the pyramid" finding an even bigger market in developed economies. 
Many products are transcending their original markets and appealing to a more affluent consumer... G.E. realized more than a decade ago that products devised for the Indian market might appeal to more developed markets, and planted the company’s largest and first international research and development center here. The lab has 4,500 engineers, 1,600 of whom work on health care innovations.  “There has been a shift,” said Shyam Rajan, chief technology officer at Wipro GE Healthcare. “Before, it was in India for India. Today, it is in India for the world.” 
The MAC 400, an electrocardiograph machine, was the first product G.E. moved from here to the rest of the world. About one-third the price of the company’s higher-end EKG machines, it is battery-operated and portable. It also is made of parts that can be bought in local electric and home supply shops, rather than the proprietary components G.E. typically uses. Of the 15,000 Mac 400s that G.E. has sold, 60 percent were sold outside India. The Lullaby baby warmer, now used in Europe, was built with feedback from Indian doctors and nurses in the field.
The second observation relates to the nature of transformation in these markets which already have established and profitable products. Businesses have come to accept a two-tier market, even at the cost of their existing business lines. 
Is G.E. sacrificing sales of its Cadillac baby warmer, the Giraffe, to the Lullaby? “It’s better to cannibalize yourself than let someone else do so — and that was going to happen with these products,” he said. “Anyway, the amount of market we created that was not there before more than makes up for it.”
The larger point is that proponents of secular stagnation - average is over, lack of profitable investment opportunities etc - surprisingly overlook the role that trade and globalization can play in reviving economic growth in developed economies. The market at the bottom of the pyramid, as the article highlights, is a potentially excellent opportunity for greater innovation (low cost, environment friendly, and sustainable) and business profits.    

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