The Impact of Disruptive Innovation to Businesses in India

by: Johnny Pan, SPI

This document is for:

European tech-based companies who are interested in entering the Indian market.
European product engineers, software developers, company leaders (such as CEOs), marketing strategists and inventors with interests in trends in disruptive innovation.
Academics with a keen interest in disruptive innovation in India.

Overview

The idea of disruptive innovation was initially defined and analysed by Clayton M. Christensen. It showed how innovation creates a new market and value network and eventually disrupts an existing market and value network, displacing established market-leading firms. It is a process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses. Visible examples of disruptive innovation include internet-based “sharing services” such as Airbnb (from hotels) and Uber (from taxis). Disruptive innovation can initially be considered inferior by the incumbent’s customers, as they are often apprehensive about the quality of lower priced product. The business focus with disruptive innovation can be said to start by appealing to low-end or unserved consumers, and then migrate to the mainstream market. In this regard, customers bide their time until the quality comes up to their expectation so that they could adopt the new product. As such, disruption can drive prices down in a market. Considering the situation and characteristics of the Indian market, Indian companies and global brands operating in India are adapting themselves to be more flexible in adopting disruptive innovation.

The current state of disruptive innovation in India

Leading position in innovation – according to a KPMG’s “2020 Global Technology Industry Innovation Survey”, India shares the 2nd position with China as the most promising source of disruptive technology across the world. Two Indian cities, Bengaluru and Mumbai, were ranked 9th and 16th respectively on the list of the world cities that are likely to become leading technology innovation hubs over the next four years. Innovations are taking place at various levels in India – from edge devices and cloud computing to compelling use cases across health, education, environment, entertainment, agriculture, automotive and other sectors.

Challenges of disruptive innovation in India

Uncertainty: with so many emerging technologies such as robotics, 3D and VR, it is indeed difficult to predict which new products on the market may eventually emerge as disruptive innovations.
Public policy concerns: disruptive innovation, in particular with internet-based “sharing services” that are changing conventional taxi and hotel markets, give rise to public policy concerns with regards to safety and privacy, and create demand for new regulations.

Innovation landscape in India

Over the past years, economic growth in India has been rapidly increased - due to its role in the global R&D landscape and its innovation performance. The country has been considered to be the most innovative economy in Central & Southern Asia since 2011. According to the Global Innovation Index (GII) 2019, India was ranked 52nd, climbing from 57th in 2018. The key strengths for Indian innovation are based on the strong performance in the human capital and research, including the number of graduates in science and engineering. The increased number of global R&D companies and improved performance in the QS university ranking are also considered important elements for India’s innovation. India has a very strong performance in ICT services exports in terms of the knowledge and technology outputs.

Additionally, with top positions in quality of universities and in quality of scientific publications, India holds the 2nd rank in the quality of innovation among the middle-income economies for the fourth consecutive year (i.e. 2016-2019). Furthermore, India also stands out in the GII ranking of the world’s top science and technology clusters, with Bengaluru, Mumbai, and New Delhi featuring prominently among the global top 100 clusters. The Bengaluru cluster is specialised in IT and has emerged as the fourth-largest technology cluster in the world. It is home to over 200 engineering colleges and has over 400 R&D centres. The city has been described as the Silicon Valley of India as well as the Outsourcing Capital of the World. The cluster in Mumbai is related to industrial and IT sectors and has also attracted a significant number of IT companies, both foreign and domestic. The New Delhi cluster acts as a pool for talent to help drive growth of the IT industry in the National Capital Region (NCR).

Innovation sectors and technology

As noted, India is strong in R&D. It is home to more than 1,000 R&D centres and often forms an essential and integrated part of the global innovation networks of many multinational companies.

There are several aspects relevant for the innovation and business sectors in India. One such is related to “frugal innovation”, indicating that firms can create radically new products, services and business models with limited resources. In this context, companies operating in India adapt to the resource issues such as poor supply chains and infrastructure, business and regulatory hurdles. This can help companies develop additional service to modify traditional business models in order to achieve greater adoption or penetration into the market. Product innovation is another key element which extends across a variety of industries, including the pharmaceutical, automotive and ICT industries. For instance, one reason why India’s IT service industry has remained to be the key sector for country’s economic growth is that it has more than half a billion internet subscribers, making it one of the largest and fastest-growing markets for digital consumers.

On level 2, you can find information about the key stakeholders in the innovation ecosystem in India and EU-India collaboration in innovation while level 3 provides more insights on the best practice of local businesses particularly related to disruptive innovation.

This page will tell you more about the key stakeholders in the innovation and technology sectors in India and disruptive innovation start-ups.

Key stakeholders in the innovation ecosystem

India’s innovation ecosystem is built upon three types of key stakeholders – the corporate sector, entrepreneurial sector and government. Established corporates and entrepreneurial companies are able to implement new business models and leverage emerging technologies. The corporate sector can help small and medium-sized enterprises (SMEs) by engaging them as providers and bringing them into their supply chain to connect new ventures to markets:

Idea selection: Companies can play a role in identifying and incubating solutions that are scalable to a level that could create meaningful impact.
Product development: New ideas need funding to develop into prototypes and products for the market. New ventures thus require financial support to sustain operations during product refinement, and the expertise to customize the product for the needs of the target segment. Established private sector players also enjoy the customer’s trust, a key requirement for new non-traditional solutions to be adopted.
Price: Existing companies can learn from market experience, cross-subsidize costs or influence suppliers to offer price solutions at an affordable level for the consumer. Entrepreneurs need to create a capacity to price products at levels required to make profits and remain competitive, especially for new solutions.

Entrepreneurs play a critical role in developing and deploying new solutions, and possesses qualities critical for developing innovative and disruptive solutions: nimbleness in operations, depth in ideas, willingness to take risks, an aptitude for fast decision-making and bold leadership.

The role of government is considered focus on the provision of national platforms to facilitate physical connectivity as well as create better digital infrastructure, enabling many other sectors to progress. In addition, the government can be seen as a facilitator, providing incentives and policy support to new technologies and businesses, particularly establishing a regulatory environment that enables competitive markets to flourish.

Disruptive Indian innovation start-ups

IdeaForge is an Indian start-up which has developed one of the lightest unmanned aerial vehicles (UAV) in the market - used for both military and civilian applications. The company can be considered a pioneer in R&D, production and operation of compact, cost-effective and user-friendly UAVs. IdeaForge is the largest manufacturer of drones for defence, homeland security and industrial applications in the country. Founded in 2007 by IIT-Bombay alumni, the organization has a consistent market share of over 90% in Security & Surveillance segment. These products are mainly used for providing public safety, counterterrorism, counter intelligence, and disaster management. Its products are majorly deployed by Indian Army including the Airforce and Navy, Police forces and large enterprises.
CIIE IIMA (Centre for Innovation Incubation and Entrepreneurship) started from entrepreneurship centre at IIM Ahmedabad supported by the Indian and Gujarat governments. CIIE IIMA was founded in 2002 as a research institute. In 2007, it became one of the fully functional incubators in India and have been building the innovation continuum with diversification into entrepreneurship research and publications, accelerators, venture funds, learning tools, innovation partnerships, among others.
Ola Electric: Established in 2017, OLA Electric works with vehicle and battery manufacturers, cities, driver-partners, and the mobility ecosystem to make sustainable technologies cost-effective in daily mobility. By 2021, Ola Electric aims to deploy a million Electronic Vehicles. It is also building charging infrastructure and swappable batteries for vehicles, and has designed app-based hailing.

This page highlights EU - India relations and provides some practical tips for the EU companies to access Indian market.

Bilateral EU-India cooperation

Over the past decades, EU and India have worked together to reduce poverty, prevent disasters, expand trade, promote joint research in energy, health, agriculture and cooperate many other fields of mutual interest including global and security issues. The cooperation with India has been focused on the implementation of the EU-India Agenda for Action-2020 in areas such as social and human development, ICT, energy, water, climate change, urban development and resource efficiency. The EU-India Strategy adopted in 2018 emphasises the importance of the Strategic Partnership by focusing on sustainable modernisation; fighting climate change; supporting innovation through increasing people-to-people exchanges and on common responses to global and regional issues.

The EU-India Agreement on scientific and technological cooperation was concluded in 2001 and was renewed in 2010 and 2016, bringing the foundation for research and innovation cooperation with India. Since 2007, coordinated calls for proposals have been implemented in a variety of areas such as computational materials science, food and nutrition research, solar energy research and water related challenges and vaccines, with a total budget of EUR 60 million under Horizon 2020 being co-funded by India and the EU.

Europe-India Cooperation initiatives:

Europe-India Innovation Partnership is an initiative that supports networking activities between start-up incubators and accelerators from India and the EU. The European Commission launched a piloting initiative with the aim to foster innovation cooperation between India and Europe - considering innovation is booming in India and the Indian start-up community has emerged as the fastest growing base of start-ups worldwide. In this context, EU and India agreed at the 2017 annual that both sides should work towards an enhanced cooperation on innovation and technology development aiming at actions strengthening cooperation between European and Indian industries and start-up ecosystems.
IPC-EUI (EU-India Intellectual Property Cooperation). This project was implemented from 2015 to 2018, with the EUIPO (European Union Intellectual Property Office) acting as implementing agency for the European Commission. It has helped to strengthen the capacity of IP administration in India through the exchange of best practice and effective cooperation between institutions in order to enhance the quality of IPR.
European Cluster Collaboration Platform: India is one of the promising and challenging destinations for European SMEs and cluster organisations. Cluster collaboration has been emerged gradually in the context of the strong science and technology cooperation between the EU and India. Since 2001, cluster cooperation has been established under the EU-India Science and Technology Cooperation Agreement. Moreover, India has been mentioned as a target country by seven European clusters taking part in the European Strategic Cluster Partnerships – Going international (ESCP-4i). These partnerships address the topics including environmental industries and clean technologies; food packaging; IT based Smart City solutions; and transport.

Practical tips for the EU companies to access the Indian market

Before entering the Indian market, EU companies can consider the following points:

Local recruitment: Indian businesses tend to be quite hierarchical. This can contract with Europe, in which start-up business particularly value creative freedom. European companies that want to rapidly involve themselves in the Indian business environment should consider this when recruiting the local employees. Consulting multinational recruitment agencies can be an advantage before recruiting.
Business structure: European companies should take a close look at the legal structures and shareholding patterns. Certain Indian legal constructions require a local partner that represents the country. If a local partner is required, due diligence is required as is a thorough assessment of any proposed joint venture company.
Identify the right local partners: The Indian market is complex and often relationship based. Progress can first be based on good relationships and mutual trust, before transactions are actually done. Many European companies that have successfully entered the Indian market stress the importance of devoting significant resources to identifying a suitable local partner. Obtaining personal networks and connections are very important. In this context, European companies often organise frequently face to face meetings to help ensure smooth communications.

It is also worth noting that the Indian government is very encouraging towards new innovation. The government has taken up a number of initiatives to foster technological development that have the potential to disrupt and add value to businesses by opening up new revenue streams and transforming the way business operates. Such national initiatives include Digital India, Aadhaar, the Smart Cities Initiative, GSTN, digital payments, and digitising education. These help European technology based firms to India as a potentially lucrative business destination.

For readers who are interested in knowing more about the business opportunities in India, you may find the relevant information in CUBE IN Documents about India.