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Growing with the masses

Arvind Singhal | July 10, 2004

Amidst all the political turmoil and economic uncertainty in the recent months, many positive developments have begun to unfold which, if sustained in the coming years, augur well for India and its billion citizens.

On the political front, the re-acknowledgement of the relevance of rural India and the compelling need to focus on the agriculture and manufacturing sectors so that they can also contribute more significantly to the overall economic growth (and job creation) is certainly a welcome sign.

On the business front, I would like to refer to two very interesting developments that -- hopefully -- will trigger similar activity in other consumer product and services.

The first one is the announcement and launch of indiOne chain of "budget" hotels by the Tata Group. At the introductory price of Rs 1,000 per day, it is positioned to offer an outstanding value to both the business and leisure traveller.

What is more remarkable is that indiOne hotels shall offer amenities almost comparable to high-end hotels, and that they will be located not only in the metros or select tourist centres but also in various state capitals and other important towns across India.

The second one is the slew of announcements by a number of highly respected Indian business houses such as the Wadia Group and UB (besides others) for launching "budget" airlines in India, ostensibly seizing the opportunity after seeing the success of Air Deccan.

The latter itself is likely to further stir up the domestic air travel sector with a fare of just Rs 500 on trunk routes such as Delhi-Mumbai.

Even if the number of seats on offer at this low fare may be highly limited, it will create a tremendous psychological impact on the average Indian citizen who will finally begin to believe that travelling by air is not only the preserve of the affluent or the privileged few who are entitled to travel on their employer's expense. In times to come, this will lead to an overall expansion of the domestic travel market.

Vishal Garments, started by a not-so-highly educated entrepreneur in his own way is proving to an otherwise non-responsive Indian textile sector that one can create a hundred-crore clothing retail business in a short span of time by just focusing on the needs of the majority of India rather than the top 20 million - 30 million individuals.

Consumer durable companies such as LG; auto companies such as Hero Honda, Maruti and Tata Motors; and telecom companies such as Reliance Infocomm have already acknowledged the ground realities of doing business successfully in India by way of creating mega businesses built around reaching out to hundreds of millions of consumers.

Unfortunately, many other sectors have been rather slow to respond to this opportunity (and the challenge). Textiles, of course, remains the biggest one (and the one that offers the maximum potential since it is a basic need for every Indian).

Food and food services offer an incredible opportunity as well (though the challenges are also formidable since the supply chain is highly regulated, politically sensitive, and extremely fragmented). Healthcare is another one. The list, of course, is longer than just these three.

How have indiOne, Air Deccan, Reliance Infocomm, LG, Tata Motors, and even a Vishal Garments shown the confidence of taking such a radically different approach for their businesses?

In some cases (like Air Deccan, Vishal Garments and indiOne), there are many successful role models/case studies from the US and European markets. Budget airlines have been in existence for many years in those markets; leading chains such as Starwood and Hilton have their budget formats in place for years, and retailers such as H&M or Zara of Spain have long been successful by offering good clothing products at great prices to the customers.

Inditex Group (owners of Zara), for instance, believes that its various formats make their products within affordability reach of 80 per cent of the entire population of Spain. The formula is somewhat simple: give the entire value chain a radical makeover, focus on squeezing out the minutest of inefficiencies from the system, and rely on building large volumes very quickly to reach a critical mass.

A large, developing country like India, with hundreds of millions of relatively low-income consumers, needs more national businesses focusing to serving the needs of the masses. The good part is that such businesses can also be highly profitable ones!

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