At the partnership summit, organised by the Confederation of Indian Industry (CII) last January, leading management thinker Prof C K Prahalad had a simple message to deliver. In almost what sounded like a clarion call to Indian industrialists, Prof Prahalad said it was time they found a way to create a consumer market out of the poor. The Harvey C Fruehauf professor of business administration and professor of corporate strategy and international business at University of Michigan perhaps could have confined himself to finer nuances of corporate business strategy, but what he did choose to say took the brightest and most powerful CEOs by a certain surprise.

The Indian-born radical strategic thinker and management theorist was only reiterating a fundamental axiom of economics that has been conveniently forgotten over a period of time. Simply stated, the issue he raised was one of Indian industry's fundamental commitments to building and retaining its grip over the vast domestic market. True, the market for manufactured goods and services in the new global dispensation may never really evolve strictly within the national boundaries, but no economy has ever achieved significant industrial growth leaving behind the lower-end 600 million people, virtually untouched by its achievements either.

However, this sadly is India's predicament, even as self-styled experts and punters are trying to write off the industrial manufacturing era in India's economic history at the turn of the millennium.

The manufacturing malaise
Arguably, the concern over the alarming decline in the rate of returns-on-net-worth in India's manufacturing sector is a legitimate one, with the aggregate growth rate slipping down to 5.9 per cent in the second quarter of the current fiscal year. But how can industry sustain and speed up growth in the face of even greater challenges to unfold in the coming months and years, as India braces up to the WTO regime?

The question really ought to be not one of growth per se but the very constricted market space in which industry is trying to perform. Poor cost competitiveness, inability to absorb the latest technology, infrastructure bottlenecks, cheaper imports, high interest cost of capital et al are only symptomatic features of a deeper economic malaise.

Taken together, they demand nothing less than a radical transformation of the industry mindset and a renewed strategic direction. As Prof Prahalad would put it, Indian industry needs to virtually re-invent itself, in the light of new realities.

According to Prof Prahalad, innovation is the key driver here. But what does innovation imply in the specific context of strategising a growth path for Indian industry? There are two distinctive themes that emerge.

• Firstly, in the context of gobalisation and foreign direct inflows into the country, the industrial landscape is getting redefined in favour of global size and scales of doing business and the global market is emerging as the central focus of business restructuring efforts.

• Second is the need to assess how the MNCs that have entered India would impact the forces of the vast domestic market in the given competitive space.

The twin issues of cost-restructuring on a global scale and capturing a sizeable share of the domestic market are actually intertwined and demand an integrated strategic response. Irrespective of size and scale of their established businesses, MNC's are here on an even playing ground with their Indian counterparts when it comes to innovating for a domestic market that is just about waking up to new possibilities.

Size and scale may, after all, be no critical competitive advantages. Several Indian businesses that have based themselves on innovation as the key strategic driver have thus, risen in scale and size over the years from virtually modest beginnings. Reliance, TVS, Dr Reddy's Labs, Ranbaxy, Infosys and Wipro are only some instances of innovation-driven business successes that have paled even some MNCs, in their drive for growth and markets.

Reinventing the mass market
But as cheaper imports flood the Indian market and global majors are setting up shop in India to create manufacturing bases, it is time for a renewed strategic focus on how best to approach a dormant but vast unexplored domestic market. Why, despite the fairly significant strides the Indian industry has made over the years, has it still failed to reach out to, what Prof Prahalad has called, the tier III of our society -- the bottom-down 600 million people living in 6 million odd villages?

The question compulsively lurks in the mind, just as one drives down a few kilometres beyond the metros into the abyss of India's vast rural hinterlands. Quite evidently, the failure of the Indian industry in broad-basing its domestic market reach, especially in the rural sector, emerges to be one of the key strategic issues that need to be addressed.

Undoubtedly, several companies, especially the MNCs have tried to aggressively exploit the market demand in the rural economy over the years. By and large, most of these companies have treated their rural marketing efforts as a certain incremental extension of their businesses in the more organised urban markets. The results have been somewhat insipid.

Rural markets typically signify complex logistic challenges that immediately translate into high distribution costs. Coupled with relatively slower growth of incremental demand and lack of adequate institutional mechanism for retail operations, margins are squeezed to the maximum. There are of course, more macro-level concerns about purchasing power parity, per capita household spends and regional and cultural variances as well. Taken together, these make up the great hurdle race that one can ill-afford to either ignore or take for granted.

Winning the hurdle race
But the greatest of all the hurdles is the very approach that often misinforms those seeking to focus on exploring the rural market. To start with, there are several about rural markets that are doing the rounds and are often the singular cause for failure to penetrate a potential demand segment. Perhaps one that demands immediate attention is the myth of urban-rural convergence.

Nothing can be further from reality. True, there's a lot that has changed in the general consumption patterns of our rural brethren, but what really still strikes a discerning observer is how much of rural India has still remained unchanged in these past five decades of post-independent history of India. Limited penetration in case of FMCG goods like toothpaste, shampoos and soaps and other consumer gadgets do not still translate into significant macro level trends.

While statistics may still seem impressive, they often belie fundamentals, such as cost-to-price performance or absolute per capita consumption levels. For instance, the NCEAR's India Market Demographics report, 1998, has estimated that almost 55 per cent of aggregate FMCG goods produced in the country have been consumed by our villagers between 1992-93 and 1997-98 with an annual average growth rate of 14 per cent.

Rural demand for consumer durables was estimated to be worth around Rs 4,500 crore in 1997-98, with an average annual growth rate of around 8 per cent in the post-reform period. These figures are based on a narrow consumption basket of about 20 most expendable goods and do not signify either the potential size of the market (given large inter-regional variances) nor the real dynamics of product preferences and life-cycles.

The transformative challenge
The quirk of individual successes of a brand or a product cannot certainly sew up a strategy for conquest of the juggernaut of Indian rural market. What Prof Prahalad suggests is to approach the bottom-down 600 million market of India, as if it were a strategic business challenge of sorts, than an enigma to be experimentally fiddled with.

This one might seem like a tall order but Prof Prahalad would honestly ask why we cannot offer good quality products at lower prices? Or for that matter, why wouldn't Indian corporate houses consider creating a whole range of products and service brands that are typically customised for the rural masses? Says Prahalad, "The bottom of the pyramid is very large and uncovered and represents a very counter-intuitive opportunity. It's a transformative challenge, which is even bigger than the internet and e-business."

Any takers? Very often, the problem with conventional mindsets is its refusal to think big and think of a future that is undiscernibly hidden beyond the trodden paths to profitability. Primary education, health and personal care, financial services, basic communication infrastructure, local transportation, food and nutrition management, water resource management, housing et al -- the list of areas that need urgent focus and for which widespread rural poverty and under-development act as fountainheads of almost perennial demand could be mind-blowing entrepreneurial and market opportunities as well.

Yet most people, who would otherwise want the government to least interfere in the economic domain, seem to think that these are areas best left for the governments or non-government organisations to tackle. It is not really the blatant contradiction in such thinking that is as much glaring as much lack of imaginative gut response.

Reengineering a new business model
Prof Prahalad would concede nothing less than a total re-invention of existing channels of distribution, a rethink on price and performance, as the sine quo non in creating a new exciting business model out of poverty. Product development and brand positioning, the organisational paths to performance, skilful deployment of financial, human and technological resources -- almost every facet of business strategy formulation would require to be an act of bold innovation.

No utopian escapade, Prof Prahalad's prescription is actually an attempt at strategic formulation of an emerging business model, where capital has to find its way to new paths to profitability. In the new competitive landscape, businesses have only two choices -- either, try and surpass the best of their competitors or simply choose to focus on innovation and create their own benchmarks and customers.

To quote Prof Prahalad once again, "Gone are the days when a General Motors did what a Ford did and a Ford did what General Motors did". There is yet one more strong reason why Prof Prahalad's ideas should sound interesting and inviting as well. If Indian business ever fails to make a good business opportunity of India's rural poverty, says Prof Prahalad "the MNC's surely will".