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Electronic companies innovate for India

Posted: 17 Mar 2008     Print Version  Bookmark and Share

Keywords:India economy  design innovation 

Don't be surprised when Dell reports a 6 per cent decline in U.S. consumer division sales, as it did in February, then, in the same breath, reveals plans to offset that loss by expanding in emerging markets like India, where sales rose by 47 per cent. According to India's Manufacturer's Association for Information Technology, sales of laptop and desktop computers grew by 11 per cent in the six months ended Sept. 30, 2007.

Beyond electronics
India's economic growth has lifted millions out of poverty, so don't be surprised if you see rapid consumption growth in many other segments. The study suggests that if India continues its recent growth, average household incomes will triple over the next couple of decades and the country will become the world's 5th largest consumer economy by 2025, up from its current 12th position.

In 2005, private spending reached about Rs.1,464,385.07 crore ($372 billion), accounting for over 60 per cent of India's GDP and the market research firm sees this trend as closer to developed economies, such as Japan and the United States, than to China and other fast-emerging markets in Asia. The aggregate consumer spending could more than quadruple in coming years, reaching Rs.70 trillion (about $1.78 trillion at US$1:Rs.39.37) by 2025.

McKinsey said its projections were based on a "set of reasonable economic assumptions," including real CAGR at 7.3 per cent over the next two decades and continuation of economic-reform efforts.

In February, the media reported the Indian government's announcement that the country's gross domestic product growth will slow down this fiscal year ending March 31 for the first time in three years to 8.7 per cent, down from 9.6 per cent a year ago. Among the most pessimistic assessments was JPMorgan's, which projected that growth next fiscal year will be much lower at 7.5 per cent, yet still higher than McKinsey's threshold.

Rise of the middle class
The country is seeing a rapid rise of the middle class (annual disposable income between Rs.1.97 lakh ($5,000) and Rs.9.84 lakh ($25,000)), which is projected to grow from about 5 crore or 5 per cent of the population to 58.3 crore or 41 per cent of the population in 2025. McKinsey said about 40 crore Indian city residents will belong to households with a comfortable standard of living. The sheer scale of this new urban middle class compels attention from many companies.

The end-result for companies is that spending on automobiles will grow at a CAGR of 12 per cent during the forecast period; on telecommunications at a CAGR of 13.5 per cent; TV/video at 10.5 per cent; large household appliances at 10 per cent; small household appliances at 8.8 per cent; and medical equipment at 6.6 per cent.

The shift in spending from the necessities of food and clothing to lifestyle purchases including mobile phones and other personal electronics, is similar to the situation China presented to the world a couple of decades ago. Electronic companies are already seizing the opportunity to develop products better targeted at India, where middle-class lifestyle aspirations yet small budgets await engineering innovation.

The increasing number of multinational R&D centers in India—recent notable ones being Kyocera Wireless, Fairchild and AMD—will play a crucial role in bringing about that innovation. And, if you are not there, you can still network with engineers in India at

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