• kewal sethi

book review - prosperity paradox

finished a book. some comments on that.

the prosperity paradox

clayton christensen et al

harper collins

two factors are dominant in this book

1. innovation is the key to prosperity.

2. one must aim for the non consumers for progress.

innovation has been described as of three types

a. sustaining innovation

b. efficiency innovation

c. market creating innovation.

every business has competition. if it has to survive, it must aim at satisfying the customer. this can be done either by offering him new products or by improving the existing products. sometime illusion is created by renaming the product like naming a toothpaste as veda shakti. it works but for a brief period. people recognize that veda has nothing to do with toothpaste. they stick because of lethargy to move, not for the sake of new name. sometimes, an incremental change is made to claim a new product, say like adding salt to toothpaste, to prevent the customers from going away to another product. this can at once be countered by competitors pointing out that there is nothing new in adding salt.

these are examples of sustaining innovations. it works for the existing consumers but does not, or very rarely does, add new consumers. some changeover from one product to another similar one is always going on all the time but the result is marginal. such innovations are necessary but not sufficient to expand the market substantially.

the efficiency innovations aim at making the product cheaper or to produce longer lasting products. the efficiency may be due to better human input or better machines or better means of transport. it also may be due to better service centres. it does increase the customer base as satisfied consumers recommend the product to others. if the supply has become regular and timely, some consumers will be attracted but once again the field is limited to those who are using the product or are in touch with those using the product. the advertisement does attract some but, more often than not, they check up with the existing customers.

the third type of innovation is market creating. a new product or service is launched which is aimed at people who were not using it before and a similar product or service, if available, is either cumbersome or difficult to reach. consider booking a hotel in a town which is being visited for the first time. few details are available about the hotels there or their rates. then if a new service gives you that information, it will be welcome. there is no dearth of issues. it might be transport, stay, food, entertainment, or some other attraction. information is always welcome. and with internet the information is readily available or can be communicated quickly. the only point is how reliable is the information and how many alternatives you are likely to get. if these points can be overcome, you have a great business on hand. here was a clientele which was not using a similar product. it is a new field altogether. this is the market creating innovation.

but there are obstacles. sometimes the industry needs assistance. consider the manufacture of pickles etc. you have a good product liked by such customers as you approached. they talked about it to other people and there is a spurt in demand. you can increase the capacity, but are competent workers available? necessarily you have to recruit raw hands and you have to train them. so besides pickle making industry, you become a training institute also. maybe you can train people who then migrate to other similar industries. you have added to national talent which is not a small reward. that is how the nations grow.

you must have heard of captive power plants. when the supply of electricity is not there or is irregular, you fall back on your own devices. besides other business you are now in the power sector also. transport is the next one. if the volume is large enough, you have your transport fleet. maybe in slack season, these vehicles can be hired out. so, you are now, additionally, in transport business.

then there are side effects. it is said that road building in united states really picked up when the ford motors came in. there was persistent demand for more roads and better roads. the rippling impact plays an important point in development. ancillary industries have to come as also the service centres. more employment means more money ad more consumption so a cycle of rising economy takes place.

this then is the gist of the points made in the book on prosperity paradox.

rest is just illustrations. there is mobile revolution in africa; there is noodle making in nigeria, there is micro insurance in some countries of africa, insurance available on the basis of possession of mobile phone. kodak, toyata, kia, samsung, sony are examples cited on how with a humble beginning, they became giants which they are today.

it works not only in industry but also in social field. an example is cited of NH - narayana health – which ensures cheaper operations and has even gone into insurance business. the removal of open defecation in india is also discussed but from the point of view of social awakening. toilets do not automatically mean cessation of open defecation. social action is essential.

here is a basic point. demand has to be created. it is not readily available. if it were available , it would require only efficiency innovation or sustaining innovation. the education in india can be cited as an example. there is no demand. it is mostly supply driven. more schools, better buildings, incentives like mid day meals, uniforms, books, even cycles for transport but with limited demand they fall flat. the book does not suggest any solution for such problems. one example cited is of tata consultancy which had to set up training facilities for emplyees it needed. the demand for skilled labour was there but qualified personnel were not available. but when the problem is large (and it is very large in india), the solution needs another window for innovation.

the focus should be clear. the exports may appear to be attractive option but the difficulty is that it is not under control. there may be cheaper products, of the same quality, offered by some other country or a local manufacturer. it is better to address the local market and establish your product, earn a reputation, and then go in for foreign markets. example cited is of galanz from china which estabished local market for microwaves before venturing out.

basicallly the skill training is a requirement for using new machines, new technology, new techniques. because it is one of the public goods and too large for private enterprise, it has to be supply driven as an exception and only the government can do it on the large scale, which is required. it is the proverbial question of which comes first – the hen or the egg.; the skills or the jobs.

health is another such knot which hampers the progress of a nation. here the solution is easier because the demand is there. the only problem is how to reach the facility to the patient quickly, or the other way round. moble dispensaries have been set up during the covid period, several attempts at city level have been made to provide doorstep health services. in pune there were 15 mobiles dispensaries while mumbai has 45. other cities also have come in. but it is to be continued on a sustainable basis. it is to be noted that the abovementioned services in pune and mumbai were free. actually even if they are not free but merely available, it would still be welcome. it could be 'not for profit' business. we await some philonthropist who can do it on regular basis and also do it nation wide.

examples cited are from countires whcih were poor but have risen over the years like usa of early nineteenth century; south korea of early fifties of twentieth century; japan from post war period, china from a similar period. but they are also from countries with poor infrastructue like nigeria, other african countries outside south africa. the examples are rare from countries which are in the middle range like south africa, mexico or india. not that they have not progressed but the rapid progress attibuted to innovation of the third type (market creating) is not there. some examples of innovation in these countries are cited but they are exceptions and have limited role to play in the national well being.

the net impression is that there is a theory of maket creating innovation and the examples have been built around that theory. justification of theory appears to be the motive.

still, on the whole, it is a satisfactory reading.


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