Technology in Society 65 (2021) 101538

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Technology in Society

journal homepage: http://www.elsevier.com/locate/techsoc

Managing resource-constrained innovation in emerging markets: Perspectives from a business

model
Rifat Sharmelly, PhD, Assistant Professor a,*, Pradeep Kanta Ray, PhD, Senior Lecturer b
a
Department of Management, Quinnipiac University, 275 Mt Carmel Avenue, Hamden, CT, 06518, USA b
School of Management, University of New South Wales, Sydney, NSW, 2052, Australia

ARTICLEINFO ABSTRACT
Keywords: This study examines the organization of resource-constrained innovation from a business model perspective. Using a multiple
Resource-constrained innovation case study design, we demonstrate that the ability to organize resource-constrained innovation is built on cost, good-enough,
Business model frugal, and reverse innovation capabilities. Cost innovation does not always lead to a new product, rather it is a way to reduce
Case study operational costs through the value creation activities of a business model to achieve resource-constrained innovation. Good-
India enough innovations are developed through existing platform reengineering and localization through value creation activities.
We demonstrate that frugal innovations are developed based on new product architectures and applications that can create
completely new market segments to compete against non-consumption. Reverse innovations refer to frugal innovations that
are characterized by higher market novelty because they create completely new market segments in developed and
developing markets for value capture.

1. Introduction Resource-constrained innovation, which has attracted the

Over the past years, research on emerging markets has
attracted the attention of scholars and practitioners alike [1–
3]. The term “resource-constrained innovation” [4–6] has
gained popularity in academic discussion and management
practices to refer to innovations stemming from resource
scarcity. Generally, resource-constrained innovation
describes innovations that arise from emerging markets to
turn various resource constraints, such as limited purchasing
capacity [7,8]; lack of good commercial infrastructure [9,10];
and weak institutional arrangements [11,12], into
commercial advantage [13]. Emerging markets, particularly
the markets of India and China, have become the leaders of
global economic growth in recent years [14], and the so-
called “middle-end” and “low-end” customers are among the
fastest-growing customer segments globally [15]. Challenging
the traditional view of innovation—according to which factor
conditions in developed countries trigger the innovation of
new products and technologies [16] that are then introduced
to developing countries toward the end of their life cycle [17]
—emerging markets have become promising innovation
contexts for resource-constrained customers. However, to
cater successfully to customers in emerging markets, firms
must develop constraint-led innovation along the value chain
[18,19]. This article examines how this type of innovation can
be achieved in emerging markets.
attention of management scholars, research and
development (R&D) practitioners, and firm managers, has
been referred to as “cost innovation” [20,21], “good-enough
innovation” [22,23], “frugal innovation” [24, 25], and
“reverse innovation” [26,27]. This lack of a clear
conceptualization creates ambiguity about how firms can
innovate for emerging markets. Extant research has provided
key first insights into how firms can achieve resource-
constrained innovation in industries such as the food
industry [28]; wind power industry [29]; medical equipment
industry [30,31]; telecommunications industry [4,12]; mobile
money industry [32]; and healthcare industry [33–35]. While
the core idea of constraint-led innovation is intuitively
apparent, it is difficult to analyze the specific business model
activities associated with such innovation and to distinguish
frugal innovation from other notions of innovation, such as
cost, good-enough, and reverse innovation. Overall, most
existing studies are rather anecdotal [36] or provide fleeting
mentions of business models that can be created to organize
resource-constrained innovation [37,38]. Few empirical
studies have specifically investigated frugal innovation and its
underlying business model activities [39–41]. However, given
that the product novelty and market novelty of cost, good-
enough, frugal, and reverse innovations are different, it is
important to create a reference study from the perspective
of interdependent business model activities (i.e., value

* Corresponding author.
E-mail addresses: rsharmelly@gmail.com, rifat.sharmelly@quinnipiac.edu (R. Sharmelly), pray@unsw.edu.au (P.K. Ray).

https://doi.org/10.1016/j.techsoc.2021.101538

Received 16 July 2020; Received in revised form 17 October 2020; Accepted 16 February 2021 Available online 2 March
2021
0160-791X/© 2021 Elsevier Ltd. All rights reserved.
R. Sharmelly and P.K. Ray
proposition, value creation and value capture) to orchestrate
different types of resource-constrained innovation. This
study aims to fulfil this research objective.
Our empirical analysis is based on three case studies—
two emerging market multinational corporations (MNCs) and
one an MNC based in a developed country—that address
resource-constrained customers. The contribution of this
work is threefold. First, we shed light on the antecedents of
resource-constrained innovations using empirical evidence
rather than presenting anecdotal evidence, thereby
responding to the call to create more in-depth insight into
this research area [5,40,42]. Second, we reveal how cost
innovation does not necessarily lead to a new product
because it facilitates only the reduction of operational costs
from the value chain to achieve resource-constrained
innovations. Third, we provide a detailed view of different
constraint-led innovations to contribute practical insights into
the organizational implementation of such innovations
through a business model mechanism. Overall, this article
contributes to the literature by identifying the value creation
and delivery activities that are needed to achieve product
novelty and value capture for market novelty. In addition, the
study advances theory in the area because it demonstrates
that frugal innovations with a high degree of product novelty
may not necessarily capture value though market novelty if
there is a lack of co-ordination among the value creation and
value capture activities of a business model in offering the
intended value propositions.
2. Current knowledge on resource-constrained
innovations and business model in emerging market
Contrary to the traditional approach of product
development, which assumes a resource-rich environment,
the central considerations of resource-constrained
innovation are affordability and scarcity of resources [36,43].
Driven primarily by a resource-scarce environment,
constraint-led product development exhibits some key
characteristics. First, resource-constrained innovation utilizes
resources frugally to make a product affordable to a broader
market. Second, premium resources are substituted with
readily available and low-cost resources. Third, new product
design is important in resource-constrained innovation, in
that the cost and functionality of each component is
assessed to determine the balance between price and
performance. For example, for the design of the General
Electric portable electrocardiogram machine, cost savings
were achieved through using less expensive and abundantly
available materials. In addition, strategies such as using
existing technologies in new ways can help to lower costs.
Fourth, a product must fit within the existing sales context
and demand conditions. Low-cost manufacturing and
product functionalities are the keys to serving low-end/low-
income customers [13,43]. As noted, there are different
types of resource-constrained innovation: cost, good-enough,
frugal, and reverse innovation [19]. We argue that through
the mechanism of a business model that includes the
interdependent activities of value creation, value capture,
and value proposition, different types of resource-
constrained innovation can be orchestrated. Drawing on
most recent publications, the concept of cost, good-enough,
frugal, and reverse innovation are explained in greater detail
in the following subsections (Table 1). 2.1. Cost innovation
Technology in Society 65 (2021) 101538
Cost innovation refers to transforming cost structure to
offer more value for less cost [44–46]. Given that one of the
principal challenges in emerging markets is resource
limitation, this implies a new product development to save
material resources and focus on outputs prioritizing low costs
as fundamental objective [20,21,47]. Further, the limited
purchasing power in most emerging markets means that
product
Table 1
Latest relevant publications reviewed for this study.
Resource-constrained innovation Latest relevant publications reviewed for this study
Cost innovation • Silva et al. (2020)
• Wan, Williamson and Yin (2019)
• Williamson et al. (2020)
Good-enough innovation • Santos, Borini and Junior (2020)
• Shankar and Narang (2020)
Frugal innovation • Agarwal, Brem and Dwivedi (2020)
• Agarwal et al. (2020)
• Hossain (2020)
• Onosogo and Knorringa (2020)
• Bas (2020)
• Borchardt et al. (2020)
• Brem et al. (2020)
• D’Angelo and Magnusson (2020)
• Kroll and Gabriel (2020)
• Herstatt and Tiwari (2020)
• Santos, Borini and Junior (2020)
• Niroumand et al. (2020)
• Neumann, Winterhalter and Gassmann (2020)
• Weyrauch, Herstatt and Tietze (2020)
• Mourtzis, Zogopoulos and Vlachou (2020)
• Gerybadze and Klein (2020)
• Gandenberger, Kroll and Walz (2020)
• Lim and Fujimoto (2019)
• Lin, Chen and Huang (2020)
• Wimschneider, Agarwal and Brem (2020)
• David-West, Iheanachor and UmuKoro (2019)
• Ananthram and Chan (2019)
• Winkler et al. (2019)
Reverse innovation • Gianetti and Rubera (2020)
• Harris, Dadwal and Syed (2020)
• Skopec, Issa and Harris (2019)
• Zinsstag et al. (2019)
innovation must focus principally on reducing costs while
also maintaining acceptable quality of products [48].
Cost innovation is achieved by reducing costs in the value
chain through local sourcing of raw materials, replacing high-
cost raw materials with alternative materials that can deliver
lower costs without an unacceptable level of degradation of
performance, using cost-effective raw materials, utilizing
common or standard components, recombining existing
technologies, achieving scale and efficiency in production
processes, and achieving low-cost production enabled by
location advantages in low-cost countries [21,40,44]. A
prominent example of a firm using cost innovation is the
Chinese company BYD. By replacing overly expensive raw
materials and some of the costly materials used for the
production of lithium-ion batteries with cheaper raw
materials, BYD capitalized on their limited resources and
managed to produce low-cost, rechargeable lithium-ion
batteries at a 70% lower production cost [49].
2.2. Good-enough innovation
Good-enough innovation offers standard product
functionalities at low price points in resource-constrained
environments [19,40,50]. For emerging market customers,
product functionalities are adapted or reengineered to meet
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R. Sharmelly and P.K. Ray
the precise demands and user requirements of that market.
This is achieved by identifying and improving specific value-
adding functions and attributes demanded by the target
resource-constrained customers [23,51]. Focusing on core
product features, product novelties associated with good-
enough innovations for price-sensitive customers include low
energy consumption, increased ease of use, and robustness.
Examples of good-enough innovations from China include
energy-efficient microwave ovens from Galanz, quieter
washing machines that consume less electricity and water
from Haier, and environmentally friendly electric motorcycles
from Yadea [52]. Although firms in emerging markets usually
target middle-class customers with good-enough innovations
[22], Western MNCs such as Logitech and Mettler Toledo
have begun to develop good-enough products that adapt to
emerging market requirements [19].
2.3. Frugal innovation
In contrast to cost innovation and good-enough
innovation, frugal innovation is not merely about low-cost
and reengineered products [24]. As most recently argued by
Neumann and authors [25] in their review of 237 cases of
frugal innovation, from a technology and market perspective,
frugal innovations are specifically designed based on a new
product architecture that enables new applications at a
significantly lower price. Frugal innovations have the
potential to create entirely new markets that are often
underserved in relation to available market offerings to
compete against non-consumption. This can be enabled
through providing a solution with an optimum performance
level to serve the intended purpose considering the local
conditions [19,25,40].
Several scholars have noted that the motivation for frugal
innovation is to solve a specific problem or to address a need
in a resource- constrained environment. This needs-based
perspective [38,53,54] significantly drives the unique design
aspect of frugal innovation of incorporating new product
architecture and focusing on price–performance ratio [55] to
offer the essential product functionalities at an affordable
cost to satisfy the unfulfilled needs or aspirations of a market
[24,37,56]. Frugal innovations are generally developed in
conditions of resource scarcity (financial, material, or
institutional) [57–59] throughout the value chain to meet the
needs of emerging market customers [41,60,61].
Although consumers from emerging markets demand
high-end technology, they are constrained in their purchasing
ability because of their low levels of income [31,62,63].
Frugal innovation allows a balance to be maintained between
the demand criteria and performance requirements in
emerging market contexts [64–66]. Frugal innovations are
characterized by a low initial purchase price [13,67] or low
cost of ownership, and a focus on providing essential
functionalities with the highest customer benefits [68–70] at
a minimal cost [71]. Zeschky and authors highlighted the
technological superiority of frugal innovation, stating that
companies must possess the highest level of technical
capacity to develop frugal innovations that are novel
products and not redesigned products (i.e., based on existing
products). Novel product innovation may also include new
product features with specific applications that are able to
offer entirely new value proposition [19,40,72].
Recent advancements in frugal innovation research have
revealed that frugal innovations are no longer confined to
serving only the needs of developing and emerging
Technology in Society 65 (2021) 101538
economies. Rather, financially affordable and high-quality
solutions are demanded globally, particularly presently in the
context of the COVID-19 pandemic that has led to
extraordinary economic losses for countries worldwide. This
global crisis means that frugal products and services will
become increasingly helpful for economically advanced
nations when post-pandemic financial constraints will be
high, and customers worldwide will increasingly desire to
spend less, demonstrating high price sensitivity [55]. In a
recent study, Kroll and Gabriel demonstrated how European
nations could better capture frugal innovation potential by
offering high-quality and economically affordable frugal
innovation that avoids the image of a poor innovation
developed only for the poor [73]. Research on frugal
innovation has also discovered that although the
contribution of frugal innovations to environmental
sustainability was often believed to be coincidental,
customers worldwide are increasingly making ethical choices
to reduce their consumption footprint. As most recently
notes by several scholars, frugal innovations have the
potential to achieve not only economic outcomes but also
environmental outcomes such sustainable environmental
protection through green technologies such as wind energy
[29,74,75].
In addition to firms locally based in emerging markets,
frugal innovation is also increasingly appearing to be adopted
by MNCs in developed countries to innovate technological
products. For example, Bosch and 3 M embraced a frugal
innovation strategy for product innovation in the Indian
market [65]. Low-cost alternative materials and low-cost
manufacturing are vital factors that are usually connected to
frugal innovation [38,61,76]. Presenting cases from the
Brazilian food industry [28], Borchardt and authors
demonstrate that the strategy of frugality in product
innovation entails design principles that promote
economizing on resources through reusing components,
using local materials, and using simpler designs that result in
frugal products without extraneous accessories. In addition,
Brem and authors [77] demonstrated that when designing
technical equipment for Brazilian waste pickers, frugality was
achieved by decreasing production costs by up to 60%
through combining stainless steel with galvanized steel to
create a newly developed waste cart that is lighter and more
ergonomic, as well as less expensive, thus increasing the
price–performance ratio.
Given that emerging markets lack strong institutional
arrangements and may be subject to unpredictable local
conditions, including lack of skilled human capital, risk
capital, or knowledge sources [2,12], there is a higher chance
of new product failure in these markets [78]. Therefore,
frugal innovation also entails conducting local R&D to attain
a concrete understanding of local consumer demand for
frugal product innovations [65,79]. Because frugal product
innovation for emerging markets is primarily associated with
reducing costs through the frugal use of resources, and
products designed outside of that market may not be
appropriate for the unique local conditions, it is vital to
conduct R&D in the local context to assure firm
competitiveness [71]. Moreover, from the needs-based
perspective, localized R&D endeavors to develop frugal
innovations are essential given that the inadequacies of
existing products and the aspirations of the local community
can be fully understood only through conducting research in
the local environment and addressing the findings of that
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R. Sharmelly and P.K. Ray
research in product development [25,80]. In addition to
emphasizing the importance of localized R&D, Niroumand
and authors have also noted that it is also important for
effective frugal innovation to consider the importance of
marketing activities. These activities include local
advertisement of products and use of social networks for
advertising to form customer behavior [81]. For example,
analyzing six Brazilian companies, Wimschneider and authors
[53] proposed that localized marketing activities such as
building brand image are vital for frugal innovation.
2.4. Reverse innovation
In contrast to cost innovation, good-enough innovation,
and frugal innovation, reverse innovation refers to a market
concept rather than a product concept [19,60,82]. In the
typical innovation paradigm, the modified and downgraded
versions of product innovations created for developed
economies are later adopted in emerging or developing
country markets where the customers cannot afford to
obtain the latest high-end versions of the product. Reverse
innovation refers to innovations that are explicitly invented in
and designed for consumption in developing economies, but
are later sold in economically advanced nations [83–86].
Reverse innovations are increasingly attracting cost-conscious
customers or efficiency-seeking customers in developed
markets, and while first introduced in emerging markets,
these innovations are later being adopted in developed
countries [86,87].
Hadengue and authors [88] demonstrated that reverse
innovations are not simply innovations of lower quality, but
innovations arising from new contexts. For example,
Renault’s Dacia Logan car was not considered a reverse
innovation in economically advanced European countries
such as France because French consumers perceive such
innovations as representing low quality and low security [88].
A frequently cited example of reverse innovation is the
approach of General Electric (i.e., a Western MNC) in
developing a low-cost ultrasound machine to address the
needs of low-income consumers in India and China and then
bringing that innovation to developed countries (e.g., the
United States [US]) [86]. Zedtwitz and authors [89] suggested
that for reverse innovation, it is imperative to conduct local
R&D and establish R&D centers in developing countries
because during the development stage, the core architecture
of a product is designed and key performance differentiating
features are included.
Most recent research on reverse innovation shows that
healthcare innovations that are ideated, tested, and adopted
in low-income countries have strong potential to be used by
healthcare providers in high- income countries (e.g., the
United Kingdom’s National Health Service) to tackle various
resource constraints and achieve cost and efficiency savings.
To be adopted in high-income settings, such healthcare
innovations need to have the key characteristics of being high
quality, easy-to-use, and inexpensive [27,33,90]. In addition,
in the context of international new product launches in the
packaged food industry, rather than simply being convinced
by low-cost products, customers in developed economies use
price and product attributes to judge the quality of new
products that originated in low-income settings [26].
2.5. Business models in emerging markets
Technology in Society 65 (2021) 101538
A business model describes the rationale of how a firm
operates and creates value [41,91,92]. We adopt the notion
that business models consist of the interdependent activities
entailing “value creation and delivery,” “value capturing” and
“value proposition” to create, deliver and offer value to the
customers through products and services [93–95]. Value
creation and delivery consists of a firm’s core activities such
as production, R&D, marketing and distribution including key
resources and activities through which a product/service is
created and delivered to the customer [94,96]. Value
capturing depicts how some of the total value created can be
appropriate by the focal firm through its revenue generation
[97]. Lastly, value proposition refers to the precise
understanding of the target customer, their underlying need
and a comprehensive product or service that are valued by
the customers [94,98]. One of the noteworthy theoretical
conceptualizations is the business model canvas developed
by Osterwalder that consists of several blocks: customer
segments, value proposition, revenue/income, cost/expense,
key partners, key activities, channels and key resources
[92,99]. These blocks help a business to identify potential
customers, create value through activities and capture value.
Given that business models can influence firm
performance and lead to competitive advantage [100–102],
achieving value creation and value capture in a resource-
constrained environment demands addressing contextual
challenges [103–105] to overcome uncertainty and
ambiguity. Business models specifically need to create value
to overcome prevailing constraints in the emerging market
context, constraints that largely stem from the limited
affluence of customers, scarcity of material resources, and
institutional and environmental constraints [6,36,106]. Given
that limited financial and production resources create
challenges for value creation, limited or non-existent market
access make value capture more complex [18]. Further, while
the price point of a product or service should be low enough
to match the customer’s willingness to pay, a firm will be
unable to earn income if the cost of sales is higher than the
customer’s willingness to pay [40,41]. Thus, considering the
features of resource-constrained innovation, appropriately
designed business models can bridge the tensions between
value creation and value capture in the context of emerging
markets.
To conduct a rigorous investigation of business models
and the types of resource-constrained innovation (i.e., cost
innovation, good-enough innovation, frugal innovation, and
reverse innovation), the study employed Scopus database as
a data source. A total of 19 journal articles were found with
the keywords in the title, abstract, and keywords. We went
through each of the articles and identified only a handful of
studies that directly examine business models for resource-
constrained innovation in emerging markets. Other studies
generally make fleeting mention of business models in this
context, stating that business models can provide high value
and affordable solutions while conferring other concepts
such as water innovation, sustainability [107–111]. For
example, while David-West an authors [32] demonstrated
that mobile money services offer the convincing value
proposition of accessibility and affordability to customers in
African nations, their study does not articulate how to
organize value creation and value capture mechanisms to
achieve frugal value propositions. Similarly, Brem and authors
[77] focused only on the product development of a type of
frugal technical equipment for Brazilian waste pickers,
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R. Sharmelly and P.K. Ray
without illustrating the full range of business model
activities. Likewise, Mourtzis and authors and Hossain [37,38]
stated that to transform the resource constraints in emerging
markets and provide affordable solutions, business models
are important, but they did not provide any detail on how
such business models can work in a resource-constrained
Fig. 1. Conceptualization of resource-constrained innovation and business model.
environment.
In contrast, revealing a total of 59 frugal products and
services, Rosca, Arnold and Bendul [40] illustrated business
model activities and highlighted that local production,
alliances with local suppliers, local materials, and local
distribution systems are required for business models in
frugal innovation. Their study further highlighted the
importance of marketing to increase the appeal of frugal
innovations to local customers. The significance of marketing
was also emphasized by Niroumand, Shahin and Peikari [81],
who argued that including local marketing and promotional
activities in the business model shape customer behavior to
adopt frugal innovations The need for a local supply chain for
supply of raw materials is also accentuated in frugal
innovation [112]. Williamson [113] discussed the importance
of deploying cost advantages in emerging market business
models. Focusing on the use of business models Linna [114]
demonstrated how two companies created low-cost
renewable energy solutions in the resource-constrained
context of Kenya.
Researching in the context of the medical device and
laboratory equipment industry in the context of emerging
economies, Winterhalter, Zeschky and Gassmann (2017)
demonstrated how five companies established their value
creation through R&D, production, sourcing, and value
capture activities such as product sales to achieve the frugal
value propositions of affordability, availability, and efficiency
in the healthcare industry [41]. Likewise, a study conducted
in Africa by Howell, Beers and Doorn (2018) demonstrated
how the frugal innovation Trans-African Hydro
Meteorological Observatory was diffused throughout several
African countries through appropriate value creation and
value capture mechanisms [42]. Bocken and Short [115]
illustrated how six companies organized their value creation
and value capture to promote the frugal value propositions
of avoiding, reducing, and reusing of waste to promote
environmental protection. By analyzing the business models
of agro-food organizations in Africa, Norese and authors
Technology in Society 65 (2021) 101538
[116] shed light on the mutual influence of social and
ecological concerns on the design of business models in
social enterprises.
After reviewing the literature, we find that the idea of a
business model is conceptually vague in the literature and
that there are no studies that integrate different resource-
constrained innovations in relation to their product novelty
and market novelty. For example, while the value proposition
of cost innovation is to save costs through realizing
unparalleled value for money, good-enough innovation is
fundamentally driven by feature adaptations that are
particularly suited to emerging market customers, and the
value proposition of frugal innovation is to create unique,
new products, as well as new market segments in resource-
constrained contexts [20,25]. Thus, it is imperative to
understand the underlying building blocks of a business
model to create and capture value for the intended value
propositions. Therefore, this article is guided by the following
research question: How can firms structure their business
model activities (i.e., value proposition, value creation and
value capture) to organize specific resource-constrained
innovation for emerging markets? Based on literature review,
the integration of resource-constrained innovation-cost,
good-enough, frugal, reverse and business model elements-
value creation and delivery, value capturing and value
proposition is illustrated in Fig. 1.
3. Research methodology
3.1. Research design and sample firm selection
We employed a qualitative research methodology [117]
using a multiple case studies approach [118]. The selection of
a multiple case study design is suitable because it enhances
the empirical robustness of the findings [119]. To accomplish
the objective of exploring constraint-led innovations through
business model activities, sample firms for this research
study were obtained from the automotive industry -a
technology-intensive industry of India which is considered as
the second largest emerging economic power after China
[120]. Automotive industry of India is relevant for the study
context as the Indian Automotive Industry India is the sixth
largest in the world and accounts for about 22% of the
country’s manufacturing gross domestic product (GDP) [121].
Mahindra, Tata and Ford HMIL were chosen as the focal cases
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R. Sharmelly and P.K. Ray Technology in Society 65 (2021) 101538
in this research study as these companies are the major with customers, revenue/income sources for the product,
players in the Indian automotive industry and are actively ways to minimize cost/expense in the value chain activities
engaged in product innovations for emerging markets. and key partners, activities and resources required for the
Mahindra is the third largest player in the passenger car product innovation. Prior to interview a first draft of the
market with a market share of 6.5%, Tata is the fourth largest interview protocol was sent to the interviewees to validate
player with a market share of 4.8% and Ford has a market questions. The interviewees provided feedback on the
share of 2.4% [122]. Furthermore, Mahindra dominate the relevance of the questions and recommendations for minor
Indian tractor business with a market share of over 40% [123] modifications as well as additions in an iterative manner. This
and Tata Motors dominates the Indian commercial vehicle led to the development of the final protocol is presented in
(CV) market with a share of about 44% [124]. Hence, the Appendix. Each interview lasted for 60–90 min and was audio
cases of two Indian firms and a foreign firm recorded with the permission of the participants to aid in
data transcription and analysis. To ensure consistency, notes
were also taken during interviews. The researcher also took
Table 2 notes while observing vehicle design activities and
Descriptive statistics on the case firms. production visiting the company
Firm Origin Market share in Major markets served Establishment
the Indian auto Table 3
industry Interview participants.
Mahindra and India 6.5% More than 100 1945 Organization Interviewee position, Interviews Location of the interview
Mahindra (passenger car) countries across Asia, department
40.2% (tractor) Africa, Latin America, Mahindra & Head, Product Planning 4 Manufacturing plant in
Europe, South America Vice President, Change Nashik,
Mahindra
(M&M) Management and Maharashtra, India R&D
Tata Motors India 4.8% Over 55 countries 1945 Organization Design Center-Mahindra
(passenger car) worldwide General Manager, Research Valley, Tamil
44.41% (CV) Strategy Nadu, India
Ford India USA 2.4% Asia, South-east 1995 Senior Manager, Mahindra
(passenger car Asia, Africa, Latin Farm equipment
America, South America
Ford India Former President & 3 Manufacturing plant in
Source: Annual reports, adaptation from Statista [125]. Managing Director, Ford Chennai, India
from the automotive industry provides a stimulating context India
Executive Director,
to investigate the product innovations. Table 2 provides
Operations
descriptive statistics on the firms. Product Manager,
Strategy
Tata Motors Former Vice Chairman and 3 Manufacturing plant in
3.2. Multiple sources of data collection and data analysis Managing Director Pune, India
Head, Tata R&D Center-Pune
Interviews, observation and documentary evidence were Technologies Research Center, India
the three ways of data collection to ensure construct validity Manufacturing
Manager, Operations
in this case study research [126]. At the outset of the
research, four firms were invited to participate via letters and headquarters, R&D facilities and manufacturing in India. The
an initial study protocol addressed to the managing directors notes were sent to the interviewees to cross-check the
and CEOs. Out of the four, we sampled three companies that observed information. The third main data source of data
indicated willingness to participate and also had experience was publicly available company websites and newspaper
in product innovation for emerging markets for more than 20 articles. These were used to validate the interviewee
years. The study protocol included questions on core responses. Thus, interview data was triangulated with the
concepts on the case firm’s motivation for innovation, their observed company formation and publicly available data.
product characteristics, differentiating points from existing This triangulation of various sources of data facilitated the
solutions in the market and business model activities cross-validating of interview data and increased the reliability
organization to establish theoretical categories. The lead of the research [127].
researcher conducted semi–structured, in-depth interviews Primary data collected was subsequently analyzed with
with 10 top managers and middle–level managers. The the aid of NVivo software which is widely used to analyze
interview participants were assigned to the researchers by qualitative data. Interview data were analyzed through a
the respective firms based on their familiarities on the topics process of iteration, contextualized within an emerging
of the study protocol. The assigned interviewees were structure of theoretical reasoning [128]. In the first stage we
involved in the conceptualization, development and/or utilized in-vivo codes (i.e., terms and descriptions used by the
marketing of the product innovations (Table 3). Top interview informants) when possible, and descriptive codes
management of each firm provided information on from transcripts when in-vivo codes were unavailable.
revenue/income sources of the products, pricing of products Through an iterative process, the first-order codes were
and product sales information. tested to ensure their fit against the primary data. A total of
Data were collected using a semi-structured interview fifteen first-order codes were recognized. In the second
schedule/ protocol, which is considered appropriate for phase we performed axial coding [128] to recognize the
exploratory case studies [126]. From the perspective of relationships between and among the first-order codes and
business model canvas developed by Osterwalder [92], the to consolidate the first-order constructs into second-order
protocol included questions on target customer segments, theoretical themes to progress the analysis to a higher level
value offerings for customers to solve specific problems, of abstraction. Contrasting the first-order codes with the core
marketing and distribution channels, maintaining relationship concepts of literature on resource-constrained innovations-

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R. Sharmelly and P.K. Ray
cost, good-enough, frugal and reverse and business model
literature we developed five larger second-order themes that
related closely to the resource-constrained innovation and
business model design methods used by Mahindra, Tata and
Ford. The written individual cases were sent to the interview
participants to rule out any ambiguity [129]. Cross–case
analysis was conducted among the cases comparing between
interview data, emerging themes and the business model
components to look for the subtle similarities and differences
in a divergent way. Finally, multiple iterations between the
primary data, case findings and literature were conducted to
attain a consistent picture of innovation organization. This
eventually helped not only to establish the internal validity of
the findings, but also to judge the strength and consistency
of relationships within and across cases [130].
4. Results
4.1. Value proposition, creation and capture for business
models:
Mahindra Scorpio and Mahindra Yuvraj
Mahindra & Mahindra Limited (hereafter, Mahindra) is
the market leader in the utility vehicle category in the Indian
passenger automobile market segment [131]. The company
also dominates the Indian tractor business with a market
share of 40% [124]. The products investigated in this study
are India’s first indigenously developed and affordable sport
utility vehicle (SUV) Scorpio and its most affordable and
compact tractor Yuvraj.
Mahindra initiated the development of Scorpio concept
despite financial constraints. The Scorpio, which is a world
class sports SUV- is India’s first indigenously developed
affordable SUV, launched by Mahindra in 2002.
“We did not have technological capabilities at that time
to design an SUV on our own. Anand Mahindra
[chairman] devised a unique strategy..[he]hired Pawan
Goenka and Alan Durante who had the technological
expertise and experience of working in the renowned
auto companies like General Motors..It was the most
risky project decision that we took …. ”
At its core, the Scorpio’s vale proposition is that it offers
aspiring customers a vehicle with the appearance of a rugged
SUV, but with compactness, maintenance, and fuel efficiency
akin to that of a mid-size sedan. For Scorpio development,
the mandate was “design to cost,” and the development cost
of the Scorpio was only USD120 million, which is just one-
fifth of other automobile manufacturers’ expenditure on
development of similar vehicles. Mahindra established a
“customer immersion program” to learn about target
customer behaviors and requirements. This customer
observation helped to identify the appropriate features and
functionalities of the Scorpio. In relation to this customer
research, the head of product planning department
described: “… It starts with analyzing the aspirations of the
customer segment. We had an established image of a
manufacturer of tractors and utility vehicles (UV)in the semi-
urban and rural markets of India … Our goal was to break into
the urban market … target group was modern, urban
customers who already owned cars … Now, what was
interesting, these customers were looking for latest
technologies, bigger space to travel comfortably, more safety
and sturdiness … they wanted to maintain it with a low
ownership cost [like] a regular car. So, we had to connect the
Technology in Society 65 (2021) 101538
dots of what the customers are requiring and what is lacking
in terms of unmet customer needs … we spent time with
potential customers during immersion program, understood
their needs … customer input and voices were then
translated in product engineering through research.”
This customer observation helped to identify the
appropriate features and functionalities of the Scorpio. In
this regard general manager of Mahindra strategy
department explained:
“One critical feature which drives business strategy is
that India is a value for money market. Any product
slightly over priced than offered product values is not
going to work. So, our market study focuses on what
appeals a target segment and then deciding what
functions to provide … the whole game is about offering
proper value propositions”.
And again:
“… We don’t intend to go into the compact car segment
for low-end customers. Mahindra will always be in
affordable SUV/utility vehicle segment. SUVs can never
be meant for small car segment. For example, Mahindra
Scorpio was specifically intended for the aspiring and
growing segment of Indian middle-class customers. So,
for us it is very important to know what my customer
wants”.
For value creation, Mahindra conducted local research on
advanced technologies and affordable automotive
development in the dedicated R&D facilities, known as the
“Mahindra Research Valley.” As observed by the head of
product planning:
“For the India’s first home-grown SUV-Scorpio project,
we conducted an intensive research for over five years in
the Mahindra R&D center. This center is unique in the
world where engineering research and product
development for both automobiles and tractors are done
together … for new innovations this is our greatest
strengths as we can tap into the group’s in-house R&D
capacities to shorten development and market entry
time. We also have our own technical institution to build
technological capabilities of the local talent”.
An independent development team was formed with 120
engineers for the project spread across 19 cross-functional
teams, and therefore helped Mahindra to keep costs low.
According to Vice President of change management and
organization design department: “… 120 dedicated engineers
were assigned to the project work and 19 teams were
formed including employees from Mahindra engineering,
marketing, R&D, manufacturing departments”
Market research found that traffic congestion marks
everyday life on the crowded roads of India. This leads to
unnecessary fuel burn, which results in extra costs for
customers. Using existing technologies and reconfiguring
components in novel ways to create new applications for
specific customer needs, Mahindra’s development team
integrated customer voices into engineering processes to
develop a new “micro- hybrid” technology, the “start–stop”
mechanism, which was the first of its kind in the Indian
automotive market. A simple kit, which is connected to the
electric engine, comprises a low-cost plug-in battery pack,
automatically switches off the engine if it is idling for too
7
R. Sharmelly and P.K. Ray
long. This simple mechanism provides better fuel efficiency.
As stated by the head of product planning:
“We were the first in India to introduce stop-start
technology in May 2000 to make Scorpio more fuel
economic. Later, we formed joint- venture with the
technology with Bosch for various other applications”.
To achieve value proposition and reduce costs in value
creation activities, Mahindra focused on cost-effective
alternative products to replace traditional materials for the
local manufacturing of vehicles. For example, the company
reduced the weight of its vehicles to lower fuel consumption
by using plastic fenders and aluminum parts instead of steel.
The company also integrated its module suppliers early in the
value chain to further decrease production and sourcing
costs. Mahindra motivated suppliers to produce their own
design innovations while considering cost constraints to
make the final product affordable but high quality. Vice
President of change management and organization design
department expressed:
“Mahindra vehicles are manufactured as collaboration
between us and the suppliers. We form partnerships
with Indian suppliers like Motherson Sumi, Sona Kayo,
Varroc, Rane Group and global suppliers like Bosch and
Lear Corporation who provide us critical components like
steering, fuel equipment of engine, air-conditioning
system, and sitting systems. Where a new technology is
not available with local supplier, we tie up with global
suppliers and use their knowledge, experience and
technology to be adopted into Mahindra products. But,
we do not import auto components. We encourage
global suppliers to set up their manufacturing base here
in India either by a joint venture or a wholly owned
company to take the advantage of local supply chain.
Localization is a very important aspect for us to control
cost through local factors of production”.
And again:
“We have a pool of strategic suppliers through recurring
partnerships. Companies that are more innovative and value
conscious get priority for our projects. From the company we
have a reward program for the supplier which is organized
from the top-management … to recognize supplier
innovation, productivity and quality improvement”.
As a result, all the major systems of the Scorpio were
designed, engineered, and tested by suppliers. Mahindra
conducted the actual production of the Scorpio, integrating
the major parts and systems from the suppliers. With
focused marketing activities and distribution channels
reaching 70% of the districts in India, the Scorpio achieved
coverage nationwide in India. As stated by general manager
of strategy department:
Technology in Society 65 (2021) 101538
South Asia, the Middle East, Africa, South America and in
countries such as Italy, Australia, Russia, France, Spain,
Turkey, and Ghana. Vice President of change management
and organization design department described:
“With a competitive price of INR 600,000 in addition to
its design, intelligent-hybrid technology which offers a
greater mileage assisting the engine by providing electric
power during acceleration and 100 horsepower engine,
Mahindra gained a market share of over 45% just within
3 years of Scorpio launch. It was the first SUV from
Mahindra designed for the global market. We received
great response from the Indian customers as well as
foreign markets for all it had to offer …”
Table 4 summarizes the business model canvas of
Scorpio.
Mahindra focused on improving profitability of their
existing tractor business leveraging an efficient use of existing
product development strength. For the development of the
Yuvraj, Mahindra observed Indian farmers engaging in their
daily activities and realized that more than 80% of Indian
farmers owned five acres of land or less. However, only 1% of
these farmers owned a tractor, because no existing
manufacturer catered to their needs. Mahindra developed a
low-cost tractor for these small-scale Indian farmers after
conducting extensive research and taking design cues from
two-wheeled vehicles. Senior manager of Mahindra Farm
equipment stated the following about the Yuvraj:
“When we found that there are no suitable farming
tractors in India for fragmented land owners who are
mostly marginal farmers, we thought, what can we do to
solve this?”
The value propositions of the Yuvraj are explicitly
targeted to meet the needs of small-scale farmers. For
example, the Yuvraj is a mechanical tractor that is
significantly more affordable than other farming tractors and
improves productivity by doing four times the work of
traditional farming equipment. This creates superior value
proposition for farmers in rural India. Yuvraj was positioned
as the smallest and most affordable tractor in India
[133,134]. Senior manager of Mahindra Farm equipment
stated:
“Yuvraj was exclusively made for every small-scale farmer
who owns only 2–5 acres of land … in India over 80% of
farmers do not own over 5 acres of land … we found
almost 99%of them do not use tractors; [they] rely on
traditional methods like bullocks for various farming
activities but seek to own an affordable yet powerful
tractor

“Back then it was relatively a new concept … we had to

be creative in marketing even in positioning … Scorpio
was positioned with a ‘car plus’[better car] approach …
television, newspaper advertising, direct marketing and
public relations highlighted the functional benefits like
‘the car you walk into-not crawl into’ that caught the
attention of many prospective car buyers … on top of that
an affordable price point motivated buyers to choose
Scorpio over other mid-sized cars. We sold 12,000
Scorpios in the first year [2002] …”

As of 2017, total cumulative sales of the Scorpio had

surpassed 580,000 units [132] and sold in regions such as
8
R. Sharmelly and P.K. Ray
Table 4
Business model canvas of mahindra scorpio.
Key partners Key activities
100% supplier participation with Indian suppliers- - Local research in in
Motherson Sumi, Sona Kayo, Varroc, Rane Mahindra Research
Group and global suppliers- Bosch, Lear Corporation Valley
- Customer immersion
program
- Local supply chain in
India
- Low-cost production in
India
Cost/expense minimization for value creation
- Cost-effective alternative materials replacing traditional ones
- Early supplier integration to reduce production costs, sourcing costs
- ‘Design to cost’ mandate to reduce overall development costs
… we considered these small scale farmers as the target
customers to offer farm mechanization for better yield ”
The Yuvraj also offers other benefits that are important to
the rural target markets. Not only is the product offered at a
fraction of the cost of other farming tractors, an engine of
only 15 horsepower means that with reduced fuel costs,
small farmers across India can access mechanization for
increased power, productivity, and performance.
To achieve value creation, product development was
conducted by local engineers and materials were sourced
from low-cost suppliers in India, which decreased
transportation costs. Mahindra established a manufacturing
plant in Rajkot, India to manufacture Yuvraj. The plant has a
maximum capacity of 30,000 tractors per annum. Further,
Mahindra designed the Yuvraj architecture utilizing existing
technologies, thereby reducing overall development costs
and increasing the value capture from sales. To achieve value
proposition, Mahindra focused on novel applications that
were tailored to meet the needs of the target customers. A
statement by the senior manager of Mahindra Farm
equipment summarizes this:
“… We took design cues from two-wheeled vehicles to
develop the mini-tractor structural design. While our
engineers at the R&D center were trying to meet strict
cost criteria, we were simultaneously working on creating
unique applications like enabling farmers to drive
through narrow lanes to cultivate, spray and move crops
… the compact product design included a single cylinder
engine with capacity of 15 horsepower, boom sprayer,
side shift gear lever and a rotator to make sure power
and comfort for the farmers”.
The unique design of the tractor is suitable for extensive
and multiple agricultural applications, and the model offers
ease of operation, fuel efficiency, optimal maintenance, and
efficient combustion. Yuvraj can be used by farmers for
cultivating crops, spraying insecticides, and sowing seeds, as
well as for hobby farmers who own an orchard. Thus, the
Yuvraj has enabled a leap in productivity for India’s small-
scale farmers, who are often left behind when it comes to
modern agricultural breakthroughs. According to the senior
manager of Mahindra Farm equipment:
“The ownership cost of Yuvraj is similar to owning a pair
of bullocks … unlike a fuel-efficiency of 7 km/litre in
traditional large size tractor [Yuvraj] offers 14 km/ litre.
Technology in Society 65 (2021) 101538
Value propositions Distribution channels, Customer Customer segments
relations
- Affordable sports utility - Distribution channels for sales reaching Modern, urban
vehicle (SUV) 70% of India customers owning
- Latest technologies, - ‘Suvida’ program to train rural mechanics, sedan cars
increased space, safety, offer set of tools at no cost, mobile
sturdiness workshops in rural areas
- Low ownership costs to - Over 335 service centers in 227 cities in
maintain the SUV similar to a India
sedan car - Franchisee Owned Franchisee Operated
workshops
Key resources Revenue/income
- R& D center -Product sales
- Development budget of US$120 million
− 120 engineers
− 19 cross-functional teams
We set INR 1, 75,000 as purchasing cost. This was
significantly cheaper than the existing one at the market
of INR 2,50,000. Packaging15 horsepower engine with a
low purchasing cost, ownership cost, and our strong
dealer network, it attracted rural farmers to use Yuvraj
tractors … We sold over 400,000 tractors in the first year
of launch in 2010 … gained market in Western markets
like Australia and the USA”.
Currently, Mahindra has five assembly plants in the US,
one assembly plant in Australia, and one in China. With more
than 1000 dedicated dealers in India, the Yuvraj can be
serviced even in the remotest areas. In addition to India, the
Yuvraj has been sold in the US, Australia, China, Chile, Iran,
Serbia, and on the African continent. Table 5 summarizes the
business model canvas of Yuvraj.
4.2. Value proposition, creation and capture for business
models: Tata Ace and Tata Nano
Tata Motors is the fourth largest automobile
manufacturer in India. The products discussed in this study
are the low-cost, rugged small commercial vehicle, the Tata
Ace, and the ultra-low-cost passenger car, the Tata Nano.
To develop the Tata Ace, Tata Motors gathered market
knowledge about the growing segments in the commercial
vehicle sector: medium commercial vehicles, intermediate
commercial vehicles, and light/small commercial vehicles.
These market segments were dominated by three- wheeled
trucks made by Piaggio, Mahindra, and Bajaj Auto. The need
for developing an affordable, low-maintenance small
commercial vehicle was realized by Tata which faced
stringent competition from domestic and foreign competitors
in the existing product segments. The development budget
was fixed at USD49 million, which is less than one- tenth of
the costs incurred by Western MNCs in developing a similar
vehicle. To gather market knowledge in the value creation
step, Tata undertook an in-depth market study that consisted
of intensive field research and interviews with truck drivers
throughout India. As described by Head of Tata Technologies:
“As part of our customer analysis we interviewed more
than 4,000 truck and three-wheeler drivers in various
rural and urban parts of India to better understand the
customer requirements for designing Ace”.
The research revealed that owners of the three-wheeled
trucks were eager for an affordable yet low-maintenance,
fuel-efficient, and rugged four-wheeled truck with higher
9
R. Sharmelly and P.K. Ray
driver safety, cargo space, and a load- bearing capacity of
approximately four tons (closer to four and a half imperial
tons). Accordingly, all value propositions of the Tata Ace were
specifically tailored to meet the needs of the target
customers to develop a low-cost, fuel-efficient, low-
maintenance, and safe small truck with a high load-bearing
capacity. According to Head of Tata Technologies:
“For concept development we looked at the overall
industry offerings and did a benchmarking with the
models available. We found all the existing models were
much higher than the affordability of the truck drivers
who were the potential market segment without meeting
their needs of more load bearing, safety, all weather
protection … the
Table 5
Business model canvas of mahindra Yuvraj.
Key Partners Key Activities
Low-cost suppliers in India for - Local research in in
sourcing components Mahindra Research Valley
- Observing farmers
- Local supply chain in India
- Low-cost production in India
Cost/expense minimization for value creation
- Utilizing existing technologies to reduce overall development costs
- Sourcing from low-cost suppliers in India to decrease transportation costs
price of existing light commercial vehicles that could carry
around four tonnes were over INR 500,000.”
To achieve value proposition, Tata Motors optimized costs
in each value creation activity to meet the unique price–
performance criteria. Tata Motors created an independent
development team of only five engineers to create new
product architecture with specific applications that were
tailored to specific customer needs. According to former vice
chairman and managing director:
“To understand customer requirements Tata formed four
cross- functional teams to study the market. So, the
strategy was to study how we can provide all the
required features … that interpretation was used to
formulate product specifications while reducing the cost
50% less than any other commercial vehicle”.
To reduce costs, Tata Motors opted for the strategy of
common components sharing and adapted the existing Tata
Indica engine when developing the two-cylinder engine of
the Tata Ace for robustness and fuel efficiency. According to
manufacturing manager of operations department:
“The most crucial part was developing the engine to
balance between fuel efficiency, cost and emission
standards; we took the advantage of Tata’s existing
technical capabilities and selected Tata Indica car as a
reference point to come up with a two-cylinder version
engine for Ace based on the previously developed four-
cylinder engine of Indica”.
This engine design was new because the existing market
did not have any small trucks with a two-cylinder engine. To
generate additional cost savings, more than 40% of the Tata
Ace components were shared with other Tata Motors
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vehicles and more than 81% of locally made components or
parts were sourced from 120 suppliers for the development
of the Tata Ace. Moreover, when engineering the rear axle,
the Tata Ace was tailored for the Indian environment of poor
road conditions. It is maneuverable on narrow and crowded
roads, and has the engine capacity for long highway journeys.
Tata Motors also maintains a separate R&D unit at the Tata
Engineering Research Center in Pune, India, which is
dedicated to the development of low-cost vehicles.
According to former Vice Chairman and Managing Director:
“Tata Motor’s R&D investments for the engineering
research center to develop indigenous technologies have
resulted in innovations like Tata Ace”.
As a result, 54% of non-consumers purchased their first
Value Propositions Distribution Channels, Customer Customer Segments
relations
- Low-cost, powerful tractor - Over 1000 nationwide Marginalized, small
- Engine of 15 horsepower (HP) providing dedicated dealers scale farmers
mechanization for increased productivity - Customer service in remotest
- Ease of operation, fuel efficiency, optimal areas of India
maintenance, and efficient combustion
- Unique applications- driving through narrow lanes
to cultivate, spray and move crops
Key resources Revenue/Income
- R& D center - Product sales
- Local engineers
- manufacturing plant in Rajkot,
India
commercial vehicle, and the Tata Ace created a new market
of small commercial vehicle that was non-existent until then,
and introduced the concept of the mini-truck in India.
Currently, the firm has a dedicated plant in Uttarakhand,
India with a production capacity of 500,000 units per year. To
meet growing demand Tata Motors established another new
plant in Dharward Karnataka in 2012. As stated by
manufacturing manager of operations department:
“With an optimum performance, meeting the emission
norms yet, costing a third compared to the other players,
Ace created a new market segment of mini [small] truck
users in India”.
The Tata Ace was marketed as “small is big,” with a price
point of INR 2,25,000 (USD 2200). In relation to marketing
and distribution, Tata Motors created a series of emotionally
appealing marketing campaigns and established distribution
centers. Former vice chairman and managing director on this:
“We launched Suvida program for Ace. The objective of
this was to train rural mechanics, provide them set of
tools for free of charge. We also set up mobile workshops
to support these rural mechanics in parts replenishments
… more than 1,600 distribution points for sales were set
up.”
The Tata Ace appropriated value through traditional
product sales as the 100 thousandth Tata Ace was sold within
only 22 months of the launch. In November 2019, the sales
of the Tata Ace surpassed 2.2 million units [135]. The
availability of this vehicle has promoted self-employed
entrepreneurs and helped small businesses grow across
India. The Tata Ace has sold in 28 countries, including in the
regions of South Asia and Africa. According to Former vice
chairman and managing director:
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R. Sharmelly and P.K. Ray
“We are proud of the fact that with more than 85%
market share in the Indian market, Ace is the leading
player in the SCV category”.
Table 6 summarizes the business model canvas of Tata
Ace.
The concept of the Tata Nano was envisioned by the ex-
chairman of Tata Motors, Ratan Tata. His aim was to offer an
ultra-low-cost and safe passenger car for the millions of
Indians who were using scooters or two- wheeled vehicles.
Head of Tata Technologies emphasized Ratan Tata’s vision in
the following way:
“For emerging markets, the basic theme is value for
money. Before Nano came to Indian market there was no
car for the low-end customers. As a result they were
buying two-wheelers which were not a safe mode of
transport. This was identified as a white space for
innovation. The whole project was led by the vision of
Ratan Tata.”
Driven by the values of affordability and safety, the Tata
Nano was positioned as the “world’s cheapest car” and the
value proposition of price (INR100,000 or approximately
USD2,000) was set by the chairman, Ratan Tata, who also
appointed a small team of engineers for project execution.
Head of Tata Technologies stated:
“All members of the cross functional team were young
and they came up with various innovative ideas for the
project ….because we had to meet the ultra-low cost
target ….he took a keen interest in monitoring the
progress
Table 6
Business model canvas of Tata Ace.
Key partners Key Activities
Collaborations with 120 external component - Intensive field research suppliers to source
over 81% of components for - Interviews with more than
Ace development
- Low-cost production in India
Cost/expense minimization for value creation
- Common components sharing of over 40% to reduce cost
- Adaptation of existing Tata Indica engine to reduce cost
- Locally sourced components to reduce cost
from the beginning. He inspired the team, came up with
various suggestions. So we had a good team structure and
strong leadership … we needed engineering excellence in
our team …”
To achieve value proposition, rather than making minor
adaptations from an existing car model, a new product
architecture was created that earned the company 40 new
patents. Further, most of the classic car design rules and
conventions were abandoned. For example, standard
features such as an antilock braking system, airbags, a
second rearview mirror, and power steering were left out to
achieve the desired cost target. To obtain the altered price–
performance ratio through value creation activities, the Tato
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Nano project needed to generate novel architectural
knowledge, which involved integrating existing components
in new ways. For example, rather than using a transverse
front engine and front-wheel drive, an engine with two
cylinders (instead of four) was placed below the rear
passenger seat. This saved costs and space for low-end
customers who often do not have space to park their car. The
placement of the engine in the rear also allowed Tata Motors
to hollow out the steering column, which yielded cost savings
and other required performance criteria, such as fuel
efficiency, compactness, and maneuverability. Manufacturing
manager of operations observed:
“We have the engine at the rear which saved space.
Moreover, power train, engine transmission, suspension,
and brakes technologies have been applied in a cost-
effective way to optimize cost and performance.”
The use of lightweight steel in the car body and reduced
parts, including fewer components in the sitting system, car
doors, and tires, as well as the use of locally sourced car parts
to reduce inventory and logistics costs further contributed to
lowering the production costs of the Tato Nano. An early
vendor integration program, which included 100 local and
international suppliers, helped Tata Motors to break through
the low-cost innovation barrier. As expressed by former vice
chairman and managing director:
“We networked with local and international suppliers
forming alliances. For Nano development, what we did
is, we only worked with a pool of chosen suppliers and
reduced the existing supplier base nearly by 60%. As
Value Propositions Distribution Channels, customer Customer segments
relationships
- Low-cost, rugged - More than 1600 distribution points for - Truck/commercial
commercial vehicle sales vehicle drivers
4000 truck drivers - Low maintenance, fuel - ‘Suvida’ program to train rural
- Dedicated R&D in Tata efficient mechanics, offer set of tools at no
Engineering Research Center, - High load bearing cost,
India capacity - Mobile workshops in rural areas
- Local supply chain in India
Key resources Revenue/Income
- R&D platform - Product sales
- Dedicated engineering team of 5
engineers
- Budget of US$49 million
- Capacity to leverage prior innovation
like Tata Indica - Manufacturing plants
in
Uttarakhand and Dharwad
Karnataka
Nano development was guided by fixed, low price point
set by the top management, suppliers who could share
the same vision like us to keep the cost at targeted level
were selected”.
“… We did not design a single thing for the brake system
and air- conditioning (AC) system of Nano. These were
designed and manufactured by the suppliers. Brake
system was supplied by Bosch (Germany) and Brake
India. AC system was developed by Behr India [German
Behr subsidiary] and local supplier-Subros. We gave
them freedom to design and come up with new ideas
and that definitely helped us. For example, at the
beginning developing AC system keeping the cost down
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Table 7
Business model canvas of Tata Nano.
Key partners Key activities
Collaborations with 100 local and international -Dedicated R&D
component suppliers-Bosch, Subros India, - Local supply chain for
Denso, Behr India, Brake India component sourcing
- Low-cost production in India
- Marketed as “the world’s
cheapest car”
- Online marketing platforms like
blogging, Facebook and text
messaging
Cost/expense minimization for value creation
- Removing features like power steering, airbags, anti-lock braking system
- Locally sourced car components/parts to reduce cost
- Reduced number of car components to reduce inventory cost, logistics cost
- Integrating existing components in new ways
- Reducing existing supplier base by 60%
was a black box problem to us. Behr and Subros shared
details of their previously developed AC systems for cars
since they are specialized vendors in it. This kind of
relationship is a must when you try out something so
new and ambitious in terms of low cost and high
performance”.
To lower costs, the existing metropolitan showrooms
were used as distribution channels to sell the Tato Nano.
Further, a distribution model was designed so that the Tato
Nano could be serviced even in remote locations through
local entrepreneurs who assembled the cars from kits in low-
cost satellite mini-factories. To be cost-effective, Tata Motors
used non-traditional communication media channels and
online marketing platforms for marketing activities (e.g.,
blogs, Facebook, and text messages). The revenue stream
was designed to appropriate value through product sales.
Although Tata Motor’s aspiration was to sell 250,000
units of the Tato Nano annually the total sales of the Nano as
of July 2018 were only 250,000 units [136]. In addition to
India, the Tato Nano was sold only in neighboring countries
such as Nepal, Bangladesh, and Sri Lanka. Because of
continued poor market performance and multiple fire
incidents with the car raising safety concerns, Tata Motors
may soon phase out the Nano [136–138]. Table 7
summarizes the business model canvas of Tata Nano.
4.3. Value proposition, creation and capture for business
models: Ford
Figo
Head quartered in the US, Ford India Private Limited
(hereafter, Ford India) is the eighth largest automaker in the
Indian market. The product examined in this study is the first
affordable, small car produced by the company, the Figo,
which was released in 2010.
Traditionally, Ford would bring vehicles to India and make
some small adaptations to vehicles that were designed,
developed, and manufactured for the European and US
markets. As a result, Ford India could not position its
products to be competitive in the Indian market. In a change
of mindset that occurred approximately 10 years ago, the
company gathered market knowledge about the emerging
middle-class customer segment of India to attract local
customers and find market opportunities. The company
aimed to create a vehicle that was an affordable small car
Technology in Society 65 (2021) 101538
Value propositions Distribution channels, Customer segments
Customer relations
- Affordable, ultra-low cost - Existing metropolitan Low-end customers driving
car (INR 100,000/ USD showrooms two-wheeled vehicles –
2000) - Local entrepreneurs scooters, motor cycles
- Nano as a safe alternative assembling cars in mini-
to the two-wheeled factories
vehicles
Key resources Revenue/income
- R&D platform - Product sales
- Dedicated product - Pay-first, drive later booking
development team model
- Patents - High sales volume at thin
- Development budget - margin
Internal capability
with low ownership costs. To identify customer needs, Ford
India gathered market knowledge through an exhaustive
study conducted in the local market context. The market
research consisted of interviewing potential customers and
employing end-user observations to define the product
requirements. As expressed by the
former President and Managing Director of Ford India:
“Study revealed that rising middle-class customers do not
want a cheap car-they want value for money since it is
about aspirations. Because psychologically customers
perceive that their position in society gets higher owning
car-so why waste money for a cheap car? Positioning Figo as
value for money and providing the required functions were
crucial”.
“Our traditional strategy was okay if you want to be a
small volume manufacturer here because the cost of
doing that was so high, level of localization was relatively
low and we could not position our products to be
competitive here in India. We changed our positioning in
terms of where we want to be in the growing Indian
market and then decided to come up with a low-cost
small car.”
To reduce costs during product development, Ford
engineers utilized standard and essential components from a
range of different car models, as well as low-cost and
lightweight components wherever possible. Reengineering its
global product development platform, “One Ford,” Ford India
designed the Figo using the model of the Fiesta. The vehicle
included components identical to those of other Ford
models. Product manager of Ford strategy department
stated:
“We took an existing platform- One Ford that we already
had globally for developing various Ford models, for
example, Ford Fiesta and re-engineered that platform for
top-head changes (to change the design) to develop
Figo”.
The value propositions of the Ford Figo were aimed at
customers from the rising Indian middle-class. Critical aspects
identified for Indian middle-class customers were low
ownership costs and fuel efficiency. Product manager of Ford
strategy department described: “We never considered the
issue of cost of purchase only. The Indian consumers are
greatly focused not just purchasing price but also ownership
12
R. Sharmelly and P.K. Ray
cost (fuel economy, service cost, warranty cost and lastly
reselling price) and experience across product life cycle. So,
in designing Figo, the ownership cost was equally important
to purchasing cost for us”.
“… from the innovation point of view it was all about
trying to make sure we understood the consumer,
listened to them and actually changed the product
definition statement … interestingly we found that these
people are very much tech savvy [something we were
not aware of]. As a result of that research we
incorporated Bluetooth in Figo to make a feature of
difference ([although Bluetooth technology is usually a
feature of a high end car here] …”
Ford India made significant efforts during the
development process
to reduce costs. This cost reduction was achieved by focusing
on significant localization of the vehicle components, forming
collaborative partnerships with local suppliers, and sourcing
components or parts from local manufacturers in India. As
expressed by the former President and Managing Director of
Ford India:
“… We have a mix of local and global suppliers … we
worked with Jai Hind, from Pune, India to work on engine
blocks … it was an opportunity for Jai Hind to
demonstrate their capacity to do this type of work and
grow their business. We also worked with international
supplier Visteon for air-conditioning systems and Johnson
Controls for designing seats for Figo …”
“We did significant levels of localization which is 85% …
some very robust negotiation with our supplier base
enabled us to get a material cost line which is 75% of the
cost of vehicle. If you cannot secure access to local
market materials from the suppliers, you are unable to
compete in a tough market like India.”
Through localization, Ford India managed to make the
parts easily available and at a much lower cost. Further, Ford
India reduced the costs of vehicle ownership across the
entire product life cycle by implementing a “child part”
strategy, where a major car system (e.g., air- conditioning)
was made up of different components that were
manufactured locally to make it easier to replace an
individual faulty or worn- out components. Ford India also
integrated suppliers early in the product design and
development process to reduce production and sourcing
costs. In 2019, Ford India’s distribution channels and
structures consisted of more than 540 sales and service
outlets across India [139]. According to former President and
Managing Director of Ford India:
“We did not rely on traditional marketing methods like
newspaper, television advertisements. We went far more
with social media and internet to launch Figo … so, it is a
multifaceted approach. For example, customers here will
travel a lot to purchase a vehicle- but will not travel a lot
to service a vehicle. So, we worked aggressively to grow
our service outlets to get Figo much closer to customers.
Ford had a major distribution center in the south
(Chennai). Now we have set up more distribution centers
in Mumbai and Delhi regions. So, the innovation went
right across the value chain”.
Technology in Society 65 (2021) 101538
In addition, the Figo received multiple awards [140] and
attracted the growing market segment of Indian middle-class.
As stated by former President and Managing Director of Ford
India:
“… the price range for the base version of Figo was INR 3,
50,000 and the upper version price was set as INR 6,
00,000. And, that product pricing is about where 70% of
all compact cars are sold here in India.
This was highly appreciated by customers … for us it was
all about making our brand accessible and giving
necessary and valued product features. We have tripled
our revenue with Figo and sold the car in other
developing markets along with India …”
In addition to India, Figo has sold in Mexico, the Middle
East, and South Africa (Table 8).
5. Analysis and discussion: value proposition, creation
and capturing for resource-constrained innovations
We found that Mahindra, Tata and Ford engaged in five
specific types of activities (second-order themes) that
aggregate to the core interrelated business model
components to craft specific type of resource- constrained
innovation. Table 9 provides quotations from the data that
demonstrate each of these activities along with the
corresponding first-order codes.
5.1. Value proposition
The first activity (second-order theme) we found,
“identifying potential customer segment and the value
offerings” aggregates the two first-order codes “recognizing
target customers” and “recognizing product needs”. Our
analysis reveals that all the value propositions of the case
firms were explicitly targeted to meet the needs of resource-
constrained customers through understanding the target
customers and their product requirements. The business
model of the firms created multiple value propositions for
different target customers. For example, the Yuvraj mini-
tractor by Mahindra was designed to provide increased
power to allow better crop yield in agricultural production by
reducing the need for marginalized, small-scale Indian
farmers to rely on traditional methods of farming. Yuvraj was
further characterized by fuel efficiency, ease of operation,
and optimal maintenance. This created higher value
proposition for the small-scale farmers in rural India.
Mahindra also developed Scorpio, the first indigenous SUV in
the Indian market, particularly for urban customers who
owned a car and aspired to have a safer, fuel-efficient SUV at
the operational costs of a sedan. Ford India targeted Indian
middle-class customers by creating the Figo, the first ever
affordable small car offering on the Indian market to offer
such low ownership costs. The Tata Ace customer segment
consisted of Indian truck drivers. The Tata Ace mini-truck was
designed to offer a low-cost, fuel-efficient, low-maintenance,
and safe small truck with a high load-bearing capacity. Finally,
the Tata Nano was designed to offer an ultra-low-cost car as a
safe vehicle for the millions of Indian customers who were
using two-wheeled scooters and motorcycles for their
Table 8
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R. Sharmelly and P.K. Ray Technology in Society 65 (2021) 101538
Business model canvas of Ford Figo. Proposition 2. Firms’ ability to organize resource-
Key partners Key activities Value propositions Distribution channels, Customer
customer relations Segments

Key local and international suppliers for
sourcing components- Jai Hind, Visteon,
Johnson Controls
- Market research, customer - Low ownership costs: initial purchasing - Over 540 sales and service Middle-class
interviews, end-user observations cost, service cost, warranty cost and outlets across customers
- Re-engineering its global product reselling cost India
development platform, “One Ford” - Fuel efficiency - Customer service in
- Local supply chain in India remotest areas of India
- Low-cost production in India − 4 spare parts distribution
centers in India

Cost/expense minimization for value creation Key resources Revenue/

Income

− 85% localization to reduce material cost line - Local engineers - Product sales
- “Child part” strategy to reduce parts replacement costs - Manufacturing plant in
- Early supplier integration to reduce production costs, sourcing costs Chennai, India
- Global product development
platform
- Ford Fiesta model to design
Figo

transportation needs. Thus, the business models presented constrained innovation is positively related to the creation of
in the case studies demonstrate how the different firms cost innovation that has low product novelty by integrating
identified unmet customer needs and made clear choices a local supply chain, recombining existing technologies, and
about which customer segments to pursue in developing using common materials through value creation activities.
convincing value propositions.
Proposition 1. Firms’ ability to organize resource-
constrained innovation is positively related to consolidating
the embedded value of the firm’s offering in products that
have compelling value propositions.

5.2. Value creation

5.2.1. Value creation by cost innovation

The second activity (second-order theme) “exploiting cost
advantages in sourcing and production” aggregates the two
first-order codes “establishing local supply chain for cost-
effective raw materials” and “recombining existing
technologies”. Our analysis demonstrates that the three firms
optimized costs in core value creation activities, specifically in
production and sourcing to exploit local cost advantages and
meet the stringent price–performance requirements of their
resource-constrained target customers. The case studies
demonstrate that the Mahindra Yuvraj, Mahindra Scorpio,
Tata Nano, Tata Ace, and Ford Figo were developed through
seeking new ways to cut costs in the value chain for achieving
value for money. The development strategies involved
establishing a local supply chain, using locally available low-
cost raw materials, utilizing common or shared components,
adapting existing components, and recombining existing
technologies in new ways to achieve cost innovation through
reducing costs. The firms’ development activities were
largely built on forming networks with external key partners-
locally based suppliers to access technology and expertise to
achieve cost innovation advantages. The network
relationships with the suppliers enabled the firms to
outsource and utilize low-cost resources and achieve
economies of scale. This resulted in reducing costs from the
value chain for product development, making Mahindra
Scorpio, Tata Nano, Tata Ace, and Ford Figo true cost
innovations [20,21]. Thus, the case studies demonstrate that
the firms’ product development activities resulted in cost
innovation, triggered by the economic realities of the
emerging markets in which the firms were operating. Thus,
we propose that cost innovation alone does not necessarily
lead to a new product, but rather, it offers creative ways to
reduce operational costs.

14
R. Sharmelly and P.K. Ray Technology in Society 65 (2021) 101538

Table 9
First-order codes Second-order themes

Recognizing target customersIdentifying potential customer segment Value proposition

and the value offerings
Recognizing product needs

“… our goal was to break into the urban market … target

group was modern, urban customers …”

“… what appeals a target segment … the whole game is about

offering proper value propositions”

“… because psychologically customers perceive that their

position in society gets higher owning car-so why waste money
for a cheap car …”

“… no suitable farming tractors … for fragmented land owners

who are mostly marginal farmers …”

“… there was no car for the low-end customers … they were

buying two-wheelers which were not a safe mode of
transport … identified as a white space for innovation
…”

“… looking for latest technologies, bigger space …, more safety

… low ownership cost [like] a regular car …”

“Yuvraj was exclusively made for every small-scale farmer who

owns only 2–5 acres of land … considered
these … as the target customers to offer farm mechanization …”

“… existing models were much higher than the affordability of

the truck drivers … without meeting their needs of more load
bearing, safety, all weather protection …”
Establishing local supply chain for Exploiting cost advantages in sourcing Value creation through
and production cost innovation
cost-effective raw materials
Recombining existing technologies
“… manufactured as collaboration between us and the
suppliers … do not import auto components … Bosch and
Lear Corporation to set up their manufacturing base here …
local supply chain. Localization … to control cost through
local factors of production”.

“We did significant levels of localization which is 85% … with

our suppliers to get a material cost line which is 75% of the
cost of vehicle … secure access to local market materials …
unable to compete …”

“For Nano development … reduced the existing supplier

base nearly by 60% … guided by fixed, low price point …,
suppliers who could share the same vision like us to keep
the cost at targeted level were selected”.

“… power train, engine transmission, suspension, and brakes

technologies have been applied in a cost-effective way …”
Re-engineering existing platform Developing value-engineered solutions Value creation through
Incorporating value-adding Developing unique, new product good-enough innovation
architectures entailing new applications Value creation through
functions tailored to needs frugal innovation
“..took an existing platform- One Ford that we already had Localizing market study,
globally for developing various Ford models, for example, Ford distribution and marketing
Fiesta and re-engineered that platform for top-head changes Conducting local market
(to change the design) …” R&D
“… consumers are greatly focused not just purchasing price Creating new product and
but also ownership cost (fuel economy, service cost, warranty applications
cost and lastly reselling price) and experience across product Organizing resources and
life cycle … the ownership cost was equally important to structures
purchasing cost for us”.
Data exemplars of first- and second-order constructs.
Exemplary quotes Theory

15
R. Sharmelly and P.K. Ray Technology in Society 65 (2021) 101538

Table 9
(continued on next page)
(continued)
Second-order themes Theory
Exemplary quotes First-order codes

“… interestingly we found that these people are very Conducting focused much tech
savvy [something we were not aware of] … marketing and distribution we incorporated
Bluetooth in Figo to make a feature of Offering high-end
difference …” technologies at low costs

“Study revealed that …. do not want a cheap car-they want

value for money … did not rely on traditional marketing
methods … went far more with social media and internet …
worked aggressively to grow our service outlets to get Figo
much closer to customers …. set up more distribution
centers in Mumbai and Delhi regions. So, the innovation
went right across the value chain”.

“… spent time with potential customers during immersion

program …”

“… interviewed … 4000 truck and three-wheeler drivers for

designing Ace”

“… conducted an intensive research …. in the Mahindra R&D

center …”

“Tata Motor’s R&D investments for the engineering

research center to develop indigenous technologies …” “We
took design cues from two-wheeled vehicles to develop the
mini-tractor structural design … engineers at the R&D
center were trying to meet strict cost criteria … working on
creating unique applications like enabling farmers to drive
through narrow lanes to cultivate, spray and move crops …
the compact product design included a single cylinder
engine with capacity of 15

Horsepower … to make sure power and comfort …”

“We were the first in India to introduce stop-start technology in

May 2000 to make Scorpio more fuel economic …”

“… so, the strategy was to study how we can provide all the
required features … that interpretation was used to
formulate product specifications …”

“The most crucial part was developing the engine to balance

between fuel efficiency, cost and emission standards … Tata’s
existing technical capabilities and selected Tata Indica car … to
come up with a two- cylinder version engine for Ace …“.

“… for new innovations … tap into the group’s in-house R&D

capacities to shorten development and market entry time
…”

“Anand Mahindra [chairman] devised a unique strategy..

[he]hired Pawan Goenka and Alan Durante …” “ 120
dedicated engineers were assigned … 19 teams were
formed”

“… Tata formed four cross-functional teams … the strategy was

to study how we can provide all the required features …”

“… creative in marketing even in positioning … positioned with

a ‘car plus’ approach … marketing and public relations
highlighted the functional benefits …”
(continued on next page)
(continued)

16
R. Sharmelly and P.K. Ray Technology in Society 65 (2021) 101538

Table 9
Exemplary quotes First-order codes Second-order themes Theory

“We launched Suvida program … to train rural mechanics, Attracting existing segment in Appropriating value through product Value capture through
sales in emerging and developed good-enough innovation
provide them set of tools for free of charge … more than 1600 emerging market Creating new
markets Value capture through
distribution points for sales were set up.” customer segment in emerging frugal innovation Value
market Creating new customer capture through reverse
“The ownership cost of Yuvraj is similar to owning a pair of segment in developed market innovation
bullocks … unlike a fuel-efficiency … in traditional large size
tractor [Yuvraj] offers … this was significantly cheaper than
the existing one at the market …”

“… that interpretation was used to formulate product

specifications … reducing the cost 50% less than any other
commercial vehicle”

“… members of the cross functional team … came up with

various innovative ideas …. had to meet the ultra low cost
target ….had a good team structure … needed engineering
excellence …”

“And, that product pricing is about where 70% of all compact

cars are sold here in India. This was highly appreciated by
customers … for us it was all about making our brand
accessible and giving necessary and valued product features.
We have tripled our revenue with Figo …”

“… Packaging 15 horsepower engine with a low purchasing

cost, ownership cost … strong dealer network … attracted
rural farmers to use Yuvraj tractors …” “… on top of that an
affordable price point motivated buyers to choose Scorpio
over other mid-sized cars …”

“With an optimum performance … Ace created a new

market segment of the mini [small] truck users …” “… with
more than 85% market share … Ace is the leading player in
the SCV category”.

“… Mahindra gained a market share of over 45% just within

3 years of Scorpio launch … for the global market … from the
Indian customers as well as foreign markets for all it had to
offer …”

“… we sold over 400,000 tractors in the first year of launch in

2010..gained market in Western markets like Australia and the
USA”.

5.2.2. Value creation by good-enough innovation drastically cheaper. Indeed, the Ford India case study demonstrates that the
From the empirical data, the third second-order theme labelled vehicle was designed to deliver value not only by ensuring low-cost
“developing value-engineered solutions” aggregates three first-order codes: production to reduce costs, but also by incorporating value-adding features
“re-engineering existing platform”, “incorporating value-adding functions tailored to the needs of resource-constrained customer to ensure some
tailored to needs” and “localizing market study, distribution and marketing”. degree of product novelty, making the Figo a truly good-enough innovation
We found that pressed by rising competition from low- cost Indian auto [19, 23].
manufacturers, Ford India made the strategic decision to develop the Figo,
Proposition 3. Firms’ ability to organize resource-constrained innovation is
the affordable and good-enough car for India and other emerging countries.
positively related to the creation of good-enough innovation that has some
To address resource constraints beyond purchasing capacity, the existing
product novelty using existing platform reengineering and localization
global product development platform “One Ford” was reengineered in India
through value creation activities.
during the core value creation phase of production to offer the value
propositions of fuel efficiency and low ownership costs. This was further
5.2.3. Value creation by frugal innovation
combined with market research, focused marketing, and establishing
“Developing unique, new product architectures entailing new
dedicated distribution channels to ensure localization. The Figo emerged
applications” was identified as the fourth second-order theme from the
from the redesigning of an existing product platform to make the vehicle

17
R. Sharmelly and P.K. Ray
data exemplars in Table 9, aggregating five first-order codes: “conducting local
market R&D”, “creating new product and applications, “organizing resources
and structures”, “conducting focused marketing and distribution” and
“offering high-end technologies at low costs”. Rather than reengineering
existing product platforms, for value creation, Mahindra and Tata Motors
developed novel products based on new product architectures at much lower
price points than existing solutions through dedicated local research
conducted at the R&D centers located in India to focus exclusively on
customer needs and forming dedicated product development teams. Further,
Mahindra and Tata Motors created specific new applications at lower price
costs for resource-constrained environments. For example, Mahindra’s Yuvraj,
a 15-horsepower tractor that is offered at a fraction of the cost of other
tractors, made mechanization possible for increased power and productivity,
a feature previously unavailable for small-scale farmers at a lower price point
than existing solutions. Similarly, in addition to offering state-of-the- art
technologies, more space, more safety, and ruggedness, Mahindra’s Scorpio
includes a new application for low fuel consumption, a feature previously
unavailable for this kind of vehicle. With focused marketing campaigns and an
extensive dealer network, the Mahindra vehicles achieved high sales
nationwide in India.
Likewise, Tata Motors created completely new product architecture with a
two-cylinder engine for the Tata Ace, also conducting local R&D at the Tata
Engineering Research Center and establishing an independent product
development team. Launched with a price tag of USD 5,000, which was at
least 50% cheaper than any other four-wheeled commercial vehicle in India,
the Tata Ace included new applications such as a higher load-bearing capacity,
cargo space and all weather protection features, which were deemed
essential by truck drivers throughout India, but had not been available at a
similar price point. Tata Motors also established nationwide distribution
points for sales, devised emotionally appealing marketing campaigns and
launched the “Suvida” program solely to support the rural mechanics of the
mini- truck. Similarly, when developing the Tato Nano, new product
architecture was created by a dedicated product development team. With a
price advantage of almost 50% over traditional small cars [141], the Tato
Nano offers a more compact and fuel-efficient vehicle with fewer advanced
features. The Tato Nano was marketed as the “world’s cheapest car” and
utilized the existing metropolitan showrooms of Tato Motors and online
marketing channels to be cost-effective.
In contrast to the redesigned and tailored products adapted from existing
ones that are associated with good-enough innovations, the novel vehicles
Yuvraj, Scorpio, Tato Ace, and Tato Nano were based on local market R&D and
built on completely new product architectures ensuring a high degree of
product novelty along with cost advantages compared with existing solutions,
and therefore represent true frugal innovations [24,25,40,77].
Proposition 4. Firms’ ability to organize resource-constrained innovation is
positively related to the creation of frugal innovation that has higher product
novelty by developing entirely new product architectures and applications
through value creation activities.
5.2.4. Value capture
The firth second-order theme labelled “Appropriating value through
product sales in emerging and developed markets” aggregates three first-
order codes: “attracting existing segment in emerging market”, “creating new
customer segment in emerging market” and “creating new customer segment
in developed market”. As observed from the supporting data in Table 9, the
approach for value capturing was straightforward. All cases, apart from the
Tata Nano, appropriated value through traditional product sales. The research
found that to create a good-enough [19,23] vehicle that would attract most
customers of compact cars, Ford India had to incorporate some degree of
product novelty through concentrating on core features tailored to emerging
market needs, such as increased fuel efficiency and low ownership costs
throughout the entire product life cycle, which represent a decisive benefit
for customers. The Figo emerged from the reengineering of an existing
18
Technology in Society 65 (2021) 101538
product platform, that is, it represents a market extension based on existing
technologies. Apart from in India, Figo was sold in other developing markets
like and South Africa, Mexico and the Middle East. Based on this we propose:
Proposition 5. Firms’ ability to organize resource-constrained innovation is
positively related to the creation of good-enough innovation that has some
market novelty by offering value-adding functions in emerging markets for
value capture.
In addition to having a high degree of product novelty, the example of the
Tata Ace created a new market segment of small commercial vehicles, which
was formerly non-existent. Inducing 54% of non- consumers purchasing their
first commercial vehicle, the Tata Ace introduced the concept of the mini-
truck in India. This frugal innovation initially diffused in its home country of
India, then reached neighboring Southeast Asian countries, and eventually
gained a foothold in other developing market regions to attract cost-
conscious customers with similar needs to customers in India. Thus, the Tata
Ace was developed exclusively for target customers (i.e., mini-truck users),
making it a true frugal innovation given that frugal innovations can even
create new markets by reaching an entirely new customer group [39,40,72].
The diffusion path of the Tata Ace in developing markets is similar to the path
of other products in such markets, in that before being adopted in more
developed countries, frugal innovations diffuse to other geographically close
developing markets with similar socioeconomic conditions [38,142]. We
therefore propose:
Proposition 6. Firms’ ability to organize resource-constrained innovation is
positively related to the creation of frugal innovation that has higher market
novelty by creating completely new market segments in developing markets
for value capture.
For example, Mahindra’s Yuvraj also generated a high degree of market
novelty. Yuvraj created a new customer segment, reaching the marginalized
and small-scale farmers of India who previously had no access to mechanized
farming. In addition to serving developing markets such as those of India,
China, and African countries, Mahindra’s mini- tractor is the third largest
player in the US market, selling approximately 25,000 units per year with a
market share of approximately 15% [143]. Yuvraj was first adopted in
emerging markets before being adopted in Western markets to attract cost-
conscious and efficiency-seeking customers, and is therefore a frugal
innovation that has become a reverse innovation. Similarly, Scorpio created a
new customer segment reaching the customers that already owned a car but
aspired to own an SUV with all the necessary SUV functions at the price of a
sedan car. The Scorpio was the first SUV from Mahindra designed for the
global market, and was first adopted in India before being diffused to
developed economies such as Italy, Australia, and France. Thus, Scorpio is also
a frugal innovation that became a reverse innovation [38,60,86].
Proposition 7. Firms’ ability to organize resource-constrained innovation is
positively related to the creation of reverse innovation, which refers to frugal
innovations that are characterized by higher market novelty through creating
completely new market segments in developed markets as well as in
developing markets for value capture.
The only case exception is the Tata Nano because the business model did
not appropriate its desired value, as observed in the stated value propositions
and key value creation activities. While the core value propositions were to
provide an affordable and safe car for the Indian mass population to replace
two-wheeled scooters and motorcycles, the selling price was approximately
25% higher than initially advertised, that is, INR125,000 as opposed to
INR100,000 [144]. An even greater problem was that the value proposition of
safety was destroyed because there were multiple fire incidents in the Tato
Nano car, thus raising critical concerns about the quality and safety of the car
[136,138].
Further, for value creation, marketing strategies such as positioning the
car as the “world’s cheapest car” and the “pay first and drive later” booking
R. Sharmelly and P.K. Ray Technology in Society 65 (2021) 101538

strategy created significant negative images [145]. This is because Indian technology and market perspectives, appears to be possible only with the
customers were highly averse to these marketing messages because for the optimization of the value chain activities of a firm’s business model from the
average Indian middle-class family, a car symbolizes their social status, and market research strategy to the go-to-market strategy. We therefore propose:
this market positioning created a customer perception of the Tato Nano being
Proposition 8. Firms’ ability to organize resource-constrained innovation,
a low-quality, cheap and “poor man’s” car [146]. Although this frugal
particularly frugal innovation, with a higher degree of technological and
innovation created new product architecture and earned multiple patents for
market novelty is positively related to the business model having tightly
Tata Motors, the lack of efficient distribution channels including the major
coupled value creation and value capture activities to offer proposed value
metropolitan showrooms and the use of non-traditional marketing channels
propositions.
(e.g., text messaging, social media platforms and blogging) resulted in the
failure of reaching the target customer group of owners of two-wheeled
6. Implications and future research directions
vehicles. In the context of the prevailing socioeconomic norms, the low-end
customers driving two-wheeled vehicles felt intimidated to visit the Tata
6.1. Theoretical implications
Motors showrooms to buy the Tata Nano, and customers from the district
level and rural areas experienced difficulties in acquiring the car because the
This article analyzes the business models of three firms that have
distribution outlets were in the large cities. Further, without an effective
implemented resource-constrained innovations in the automotive industry in
distribution system, the car was not sold in the smaller towns and cities from
India. In doing so, the study makes several contributions to the existing
which the major portion of sales was expected to originate. As a result, even
literature on product innovation in three main ways. First, although existing
with an ultra-low price point, the Tato Nano was not able to create a new
literature often use cost innovation and resource- constrained innovation
customer segment or appropriate value though product sales, and did not
synonymously describing that constraint-led innovations are simply low-cost
achieve the anticipated commercial prediction of selling high volumes at thin
products, we provide evidence that cost innovation does not essentially lead
margins in India [136,147]. Further, the Tato Nano did not comply with the
to a new product-rather it is a way to reduce operational costs from the value
safety regulations and stringent emission standards of Western countries,
chain to achieve resource constrained innovations.
which meant that no unit was sold in any developed country [138,145].
Second, because literature so far has overlooked the business model for
We argue that the business models of Scorpio, Yuvraj, Ace and Nano are
frugal innovation, this study contributes practical insights into the
profitability seeking business model [148] as Mahindra and Tata decided on
organizational implementation of frugal innovation through business model
the product developments explicitly focusing on fixed budget-this led to
mechanism. In particular, this article contributes by identifying the value
improving efficiency in their value creation activities like knowing their
creation activities of a business model namely, local R&D and new product
customers better and involving the supplier network or the distribution
architecture, applications creation and focused marketing and local
channels to reach the customers. On the other hand, the business model of
distribution channels to ensure higher product novelty and capture value
Figo is growth seeking business model [148] as there was no explicit focus on
through product sales to simply not compete with other low-cost alternatives,
fixed budget-rather Ford desired to attract Indian customers to find market
but to compete with non-consumption. Therefore, the findings advance the
opportunities by improving their offering for the Indian market.
research on both frugal innovation and business model to support such
Overall, the cases presented in this study reinforce that value proposition,
innovation for resource-constrained contexts.
value creation, and value capture in business models intrinsically depend on
Third, the study systemizes work on constraint-led product innovation.
each other for the successful creation of a resource- constrained innovation.
From a theoretical perspective literature has argued that frugal innovations
Business models for resource-constrained innovations in emerging markets
have the potential to create new markets. In this study, we provide empirical
not only entail the value proposition of low-cost orientation through cost
evidence that by ensuring a high degree of market novelty, frugal innovations
reduction, but also offer products that meet the requirements or aspirations
can create completely new markets and have the potential to become reverse
of target customers and increase these customers’ willingness to pay for the
innovations being first adopted in developing markets and later to
innovation [40,41,104]. Given that a business model conceptualizes how
industrialize ones.
value is created for the customer and is captured in the form of revenue
Fourth, addressing the organizational implementation through business
through product sales [93,95], even when maintaining low-level pricing of a
model, this study emphasizes that, frugal innovations exhibiting a high degree
product, a firm will be unable to capture value if the product benefits are not
of product novelty, may not necessarily capture value though market novelty
perceived by the intended customers [41]. Although the existence of
if there is a lack of co-ordination among value creation and delivery, and value
resources implies the existence of rents for a firm, a firm cannot always
capture activities of a business model to offer the intended value
capture value from those resources, and this is where the business model
propositions.
concept is of great importance [149]. As argued by scholars, a business model
Finally, this study has deepened understanding of business model design
need to encompass unique combinations of the fundamental elements that
for orchestrating different types of resource-constrained innovations-cost,
result in higher value creation and, in turn generating superior returns to the
good-enough, frugal and reverse. In doing so, the study demonstrates that
firm [96]. Therefore, we suggest that a business model for resource-
resource-constrained innovation research can benefit strongly from drawing
constrained innovations, particularly for frugal innovations, must reduce
on the business model concept to organize specific categories of constraint-
operational costs through the value creation mechanism, including sourcing
led innovation.
and production. The reduction of operational costs through the value creation
mechanism should be coupled with local R&D to fully understand the
technical and design aspects of products that will induce customers’ 6.2. Managerial implications
willingness to pay. This is in line with the existing literature arguing that local
R&D is a major driver in incorporating local knowledge along the value chain The findings of this study hold important implications for managers of
to address needs in resource-constrained environments [39,40,115]. Further, MNCs intending to develop product innovations in emerging markets.
as demonstrated in the case studies, it is vital to organize effective marketing Overall, it is evident that cost innovation is vital for organizing different types
and distribution channels to increase the appeal of frugal innovations and of resource-constrained innovation. This means that managers need to
reach consumers in resource-constrained contexts to offer the proposed rethink the complete product design and value chain to enable such
value and appropriate value through product sales, a finding that is in line innovations while keeping costs to a minimum, because the established
with the extant literature [39,81]. Thus, based on the case evidence, the capital-intensive product development techniques are often not intended or
development of frugal innovations, which are fairly novel from both the ready to accommodate the requirements for such innovations.

19
R. Sharmelly and P.K. Ray
Second, potential entrepreneurs need to fully leverage the cost
advantages of the emerging markets across the full spectrum of a business
model- R&D, product design, sourcing, production, and marketing and
distribution to sell more utility for less expenditure for the resource-
constrained customers. It might require forming alliances with local suppliers
to tap into local expertise for innovating value-for-money products.
Third, companies need to develop a frugal mindset within their
organizations to deal with the complexity and speed requirements of high
technology and low-cost resource-constrained innovations in the low- income
economies. They need to develop more market-oriented frugal innovations
that reduce costs in the entire product lifecycle while satisfying or exceeding
acceptable product quality standards to enable consumption in the local
market, other markets with similar social- economic conditions and
developed markets to attain reverse innovation potential.
Finally, on the business model side, firms must start value creation and
delivery activities based on maintaining an R&D unit in the resource-
constrained environment, and embedding themselves in the local market
value chain to aid critical need sensing, understand product usage patterns,
socio-cultural conditions, facilitate customer interaction, and design products
based on full localization in terms of local production that meet the demand
criteria of these customers. Hence, product concept, development, and
commercialization in the resource- constrained market require proximity to
the local market throughout the business model activities.
6.3. Future research directions
A number of research avenues evolve from this exploratory research. First,
for research to move forward in this area, the extension of the findings
beyond the automotive industry to other sectors including healthcare,
banking or consumer goods would be meaningful to investigate how firms can
organize resource-constrained product innovation in those industry contexts.
Second, it would be interesting to compare the business model activities
among diverse firm categories (emerging/ developed economy), their sizes,
market orientations and how business model for developed
country/emerging market firms differ from the respective other ones
regarding various category of constraint-led innovation types. Third, it would
be interesting to know the business model renewal or change over time
based on longitudinal research to focus on the business model innovation. In
addition, it may be helpful to study business model adaptation as a long
process of trial-and-error over time based on longitudinal research.
Author statement
Rifat Sharmelly: Conceptualization,developing theoretical framework
based on literature review, collecting data from India, analyzing data, writing
and revising the manuscript, and acted as corresponding author. Pradeep Ray:
Coding, Revising,and editing.
Appendix. Interview guide/protocol
• Can you describe the background and product innovation motivation for
emerging markets? Why do it?
• What value/benefit did you plan to deliver to the customer through the
innovation? Which customer problems did you try to solve?
• For whom you decided to create value? Who are your most important
customers?
• Was your innovation project guided by a fixed budget? Why or why not?
• Who are your key suppliers? Which key resources you acquired from
partners?
• What key Activities did our value propositions require?
• What key resources did your value propositions require-example:
physical, human, financial?
20
Technology in Society 65 (2021) 101538
• How did you reach your target customers? How did you establish and
maintain relationship with them?
• How did you plan to generate revenue?
• Did you aim for reducing costs in the project? How did you do it?
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