MAKING IT WORK IN INDIA KEY SUCCESS FACTORS FOR ADAPTIVE BUSINESS MODELS IN INDIAS RENEWABLE ENERGY MARKET

Posted by: IJR, 27. August 2011 - 5:13 Source: http://ijroth.wordpress.com The success of international technology companies in India highly depends on their ability to adjust to local parameters. Especially in the dynamic field of renewable energy, the systemic design of business models promises long-term success. BRIDGE TO INDIA, a consulting company based in New Delhi, identified eight factors that helps global businesses to develop a successful strategy for India. With its economy growing more than 9% per year and a vast population of 1.2 billion, Indias energy demands have increased tremendously over the last years. The countrys rapid urbanization process has called for new and additional supplies of electricity generation and distribution facilities, infrastructure development and transport requirements. The Confederation of Indian Industry (CII) estimates necessary investments equivalent to USD 475 billion in Indias infrastructure, until 2012. In order to meet the longterm goals of securing the countrys energy requirement of 640 GW by 2030, the power generation scenario requires rapid capacity addition from renewable sources. Within this context, the Government of India has identified solar energy as an important renewable resource. About 5.000 trillion kWh per year is incident over Indias land area with most parts receiving 4-7 kWh per sqm per day. The National Solar Mission (NSM) targets 20,000MW grid solar power based on solar thermal and photovoltaic technologies and 2,000MW of off-grid capacity by 2022. This sector has opened up attractive opportunities for foreign technology companies and investors. However, to successfully establish operations in the renewable energy field is a challenge for most international technology companies till date. Eight key success factors for adaptive business models in India Our work with international investors and technology companies setting up their operations in India showed that some crucial success factors are often neglected when designing the Indian business model. This may lead to misguided investments, delay in time and project acquisition. Based on our consulting experience, BRIDGE TO INDIA has identified eight key success factors that help global businesses become successful in India. - Understand the dynamics of Indias upcoming markets - Get the relevant information for your purpose - Create access to relevant networks - Adapt technology to Indias needs and market trends - Integrate the informal sector into your core business model - Focus on developing one successful pilot project however small - Think of scale as your largest business opportunity - Be patient and go with Indias flow 1. Understand the dynamics of Indias upcoming markets Indias markets are in a uniquely dynamic state. International technology companies, entering young and rapidly developing sectors such as the field of renewable energy, have the choice to either see this as a threat or as an opportunity. International firms generally struggle because they increasingly find it difficult to orient the past business practices in India and overseas to the new dynamics that have emerged post 1991 in an India more entrepreneurial and private sector oriented and with a different business ethos. This is a marked departure from the centrist and government dominated economic model until the 1990s. What are needed in India are entrepreneurship and a creative business-driven approach and robust bottoms-up political engagement. Hence, being actively involved in shaping processes and

frameworks is a unique chance companies should capture. Also, international companies have to recognize that India is not one, homogenous market. Each state is a different hub in itself with different socio-economic and political dynamics and opportunities. New Delhi does not decide the fate of India; the state capitals do. India needs to be imagined as EU, common economic zone but differing political interests and power structures. In the field of solar power, Gujarat is a good case in point. A high feed-intariff in the first 12 years (INR 15 for PV and INR 12 for CSP against National Solar Missions INR 12.16 for PV and INR 9.50 for CSP) together with simple processes and the general investment climate has made Gujarat a very attractive destination for international solar companies. 2. Get the relevant information for your purpose Having access to key data and relevant information is an important success factor to develop viable business models all over the world. In India, this can be a challenge, especially for companies, which are new in the market. So far, there is no proper synchronization between public, private and civil sector. Different and often conflicting and non-comprehensive information makes business decisions difficult. There is a large amount of policy documents and of market reports but often, investors and international technology firms have to cut through the junk to acquire useful and relevant information to feed into their business plans. To tackle this challenge, companies need professional support. For that reason, BRIDGE TO INDIA has developed the INDIAN SOLAR COMPASS, a purely business-driven, analytical and regular market report for international companies interested in the Indian solar market. The quarterly report answers not only one key question per issue but also informs about the latest industry trends and specific market opportunities. The compass also includes interviews and essays to provide all-round expertise and analysis.[1] 3. Create access to relevant networks First relationship, then business understanding and implementing this formula is of high importance for companies doing business in India. It is part of the age-old norms and value-system. As Reliance founder Dhirubhai Ambani put it: Between my past, the present and the future, there is one common factor: relationship and trust. Generally speaking, most Indians place a very high value on personal trust. In India, there also has been a tradition of family business, which has nurtured a culture of trust and relationships in businesses. Also, the legal system in India makes trust and communities of interest important. Cultivating the necessary relationships, of course, takes time and patience (see point 8.). This means, that company representatives have to be physically present in the country in order to develop their relevant networks and partnerships to potential suppliers, partners and clients. Especially in young and dynamic markets such as the renewable energy sector, creating effective links with policy makers, bureaucrats, opinion leaders and other relevant decision makers at centre, state and local level is necessary to be part of new developments and trends as well as to gain access to relevant information for business development (see point 2). The goal should be to create local stakeholders who share an interest in the companys success. How to create an army of dependent local entrepreneurs? is perhaps the definitive poser for MNCs and new entrants. 4. Adapt technology to Indias needs and market trends Due to low-cost solutions from neighboring markets such as China, price competiveness in the Indian renewable energy market is extremely high. Additionally, investment decisions are much more than in Western markets driven by fast return-on-invest-expectations and hesitant local financing frameworks. The current bankability bottleneck in the solar market is a good example[2]. Indian commercial banks are unsure about the generation capacities of power plants and are hesitant to extend debt to the projects. The banks are also concerned about the reliability of PPAs and the heavily discounted tariffs that have resulted from the bidding process. International technology companies have to find their unique niche or they have to reduce costs to be competitive through a redesign of their products or production processes. This will often require localization: setting up a local manufacturing unit to become price competitive and understanding the market. Sometimes, some form of partnership with an Indian company, adaptation of products and business practices to Indian requirements, and in the long run, the development of India specific technology is required. It is difficult to assess the risks clearly there will always be an element of risk that can be mitigated if the corporate are responsive and believe that the India story is true. The research project Creating an evaluation model for the transfer of environmental technology to India,

conducted by BRIDGE TO INDIA and the Technical University of Munich, affirms these findings. In the project, we are working on identifying specific market barriers and success factors for international renewable energy technologies in India together with 16 German renewable energy companies. One result will be an IT-tool to generate and evaluate specific risks and opportunities as well as cash flow calculations from scenarios based on individual market entry strategies. BRIDGE TO INDIA and the Technical University of Munich will soon publish first results. 5. Integrate the informal sector into your core business model Indias education system creates 3.7 million university graduates every year. A large number of young Indians also take the opportunity to study abroad. In 2009 alone, more than 250,000 Indian students went abroad for studies; mostly in USA (over 100,0000), UK (more than 60,000[3]), and Australia (around 30,000[4]). On the other hand, there is an immense amount of unemployed youth in India (27 million as in 2008[5]). This number will increase tremendously in the next years due to population growth and a lack of job opportunities for unskilled lahour. Hundreds of millions of Indians currently 95% of the total work force will continue to be in informal, non-contractual work relationships. These simple jobs keep the Indian system running and are extremely important for the functioning of most corporate processes. International companies have to learn how to incorporate the informal sector into their core business processes in order to sustain the quality and delivery of their offerings in India. Also, it is important to remember that the informal work force forms a large part of a new and immense consumer base in India. Bottom-of-the-pyramid (BOP) business models help corporates to involve local stakeholders and maintain their licence to operate. Especially in the area of renewable off-grid-solutions lies a huge potential. Providing electricity to urban and rural poor by involving the local workforce and targeting low-income consumers helps to innovate new and cheaper products to tap large new markets. One example is Veolia Waters activity. The French company in cooperation with Grameen in Bangladesh developed a new and socially sustainable business model to provide the poor with drinking water. Grameen Veolia now pipes its arsenic-free water to 19 tap points in villages surrounding the plant, and they are working to expand this network further. Along with the sales of the water, Grameen Veolia has been introducing awareness campaigns on drinking water in partnership with local governments, schools and religious leaders. 6. Focus on developing one successful pilot project however small International technology companies have to gain experience in the Indian market to be successful in the long-term and showcase that their technology also works under local circumstances. Especially in the field of renewable energy, creating a track record is of significant importance in order to convince banks and investors of their product in India. Based on the generated knowledge, the company can test its adapted business model, correct mistakes, if required, and improve upon it. For example, Azure Power of India did a solar PV pilot project in Punjab (2MW) which was also Indias first privately operated, utilityscale, solar power plant. With the success of this project, Azure power started new projects. The company has set itself an ambitious target of having an installed capacity of 100MW by 2013 and has been actively working with various stakeholders in this regard. Azure Power is currently building 22 megawatts of power projects in the states of Punjab, Rajasthan and Gujarat. 7. Think of scale as your largest business opportunity International technology companies have to change their mindset if they want to tackle the real opportunity in India. Unlike the western markets, in India, while margins on individual sales are often lower, the opportunity of scale is immense. This understanding is the basis for developing adaptive business models for the local market. The parameters of a successfully implemented pilot project can then be replicated all over the country. One example, how to change a business model from high-price to scale is the mobile phone service provider Bharti Airtel. In 2002, the management decided that the ordinary strategy (focussing efforts on increasing the average turnover per client) is not the right business-model-parameter for the Indian market. Instead, success would be based on reaching millions of customers with a uniquely low tariff. As a result, Airtel expanded their distribution network in cooperation with local shops all over the country to provide pre- and post-paid telephone cards. Airtel also heavily invested in cooperation with the microcredit provider SKS in reaching out to the rural market. In 2010, the company had over 150 million customers under contract. By 2012, Bharti Airtel aims to double that number. As a result, Airtel can offer the conversation minute for 1 cent (compared to 2 cents

in China and 8 cents in the U.S.). This makes Bharti Airtel the cheapest mobile operator in the world. Even with the cheapest call rates that it provides to its customers, it made profits of $461m as brought out in its fourth quarterly report. 8. Be patient and go with Indias flow One experience of working and living in India is that nothing goes as fast as you want it to unless you have the relevant information or networks (see point 2. and 3.). An assessment by the Associated Chambers of Commerce and Industry of India reveals that 420 million man-hours are lost every month by the 7 million lakh working population of the Delhi Region who take public transport to office and back. The main reasons are traffic jams during peak morning and evening hours.[6] The daily nitty-gritties are the stumbling blocks, which will extend processes and delay outcomes. International companies, often used to efficient public administration, are often struggling with Indias complex bureaucratic system. Also the legal framework, especially for securing technology transfer, creates a lot of uncertainty these days as the recent Enercon-case showed. The German wind turbine producer Enercon lost its intellectual property rights following a judges decision to dismiss the companys ownership of a dozen wind turbine patents. As a result, the Enercon management in Germany stated recently, that coming to India was a failure.Additionally, international companies have to incorporate the social and environmental circumstances from the beginning in order to maintain their so-called licence to operate (see point 5.). There is no other choice than to accept the countries unique flow (see point 1.) and invisible paths without over-analyzing its reasons. If one learns to see them as opportunities and develops adaptive and realistic solutions (see point 4. and 6.), one truly understood the scalable potential of Indias markets (see point 7). To be successful in India, it requires time, flexibility and financial commitment. India is not authoritarian China that can deliver results as promised, nor is it predictable EU India is an emerging market, potentially huge, already significant and evolving each day. Despite many remaining challenges, India is one of the most attractive growth markets in the world, making sincere efforts especially in the field of renewable energy, especially solar. Underlying them is Indias aspiration to become an international leader in the use of renewable energy and development and commercialization of new technologies. The Indian 2010-2011 budget specified some key measures to increase the flow of renewable energy technology into the Indian market. They include the establishment of a National Clean Energy Fund and complete liberalization of pricing.[7] The Indian government also plans to set up a Solar Research Council, which would coordinate research activities in India according to the R&D strategy of the National Solar Mission. With an increasingly favourable regulatory and policy environment and a growing number of entrepreneurs and project developers, India has been ranked by Ernst and Young as the fourth most attractive country for renewable energy investment in the world, only behind the United States, China and Germany. However, there is a clearly discernible market gap with respect to professional services required for setting up and running renewable energy plants and the adaptation of the foreign technology. BRIDGE TO INDIA contributes substantially to closing this gap. We are committed to ease the entry and successful functioning of foreign companies into the Indian market. For this purpose, we develop India specific business models. This includes the assessment of the market requirements and providing consultancy for our clients to successfully establish their business in India. Sources: [1] For details, refer to our Solar Compass January and April Edition. 1Further information on the bankability issue in Indias solar market in BRIDGE TO INDIAs Solar Compass, April 2011 [3] University World News 2009. [4] Article published in Times of India, dated November 8, 2009. [5] India Current Affairs report dated 9 December 2010 [6] Published in the newspaper Express India dated 7th January 2008 [7] Union Budget. Key Features of Budget 2010-2011. http://indiabudget.nic.in/ub2010-2011/bh.bh1.pdf.

Indian Power Sector Existing Scenario Vs Future

With the world population nearly doubling in the past three decades, the present surge in electricity demand, and the projected increase of the global population, the importance of available energy cannot be underestimated. In India, the burning of coal accounts for approximately one half of all electricity generation, nuclear energy approximately one fourth of all electricity generation, and hydro, and gas roughly ten percent of the total electricity generation. Globally, India is presently positioned as the eleventh largest manufacturer of energy, representing roughly 2.4% of the overall energy output per annum. Usually energy, especially electricity, has a major contribution in speeding up the economic development of the country. The existing production of per capita electricity in India is around 600 kWh per annum. Ever since 1990s, Indias gross domestic product (GDP) has been increasing very rapidly and it is estimated that it will maintain the pace in the next couple of decades. The rise in GDP should be followed by an increase in the expenditure of key energy other than electricity. The Report on the Indian Power Sector draws attention the following matters: The aggressive market scenario of the Indian Power Industry. The significance of the role of the private players and foreign investments in the Power sector. Impact of the political condition, collaborations with private participants, new strategies and reforms in regulating the Oil & Gas sector in India. Significance of renewable sources of energy for Power Generation. The different prospects and difficulties faced by the Power Industry. Growing concern about pollution and global warming has led many individuals and nations to consider the nuclear industry as an excellent alternative for future power generation. Technological advancements and increased public awareness concerning nuclear power are critical to the success of the nuclear industry. Investments made by the nuclear industry in both technology and education will likely be seen in the near future. The future power reforms will be in the field of nuclear energy.