Siemens SMARTly Designs Products for Emerging Markets, Will Others Follow?
Siemens is known for high–quality, high-technology and high-price point products. As a result, the company historically has had a difficult time entering emerging markets, let alone reaching Base of the Pyramid suppliers or their customers.
But a recent article in the Business Standard highlights the positive business benefits Siemens has enjoyed as a result of a new approach to address the growing needs of emerging markets. The acronym, SMART, refers to both the recent strategy of the organization as well as the products that are being specifically designed and developed for low- and mid-level technology markets in countries like India. SMART products (simple, maintenance-friendly, affordable, reliable and timely-to-market) have now become a primary focus for Siemens as well as a hot topic of discussion internally. After three years, the company is now beginning to see the fruits of its efforts.
What’s so smart about this SMART strategy for the BoP?
The SMART strategy shift was initially driven by Siemens desire to increase flattening sales. Siemens has been largely unable to compete in emerging markets as a result of its traditionally high price points tied to the cost of importing its products. Global growth for Siemens in 2010 was at 2 percent and in quarter three of 2011 recorded its lowest operating profit in recent memory.
Through SMART, Siemens now focuses on both middle and base of the pyramid markets in its approach, developing products that are around 50 percent cheaper than its traditional product lines. SMART products focus on local design, customization and production. SMART products are tailored for local customers and do not simply involve stripping technology from existing products. The SMART strategy has allowed Siemens to access previously untapped markets, according to the Business Standard article:
“The SMART portfolio — fully designed, manufactured and marketed in India — acts as a portal to penetrate markets and segments where the company’s presence has historically been low. The bottom of the pyramid was never really a prime focus. But now things seem to be changing.”
The company has already started to see positive results through SMART. Siemens has experienced double-digit revenues in India and other markets across Asia. The focus on local markets has also led to diverse breakthrough innovations in various products such as X-ray machines, medical devices and water treatment products.
Product development from the bottom up
One noteworthy consideration about the development of the SMART program is that it wasn’t originally conceived at the executive or senior management level, but rather regionally with little corporate support. Regional change makers refer to this tactic as the “submarine assignment”, as coined by Armin Bruck, Siemens India managing director; this refers to the fact that product design occurred in a stealth-like manner without knowledge from headquarters. Local engineers in a factory in Goa, India developed an X-ray machine (Multimobi) on their own that was 40 percent cheaper than its traditional Siemens counterpart. Siemens eventually put its support behind the product and used it as a catalyst to consider a new market approach. The company subsequently decided to pay more attention to designing products that were significantly cheaper than the hi-tech ones it had traditionally created.
It is important to note that the Siemens context (mainly focusing on B2B products) is a little different than traditional BoP product development. The company is not the first multinational to successfully develop products for emerging economies or the BoP (for recent examples see here and here). There are, however, potential lessons to be learned from the organization’s achievements. The focus on local context as a part of its design, competitive price points and innovation are all pillars of successful BoP product development. While changing its mindset, Siemens did not compromise on the high quality standards that made other products successful. Furthermore, Siemens was “smart” enough (forgive the pun) to tap into and support innovation that was happening at the regional level and quickly integrate it into its core business strategy. The company, for example, now has a central point person who monitors SMART products and activity globally.
To date, we’ve seen most multi-national corporations implement BoP product development as one-off efforts or R&D/test approaches. It will be interesting to see if Siemens’ recent success encourages other MNCs to think about focused-product development for those at the base of the pyramid.