Have you driven a riquimbili lately?

The riquimbili is one of my all-time favorite innovations. The what, you say?

Developed in Cuba, the riquimbili (pronounced rick-in-billy) is a local term that describes an old bicycle that has been upgraded into a motorcycle. The engine may come from a chain-saw motor and the exhaust pipe from a hollow steel bed frame. If these parts are  not available, no hay problema. Anything from water pumps to electricity generators could potentially suffice. Power boosters from old Soviet tanks are especially attractive. My favorite twist is the fuel tank, which is usually an old water bottle.

The riquimbili was born in Cuba in the 1990s. Cuba’s economy collapsed during this time as trade from the Communist bloc disappeared after the fall of the Soviet Union. Public transportation became less pervasive and frequent due to high fuel costs. However, people still needed to get around. Local mechanics responded to the challenge and developed the riquimbili. The end products were noisy and not very pretty. But they could get 120 miles to the gallon. If there ever was an invention born out of necessity, this was it.

I mention the riquimbili because it highlights the emerging concept of frugal innovation (which I mentioned in my previous post). Frugal innovations are the ones that can address the cost constraints of their intended consumers. This type of innovation is increasingly important for corporations that compete for customers in emerging markets. Westerners are used to buying $20,000 cars, $5 razor blades, and $5,000 braces, but most people in emerging markets cannot be consumers at these price points. 

Frugal innovation implies finding creative ways to cut costs without sacrificing corresponding value. In its survey of emerging market corporations, the Economist highlighed three ways that some companies are reducing costs:

  1. The first is to contract out as many business processes as possible. Indian mobile operator Bharti Airtel has to charge extremely low rates compared to Western carriers because the budgets of most Indian consumers are vastly smaller. Bharti  has contracted out everything but its core business of selling phone calls, handing over network operations to Ericsson, business support operations to IBM, and the management of its transmission towers to a third-party specialist.
  2. A second approach is to use existing technology in imaginative new ways. India’s TCS is looking to use mobile phones to connect television sets to the internet. Since PCs are still relatively rare in India but televisions are ubiquitous, TCS’s solution was to design a box that connects the television to the internet via a mobile phone. 
  3. A third way to cut costs is to apply mass-production techniques in new and unexpected areas such as health care. Devi Shetty, India’s most celebrated heart surgeon, is applying assembly-line principles to heart surgery. His flagship hospital in Bangalore has 1,000 beds, compared to an average of 160 beds in American heart hospitals. The 40 cardiologists at Dr. Shetty’s hospital each specialize on specific parts of the operation. This division of labor allows them to perform 600 operations a week.

Innovating on these principles does not require a $100 million R&D budget (quite the contrary, since the objective is to develop products at lower price points). What is required is a deep knowledge of local consumers and a fair dose of ingenuity.

It may also require a lot of bravery. The most successful frugal innovations might cannibalize the expensive products or services they seek to substitute. Would any US car executive give the green light for a $5,000 car? How many American hospitals would support a process that may cut the revenue from heart surgeries by 50%?

I’m guessing the answers to those questions are No, and Not Many. More likely, it is emerging market corporations that will take the lead with frugal innovation.

Written by David Gates for Emerging Markets Blog

This entry was posted in Business Strategy, Latin America and tagged , , , , , . Bookmark the permalink.

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