May 2001

Act Local, Think Global

Hindustan Lever's strategic and marketing innovations have the potential to transform its business in India and to improve the quality of life of the country's rural citizens. Now the company is exporting those ideas to other parts of the world -- from Indonesia to the Congo. by Rekha Balu

 

"Necessity is the mother invention." That may be the most basic lesson behind Hindustan Lever's remarkable track record of innovation in rural India. When a giant company with a 30-year track record of growth suddenly confronts flat sales, it has two choices: Cut costs to stay profitable, or work harder to discover new ways to grow. The leaders at Hindustan Lever have opted for the second choice -- and have identified India's hundreds of millions of rural consumers as a high-priority market.

That's why every management trainee at Hindustan Lever begins his or her career by spending six to eight weeks in a rural village, eating, sleeping, and talking with the locals. Marketing executives make frequent two-day visits to low-income and rural areas. Managers at every level are trained in techniques for talking and listening to consumers. And scientists apply time and energy figuring out how to do more with less.

"We need to apply top-class science to solve simple problems at a reduced cost for the consumer," says Dr. V.M. Naik, deputy head of Hindustan Lever's Research Laboratory in Bangalore, India. Naik, who spends about 70% of his time in the lab, was the primary scientist behind recent mass-market products, such as low-cost ice creams and low-cost soaps. The success of the soap process and others -- like Hindustan Lever's marketing campaigns -- started with a fundamental insight into consumers. Both researchers and marketers recognized that Indian women who wash clothes at a public tap or river often use the same laundry soap to wash their body. But the laundry soaps were typically too harsh for both skin and water. So researchers developed a lightweight laundry soap to double as a personal soap.

Behind the product-concept innovation are manufacturing innovations. Lever labs and pilot plants are replete with manufacturing machines that its scientists built themselves -- either because existing machines cost too much, or because the technology didn't exist to make products in the cost-efficient way that Hindustan Lever had designed. The new laundry soap, for example, uses a simple process to cast the soap immediately in the shape of a plastic package. The manufacturing process is an energy saver, too, because it doesn't convert the soap as many times -- from liquid to tablet to bar -- as other soap-making processes do. Lever built a machine for less, saved energy costs, and plans to pass on the savings to consumers.

Because Naik identified a different consumer need, he was able to develop a different process to meet that need. "Technology that once liberated consumers can be a constraint for new innovation," says Naik. "New products require new principles." His new principle: Reduce the load on the environment. That means using less detergent and fewer hydrogenated oils. The result? The company uses less than half of the current agricultural land usually required to raise oil seeds to produce soap. And fewer active ingredients mean less harm to the water supply.

What's next on the innovation agenda, both for Hindustan Lever and its global parent, Unilever? To export the ideas and techniques that are unleashing growth in rural India to other parts of the world with similar strategic hurdles: language barriers, limited water and electricity, political instability, financial upheaval, barely motorable roads. Here are some examples of Lever's ongoing strategic ingenuity from around the world.

Nice Product, But Can You Get It to Market?

In the Philippines, a country composed of more than 7,000 islands, physical distribution can get expensive -- when it's possible at all. And Unilever faces an additional market hurdle in that country, a former U.S. colony: a historical preference for buying American ( read: Procter & Gamble ). Unilever's response? Change the game. To lower the overhead cost of Surf laundry detergent, compared to P&G's Tide, sachets of Surf were distributed in jute rice sacks. The sacks were cheaper than cardboard and were more flexible for storage, and they kept the product dry. The company's local affiliate then focused on bicycle brigades as an inexpensive method of distribution. It designed a bicycle that could carry the heavy load of the bags and still be lightweight enough for someone to pedal to remote areas.

In Tumultuous Times, Focus on Fundamentals.

The Congo is not anyone's idea of a stable, comfortable place to do business. But even in the midst of political upheaval in the Congo, "people still need to wash their clothes and eat staple foods," says John Miller, senior vice president for home and personal care for Unilever South Africa. Of course, people may eat only once every two days instead of every day, and they may well use detergent bars for both their clothes and their dishes. So instead of trying to move consumers into new or higher-margin products, Miller and his colleagues in the Congo focused on the fundamentals with radio ads that featured pitches for the most basic elements in Unilever's product line.

Want Profits? Sell Lots of Small Things.

Nihal Kaviratne, the chairman of Unilever Indonesia who cut his teeth in India with Hindustan Lever, wasn't shocked to find that 63% of Indonesia's 204 million people live in rural areas. So he borrowed from the company's prior success with sachets. "Our whole business is built on low-dose sizes," he says. But how could the company keep the sachets profitable? Although it's expensive to produce so many small units, the sachet material used in Indonesia is less expensive than elsewhere. That means Indonesia gets the same profit margin on a plastic 6-milliliter sachet of shampoo as it does from a 50-milliliter bottle.

Rekha Balu ( rbalu@fastcompany.com ) is a Fast Company senior writer.