India is now entering its third growth orbit. The first orbit was a period of license-raj socialism that produced 4% growth rate and created industrial houses like Reliance, Tata and Bajaj Auto. The second orbit, starting early 90s, witnessed a 6% average growth rate and saw the birth of a dynamic export-led IT sector with Wipro and Infosys becoming well known names. The present third orbit has strong economic underpinnings and will see a sustainable growth of 7-8%. At this rate of growth the GDP will be double in ten years and quadruple in twenty.

This new economic growth is finally driving the emergence of a large domestic market for software. What will this new market look like? How does one partake in its growth?

For an answer let's turn to Nokia. This year on Oct 19th, Nokia sold more than 400,000 handsets, a number not achieved in a single day anywhere else in the world, including China. This wasn't a blip. They have been on a roll lately in India. Their scorching pace is based on a lowly no-frills $40 made-for-India handset whose killer feature is a built-in flashlight. This kind of success is not an aberration. The reality, even for the software industry, is that a lot of new growth will happen at the Bottom of the Pyramid (BOP).

Punching above weight class
Besides BOP, there is another important dynamic at work that makes emerging markets punch way above their weight-class in some situations. Let me illustrate that with an example. Say you are an IPv6 vendor based out of the US (possibly selling IPv6-compliant network analysis tools) and have been patiently waiting for IPv6 adoption to take off. Where do you suppose you should be at this time? China, of course! China's vigorous adoption of IPv6 (for its own reasons, no doubt) will take it mainstream. So if you don't become a serious IPv6 vendor in China today you won't be a viable global player tomorrow.

It's not normally appreciated that emerging markets are often the tipping point for mainstream adoption. They have a penchant for leapfrogging technology. Korea's embrace of CDMA was instrumental in that technology going mainstream. Ethanol fuel chain is all a buzz because of Brazil. Some say that WiMax's future will be decided by rural India because the service providers are planning to leapfrog traditional broadband and 3G technologies.

This notion that oftentimes emerging markets are more valuable than what their market size indicates is at the root of the concept of, what John Hagel describes as, "edge" markets. Edge markets are where the action is - in terms of growth, innovation and value creation. Only companies that master these "edge" markets will build a more sustainable core.

RIPE sectors
My contention is that the budding software market in India will be an edge market for adoption of some key trends. It will also be the crucible for a number of BOP products and business models.

In this context, I see four sectors that are ripe for some concrete action in the next couple of years...

• Retail. India's giant retail revolution has just got underway and is expected, according to AT Kearney, to grow at a compounded 30% over the next five years. This is a sector that's an intensive user of IT and is, trust me, looking for ways to leapfrog technologies. Given that most of the developed world's retail sector is mature, this is the über edge market to focus on.
• IT-on-demand. Growth in India is not because of the government but in spite of it. It's the chaotic bottoms-up entrepreneurial activity that's driving the economy. In this context there are about 7 million small-and-medium businesses (SMBs) that are hungry for affordable technology. This segment represents an attractive BOP opportunity for on-demand offerings. To me this is a 'Nokia' story waiting to happen.
• Pharma. The global drug value-chain is morphing. Not only are specialist firms becoming part of the picture, the value chain is also going global. Indian firms will be a big part of the action. As they grow they will consume storage and computational power in big gulps. This is the market in India for peta-scale computing based on off-the-shelf platforms. It's big, however, I admit that, it's neither a BOP opportunity nor an edge market (but fills out my RIPE acronym!).
• Entertainment. This is a classic edge market with a strong BOP play. Bollywood is growing rapidly and has limited legacy of traditional business models. So it's embracing the digital revolution more aggressively. For instance, India has more digital cinema screens, conservatively estimated at about 1200, coming up right now. Indeed, that they are not the typical $100K installations but slightly less costly "e-cinemas" is a result of the BOP effect. By the way, this leapfrog effect is not limited to just movies; it's playing out in the mobile music market as well.

Making it happen
Frankly the real challenge is not in the identification of either the edge markets or the BOP opportunities. The real challenge is in executing for success (isn't that always the case!).

Success depends on doing some things differently. First, how do you move away from a sales-out mentality to incubating the right products and business models for emerging markets like India? This is not about money; it's about mindset. It's about breaking away from the old model of globalization.

Related to this is the second factor. It's no good being a multi-national if you are also not multi-local. India is structurally changing. Unless a company is part of the local business zeitgeist it will miss out the inflexion points. Mitsui Babcock, a big supplier of industrial equipment for power stations, exited India a year before things took off. Had they been more anchored in the local business fabric they would not have missed the boat.

As India enters this new third orbit of growth the current players in the domestic software market have some adjusting to do. Going by history, this transition will not be easy for them and many will not do it well. This is a window of opportunity for new players to come into the game. So it's quite likely that a lot of new growth that we are going to see will go to new products and new players. Interesting times ahead!


Sharad Sharma's 20 years experience in the enterprise software and wireless infrastructure sectors involves a turnaround (of VERITAS India operations), a startup (now part of Cisco), and an intrapreneurial setup of AT&T's and later Lucent's R&D operations in India in mid-90s. He has also managed product teams in both US and India. Sharad examines the transformation challenges facing the industry in his blog Orbit Change Conversations.