Recently, C-DOT celebrated the Silver Jubilee of its founding. The alumni had many events and among other things launched an India Think Tank. C-DOT had a checkered history. Please see my earlier post on C-DOT for background. But, in C-DOT and Telecom there are some very interesting lessons for India.
C-DOT was synonymous with the transformation of Indian Telecom. In 1984, Indian Telecom was in a very bad shape. Troublesome electro mechanical exchanges, severe call congestion and a five-year waiting list for a telephone connection characterized Indian telecom. It was at this stage that Sam Pitroda with C-DOT began what became a remarkable re-engineering of the telecom sector. C-DOT, the inspiring vision of its founding leaders, the dedication of the young engineers, the maturity of the political leadership of the time, the consequent sustained government policies, a transition from monopoly to healthy competition, the regulators who moved in place, and finally the Indian entrepreneurs who run telecom today- together made this huge transformation possible. They redefined telecom and gave it a new meaning in India.
C-DOT’s success is not to be measured by the Erlangs of traffic carried by the C-DOT switches today, or what C-DOT is up to in 2009. C-DOT’s original, highly published 36/36 mission was to build digital switches for India; but the true mission was to act as a catalyst to begin a Telecom transformation. Both got achieved. C-DOT’s legacy is a positive and deep-rooted transformation in Telecom. It was the forerunner to the Telecom and IT revolutions that followed.
Telecom is arguably the only sector in which such a massive and dramatic change for the better happened in the last two decades. C-DOT happened at a time when the country was in the depth of its “phoren” syndrome, when everything foreign was good and we as a nation were very unsure if “we could ever do it”. Those were the days of a closed economy and a veritable license raj, with the good old Ambassador cars and Vespa scooters ruling the roost with long waiting lists. The waiting time for telephone was five years.
In 2009, there are many things good about India today. We are the largest democracy, India now has a fast growing world class telecom services industry; Tatas have impressed the world by successfully designing and producing the Nano; we have built a growing and well respected IT industry; India has entered the nuclear club and launched a moon mission; Delhi metro is evolving into a success story; we have some of the largest oil refineries in the world; we recently found a very large gas deposit; we boast of a thriving entrepreneurial class; we have produced may billionaires, richest men in the world; our middle class is bulging; we came out of the 3% “Hindu rate of growth” and are in a sustained 6 to 8 % growth bracket and so on…. But, we also live in the same country in which, many things have to improve big time. Just step outside Bangalore, our IT Capital, into the nearest rural hamlet - you will encounter a 14 hour power-cut in summer; 50 % of our population can’t make sense out of the morning newspapers – they can hardly read; infrastructure continues to be a mess; a couple of big rains and our metros get thrown completely out of gear; 49% of our children under 6 are malnourished; 65% of our population struggles in agriculture which accounts for just 18% of our GDP; we are not generating enough new jobs to switch them to; 25% of our districts are Maoist infested - mainly due to lack of development; the average time for our legal system to dispose a case is 15 years; 35 million cases are pending; people continue to “buy” their degrees in many colleges in India; we file miserably low number of patents compared to most peers; we are host to the largest destitute population in the world; about half the rural households in India do not have electricity and use kerosene for lighting…the list is endless. In short, India lives in its contradictions.
In such an environment, Telecom got “fixed”. It didn’t happen accidentally on its own. Big changes do not come easy. The bureaucracy, the MNCs and the vested interests would not have allowed it, but for the sustained efforts of a few thought leaders who fought against all odds. These visionaries thought strategically for Telecom and executed the plan. Everyone came together the right way. Slowly we started believing in ourselves. We as a nation demonstrated that “it can be done”. This gives great hope. We can transform ourselves! We need to continue to transform this nation - sector after sector by thinking and acting strategically.
Technological innovation is a useful tool in making such a transformation. In 1984 Telephone was considered the rich man’s toy and it did not get any priority. Early during the C-DOT experiment, through STD-PCO and RAX, the rural and urban masses got a taste of telecom. They loved it and benefitted from it immensely. Suddenly, Telephone became a “must-have” for the bottom of the pyramid and this helped drive the growth. Today, India adds 10 Million lines a month – no other country has ever seen such a growth in the past. It is no longer a luxury, it is recognized as a basic necessity. Therein lies an interesting opportunity.
If we look at the Bottom of the Pyramid as a market opportunity (a concept articulated well by CK Prahlad), we live here within that market and we understand this well. If we could successfully innovate solutions that would work for our bottom of the pyramid in India, there is a huge market opportunity in the whole southern hemisphere – Africa, South America and Asia, the whole of emerging markets. For example, India’s Aravind eye hospital makes world class Intra Ocular Lenses at $ 6 a piece Vs $100 to 150 in the global market. Aravind has already gained 10% global market share. Tata’s Nano built for this market promises converting India into a small car hub for the world. Our telecom service providers have innovated a business model by which they could make good profits even at very low ARPU. India has smart people who could innovate and deliver solutions well – C-DOT and other examples amply demonstrate that. This process can be repeated and scaled in sector after sector – auto, energy, healthcare, agriculture, e-governance, space, infrastructure, transportation and many others. With India’s thriving entrepreneurial skills, the capitalism will take over and run with it, generating enough jobs in the process.
We do not have time to lose. We must take the positives from our successes and pull ourselves up. We are a country of smart people with a strong entrepreneurial culture. The bottom of the pyramid problem is indeed a great opportunity. While the west is running out of growth ideas, we could keep growing rapidly for the next 40 years just addressing this single macro opportunity.
But, this cannot and will not happen automatically. It requires positive belief, strategic thinking and questioning the status quo – exactly like what was done on Telecom. People like Sam Pitroda, Verghese Kurien, Abdul Kalam and others did this very well. We must highlight and learn from these successes. Capability is not an issue in India. It is the mindset change that is most important. Once that gets addressed, the interconnected wheels start moving and achieve great results. If we capture the imagination of people and combine the right vision, strategic thinking, technology innovations, energetic young Indians, supportive government policies, and finally Indian entrepreneurship – nothing is impossible. It is about the collective imagination and mindset of people - policy makers, opinion leaders, media, questioning young people, academicians, entrepreneurs, bureaucrats and others together make things happen.
“It is possible. We can do it.” If we could articulate this well and send out a message loud and clear during the C-DOT Silver Jubilee, and ignite the imagination of people, we would have done a very good job indeed.
Friday, December 11, 2009
Sunday, April 29, 2007
The Singapore Syndrome
Last week, I was hit again by the Singapore syndrome. Let me explain….I returned home after a short visit out and after a brief stay in Singapore on the way back. Every time I cross Singapore, its quiet efficiency never fails to amaze you. And after that, when you enter India – especially through Bangalore airport - you almost feel like you are in a third world banana republic; the contrast hits you hard - very hard, in spite of all the recent optimism about growth.
The first thing that strikes in the woefully small Bangalore airport is the baggage handling system that has been “upgraded” recently. It does not seem to have been designed by an engineer at all. It must have surely been a joint effort by a bureaucrat of the civil aviation ministry in technical collaboration with a local mechanic, and of course, purchased at lowest price after getting three quotations. It gets struck, spews out luggage all around, every corner is a bottleneck - nothing but smooth. Eventually the luggage arrives – ever so slowly. You may walk through the green channel; but your luggage doesn’t. In due course of time, they are let out into the baggage handling system after being checked by an ever suspicious customs staff through X Ray machines for god-knows-what they look for. No other country seems to do it - a green channel is a green channel. The scarcity mind set was over I thought !
After a long wait, I get out of the terminal. My son, who is standing in as a chauffer, has not made fast progress either. Now he and I try to solve a puzzle. He is on the airport road just 100 meters away trying desperately to find a way into the airport, with all entries jammed and I am struck at the terminal exit. It is 11:00 PM. Every spot is occupied. With a couple of international flights having just landed and people reaching the airport for all the mid night departures, it is a total mess. The roads inside are completely grid locked. There are cars as far as eye can see. It was a marathon effort just to get out of the airport. And when I eventually reach home, the power is not there. It keeps going and coming. Apparently, it was like that the whole day.
In the meanwhile, my mobile phone works well. I check my emails. I see good progress all around. My office seems to have done the job I wanted them to do. I get a good update on the new business we had started. The new bank we spoke to has come back fast offering funding. Venture investors are keen to invest in some of the new companies I am involved in. I cheer up.
But, everything that has something to do with the Govt. and its decision-making seem to be struck. The airport, roads, power, primary education, the list is long…. As often stated, we are a first world capability trapped inside a third world system.
Now, back to the Singapore syndrome… I often wonder if we could run our country like Singapore. It is run by a bunch of problem solvers rather than politicians. They run it as efficiently as they would run a company. Lee Quan Yew is a great visionary. He guided his city-state very well to where it has reached. Singapore is in a big boom again. The big Casino initiative is pumping confidence and billions of $ investments into the economy. Try talking to the Taxi driver; he will talk knowledgeably about everything - including the IT boom in Bangalore; he is well read and well mannered.
Most other Asian Tigers learnt from Singapore and built their own economies in a similar way – like a corporate, export led, foreign funded and manufacturing oriented; and all of them grew at a good pace in the last few decades while we grew at a much lower “hindu rate”. And the biggest copycat of Singapore was China. They just replicated the Singapore format in a massive scale, building a cumulative trade surplus exceeding $ 1.2 Trillion.
They are all, to varying degrees, “authoritarian” systems - mostly benevolent. The key is a set of people at the top with clear vision and with a mind to solve problems – Lee Quan Yew, Deg Xiao Ping, Mahathir Mohammad and others like them. Now and then one such leader gets tough and cracks the whip a bit hard. But, largely they have lifted their economies to new heights and their teeming millions out of poverty much faster than India. Putin’s autocratic Russia seems to have done far better than Yeltzin's free Russia. Yes, none of them cared much for democratic niceties. They exploited effectively and successfully the most fundamental characteristic of these cultures – the hierarchical system. Capitalism seems to get built faster in a hierarchical, disciplined population - easy to take tough decisions. Most ironically, capitalism seems to be thriving very well in a communist nation today. And the newest star is Vietnam.
We, on the other hand are very heavily influenced by the western notion of democracy and freedom. And, freedom and democracy in the hands of an argumentative Indian seems to result in a handicap. We are one of the very few countries in the world seriously building democracy before capitalism. It’s a much tougher option. When it takes 10 years for deciding the location of an airport, it is very frustrating. China’s SEZs rolled on relentlessly fast – far and wide. Our SEZs are sputtering along – struck at the anvil of difficult decision making. Indian power sector is getting liberalized for ages. Corruption is still rampant. And, how come after 50 years of democracy, 600 Million of our population can’t read the newspaper headlines and are practically illiterate. What is all the democracy worth if in 50 years, we could not give basic education for our masses? Nearly every one of the Asian countries seems to have done far better than us – many totalitarian ones better than others.
So, yeah, why not the Singapore way?
But, when I seriously consider it, I am not sure I want it that way.
We may be a chaotic nation. We may seem to move ever so slowly. But we have started moving. The East Asian Tigers copied much of the Singaporean growth model. By the mid 70s, the Chinese implemented the Singapore policies successfully. And, eventually, in 1992, pushed to the wall, we did copy a few of the concepts and finally discovered capitalism. Today, we are only 15 years old as an entrepreneurial nation. But now, we have tasted the power of entrepreneurial energy. We are not a homogeneous country like many others. We have a disparate nation. Multiple castes, religions, languages, cultures…. People need outlets, and democracy does give that. And all the chaos is finally leading somewhere. Pete Engardio of Businessweek in his engaging book CHINDIA points out what many are suspecting. India may just eventually overtake all others – China included. China grew at a 10% growth rate for two decades – but it was achieved with a massive infusion of funds. We have achieved growth at a far lower level of fund infusion – in other words we have been more capital efficient. India’s growth is in spite of the Government. The people drive it from below – far more sustainable. The quality of Indian entrepreneurs and companies are impressive. Indian industry has shown higher ROI and ROCE. India’s 16.8% is much better than China’s 12.8% for 2004. Indian savings rate is growing faster giving more funds for development. There are many who are ready to bet on India growing at a sustained steady rate of 6 to 7% far longer than any other country in history. The Tortoise has a good chance to overtake the Hare. Thousands of years of caste divided society has to go through the churn to get rid of that old baggage. It may be difficult without democracy – however unpalatable it may sound in the short term.
But Entrepreneurs hold the key. And there are less and less constraints on them today. And a recent Harward Study on business competitiveness rates India high. India has gone up to 27the Rank while China has been rated down to 64. The First world capability can’t be held back too long by a third world system. Singapore and China can wait and watch. Well, may be the tortoise is really getting ready to catch up after all !
The first thing that strikes in the woefully small Bangalore airport is the baggage handling system that has been “upgraded” recently. It does not seem to have been designed by an engineer at all. It must have surely been a joint effort by a bureaucrat of the civil aviation ministry in technical collaboration with a local mechanic, and of course, purchased at lowest price after getting three quotations. It gets struck, spews out luggage all around, every corner is a bottleneck - nothing but smooth. Eventually the luggage arrives – ever so slowly. You may walk through the green channel; but your luggage doesn’t. In due course of time, they are let out into the baggage handling system after being checked by an ever suspicious customs staff through X Ray machines for god-knows-what they look for. No other country seems to do it - a green channel is a green channel. The scarcity mind set was over I thought !
After a long wait, I get out of the terminal. My son, who is standing in as a chauffer, has not made fast progress either. Now he and I try to solve a puzzle. He is on the airport road just 100 meters away trying desperately to find a way into the airport, with all entries jammed and I am struck at the terminal exit. It is 11:00 PM. Every spot is occupied. With a couple of international flights having just landed and people reaching the airport for all the mid night departures, it is a total mess. The roads inside are completely grid locked. There are cars as far as eye can see. It was a marathon effort just to get out of the airport. And when I eventually reach home, the power is not there. It keeps going and coming. Apparently, it was like that the whole day.
In the meanwhile, my mobile phone works well. I check my emails. I see good progress all around. My office seems to have done the job I wanted them to do. I get a good update on the new business we had started. The new bank we spoke to has come back fast offering funding. Venture investors are keen to invest in some of the new companies I am involved in. I cheer up.
But, everything that has something to do with the Govt. and its decision-making seem to be struck. The airport, roads, power, primary education, the list is long…. As often stated, we are a first world capability trapped inside a third world system.
Now, back to the Singapore syndrome… I often wonder if we could run our country like Singapore. It is run by a bunch of problem solvers rather than politicians. They run it as efficiently as they would run a company. Lee Quan Yew is a great visionary. He guided his city-state very well to where it has reached. Singapore is in a big boom again. The big Casino initiative is pumping confidence and billions of $ investments into the economy. Try talking to the Taxi driver; he will talk knowledgeably about everything - including the IT boom in Bangalore; he is well read and well mannered.
Most other Asian Tigers learnt from Singapore and built their own economies in a similar way – like a corporate, export led, foreign funded and manufacturing oriented; and all of them grew at a good pace in the last few decades while we grew at a much lower “hindu rate”. And the biggest copycat of Singapore was China. They just replicated the Singapore format in a massive scale, building a cumulative trade surplus exceeding $ 1.2 Trillion.
They are all, to varying degrees, “authoritarian” systems - mostly benevolent. The key is a set of people at the top with clear vision and with a mind to solve problems – Lee Quan Yew, Deg Xiao Ping, Mahathir Mohammad and others like them. Now and then one such leader gets tough and cracks the whip a bit hard. But, largely they have lifted their economies to new heights and their teeming millions out of poverty much faster than India. Putin’s autocratic Russia seems to have done far better than Yeltzin's free Russia. Yes, none of them cared much for democratic niceties. They exploited effectively and successfully the most fundamental characteristic of these cultures – the hierarchical system. Capitalism seems to get built faster in a hierarchical, disciplined population - easy to take tough decisions. Most ironically, capitalism seems to be thriving very well in a communist nation today. And the newest star is Vietnam.
We, on the other hand are very heavily influenced by the western notion of democracy and freedom. And, freedom and democracy in the hands of an argumentative Indian seems to result in a handicap. We are one of the very few countries in the world seriously building democracy before capitalism. It’s a much tougher option. When it takes 10 years for deciding the location of an airport, it is very frustrating. China’s SEZs rolled on relentlessly fast – far and wide. Our SEZs are sputtering along – struck at the anvil of difficult decision making. Indian power sector is getting liberalized for ages. Corruption is still rampant. And, how come after 50 years of democracy, 600 Million of our population can’t read the newspaper headlines and are practically illiterate. What is all the democracy worth if in 50 years, we could not give basic education for our masses? Nearly every one of the Asian countries seems to have done far better than us – many totalitarian ones better than others.
So, yeah, why not the Singapore way?
But, when I seriously consider it, I am not sure I want it that way.
We may be a chaotic nation. We may seem to move ever so slowly. But we have started moving. The East Asian Tigers copied much of the Singaporean growth model. By the mid 70s, the Chinese implemented the Singapore policies successfully. And, eventually, in 1992, pushed to the wall, we did copy a few of the concepts and finally discovered capitalism. Today, we are only 15 years old as an entrepreneurial nation. But now, we have tasted the power of entrepreneurial energy. We are not a homogeneous country like many others. We have a disparate nation. Multiple castes, religions, languages, cultures…. People need outlets, and democracy does give that. And all the chaos is finally leading somewhere. Pete Engardio of Businessweek in his engaging book CHINDIA points out what many are suspecting. India may just eventually overtake all others – China included. China grew at a 10% growth rate for two decades – but it was achieved with a massive infusion of funds. We have achieved growth at a far lower level of fund infusion – in other words we have been more capital efficient. India’s growth is in spite of the Government. The people drive it from below – far more sustainable. The quality of Indian entrepreneurs and companies are impressive. Indian industry has shown higher ROI and ROCE. India’s 16.8% is much better than China’s 12.8% for 2004. Indian savings rate is growing faster giving more funds for development. There are many who are ready to bet on India growing at a sustained steady rate of 6 to 7% far longer than any other country in history. The Tortoise has a good chance to overtake the Hare. Thousands of years of caste divided society has to go through the churn to get rid of that old baggage. It may be difficult without democracy – however unpalatable it may sound in the short term.
But Entrepreneurs hold the key. And there are less and less constraints on them today. And a recent Harward Study on business competitiveness rates India high. India has gone up to 27the Rank while China has been rated down to 64. The First world capability can’t be held back too long by a third world system. Singapore and China can wait and watch. Well, may be the tortoise is really getting ready to catch up after all !
Tuesday, January 23, 2007
Why it is time for Indian Product companies?
Please consider the table below. Infosys, the bellwether Indian tech company's numbers always look great compared to any other tech company in India. But, Company X, another well known Asian Tech company seems to beat Infosys is many key parameters (Ref: FI '05 Annual Reports). There in lies a story.
| Infosys | Company X | |
| Revenue (FI '05) | $ 1.5 B | $ 5.9 B |
| % Export Sales | 99% | 58% |
| Y on Y Growth | 51% | 47% |
| R&D Investment (% of Sales) | 1% | 10% |
| Original Research (% of Sales) | 0% | 1% |
| Patents Filed | 0* | 11,000** |
| Process Maturity | CMM Level 5 | CMM Level 5 |
| Number of Employees | 36,750 | 29,000 |
| Annual Revenue per employee | $40,820 | $206,276 |
| Annual Profits per employee | $11,401 | $23,483 |
| No. of years to reach $ 1 B Rev. | 22 Yrs | 11 Yrs |
* There is no mention of patents filed by Infosys in 2004 or 2005 Annual reports. And, 20 patents are filed as per FI 2006 AR.
** 11,000 filed till end of 2005 and 1,844 patents granted till then.
For all the technology talk in Indian entrepreneurial scene, there are hardly any innovative product companies of serious size, especially in the technology front. I mean innovative new tech product companies with annual revenue north of $ 100 Million, growing fast and blazing a new trail. Product companies in
Design services companies - a mature industry now; and no new path breakers.
The just published 3rd quarter results (Dec ‘06) show that the IT services companies have done very well again. One wonders if their growth will stop at all and what they have next in store. Indian technology scene is dominated today by IT/design services companies developing and testing products and systems for the world. They have transformed
A couple of years back, Michael Marks, then CEO of Flextronics, made an observation after a day at NASSCOM leadership forum 2005. He was a bit puzzled that every company he listened to had a “strikingly similar story to tell”. He said, in the
Why product companies?
I was always passionate about building a Billion $ Indian product company. Am I doing a wishful thinking because of that? No! Let me explain why I believe it is the right thing to happen and why it is surely going to happen. And now, let us consider the table at the beginning of this posting which gives an interesting comparison between the performances of two Asian technology companies at the end of FI 05.
Company X seems to have done better than Infosys in practically every parameter. X does far more original R&D and is building its own IPRs of sustainable value. Unfortunately, X is not an Indian company. If it was, it would be commanding one of the largest market caps in
This is not to undermine in anyway what IT services companies have achieved in
I see the following advantages for the product companies compared to the IT services companies:
- Higher Revenue Productivity: Product companies can generate far higher revenue and profits per person using engineering talent far more efficiently. In a simplistic point of view, Engineers' effort is sold at "high end hourly rate laborers" by IT service companies, while product companies use them to build R&D innovation with sustainable advantages.The argument that the IT services companies generate more employment by lower revenue productivity does not hold much water. In fact, the flip side is, currently they are sucking in the entire engineering talent in the country, creating a serious crisis, and starving most other industries.
- Rapid Growth: Product companies can grow much more rapidly than the Services companies. They can grow non-linearly with time and staff strength and generate wealth much faster. Successful ones grow exponentially – “hockey stick” style.
- Higher in Value Chain: Product companies are much higher in the value chain.
- Better wealth distribution: Product companies produce better wealth distribution. They create employment to a more diverse set of people. In addition to engineers and scientists, a product company uses an army of manufacturing, installation, sales and support staff, who include school pass, diploma holders and general graduates. IT services companies on the other hand employ largely BTechs, MTechs and PhDs and poorer families can’t easily produce these qualifications.
- Large Home market: Product companies can feed into a huge domestic market with its inherent advantage. And the economy will get more stability.
- Own job creation: However much they defend it in a so called “Flat world”, IT services companies continue to get accused of stealing jobs from other economies that created the jobs in the first place. It is a touchy issue. There is a consequent fear of backlash. Product companies create their own jobs in this economy. They can’t be accused of taking away jobs from other economies.
- All round competence: Product companies build an all round competence like customer requirement anticipation, full life cycle design, branding, marketing, sales, packaging, distribution, support, and in case of boxes - mechanical, plastics, thermal, manufacturability, testability, supply chain management and scores of other disciplines that are very useful for the gene pool of any large and growing economy.
Why do I feel the time has come for Indian Product companies?
- Funding: There are many VC funds chasing
- Core capabilities: Indians have proved to be excellent entrepreneurs. There is no license raj to hold them back now. Indian design services industry has helped build strong of design skills in the country. Indians with rich product design experience around the world are returning home.
- A booming stock Market: The Indian stock market is booming. While there is some nervousness of overheating, the fundamental story seems sound. Quarter after quarter, the corporate performance is impressive. And the market is keenly looking for emerging new stories.
- It is a wide open space: There is no dearth of opportunities. The ground is empty. Telecom, Consumer Electronics, White Goods, Industrial systems, Capital Equipment, Non-conventional Energy, Software systems and tools, Food processing, Financial systems, Instrumentation, Automobiles… the list is endless for building strong branded goods from
- Large home market: One of the problems till recently for an Indian product company was a small home market. With a swelling middle class with increasing disposable income, a huge captive home market gives a big advantage for a new product venture. For example, Indian telecom market is the fastest growing major market in the world today. Indian cellular subscriber base grew by 98% between 2005 and 2006. For the same period, the broadband connections grew by 133%. And there is hardly any Indian Telecom product company larger than $ 100 Million in revenue. There is easily space for four or five with Billion $ plus revenue.
- World class manufacturing: Slowly and steadily, over the last two years, all the global manufacturing giants are setting up shops in
- All successes from developed economy are getting played out here one by one: Twenty years back we would have never imagined Indian IT and Telecom would reach this size today; The automobile industry is transformed and is on the run up; the airlines industry is booming; the steel and infrastructure industries and growing fast; Even the railways is beginning to look good. And it is time for big branded product companies. It is waiting to happen.
But one can argue that product companies are risky. They need a higher level of innovation. They need better branding and selling skills which we lack. Yes, they are difficult. It is not my case that it is easy. But bigger risks always leads to bigger rewards. And conquering IT was not easy either. We learnt our IT processes from the west –
And, one thing is still missing - the early leaders! Any phenomenon is triggered by a few. Then, slowly many others follow to set a new trend. I see a number of young entrepreneurial ventures focusing on R&D, trying to build innovations and IPRs; and not taking the easier path of just selling intellectual labor. They are building innovative Indian technologies – whether products or solutions. I am impressed with what I see. A few of them will break out and succeed, get noticed, set a new trend and become a leader - “Infosys of a new space”. And once there are a few early successes there will be more followers. I think the world is ready to accept an Indian branded product. Now is the time! It is time for an Indian brand in the lines of a Motorola,
Malcolm Marshal in his best selling “Tipping point” demonstrates that when a set of favorable parameters fall in place, something dramatically new happens “all of sudden”. I think the Tipping Point has come for Indian Product companies. And, it is about time!
Tuesday, January 2, 2007
The winning attitude - Enterpreneur's essential
I met my good friend Ramamoorthy after more than two decades. We went to engineering school together. He soon sent me an interesting message on being a winner. I thought it was so apt for an entrepreneur – to whom this blog is really dedicated. An entrepreneur needs a strong attitude to win and the message captures very nicely the winning attitude:
The Winner is always part of the answer;
- the Loser is always part of the problem.
The Winner always has a program;
- the Loser always has an excuse.
The Winner says, "Let me do it for you";
- the Loser says, "That is not my job."
The Winner sees an answer for every problem;
- the Loser sees a problem for every answer.
The Winner says, "It may be difficult but it is possible";
- the Loser says, "It may be possible but it is too difficult."
When a Winner makes a mistake, he says, "I was wrong";
- when a Loser makes a mistake, he says, "It wasn't my fault."
A Winner makes commitments;
- the Loser makes promises.
The Winner has a dream;
- the Loser has a scheme.
The Winner says, "I must do something";
- the Loser says, "Someone must do something"
The Winner sees opportunities;
- the Loser sees problems.
The Winner believes in win-win;
- the Loser believes for him to win someone has to lose.
My sincere thanks to Ramamoorthy and the anonymous author of this message.
The Winner is always part of the answer;
- the Loser is always part of the problem.
The Winner always has a program;
- the Loser always has an excuse.
The Winner says, "Let me do it for you";
- the Loser says, "That is not my job."
The Winner sees an answer for every problem;
- the Loser sees a problem for every answer.
The Winner says, "It may be difficult but it is possible";
- the Loser says, "It may be possible but it is too difficult."
When a Winner makes a mistake, he says, "I was wrong";
- when a Loser makes a mistake, he says, "It wasn't my fault."
A Winner makes commitments;
- the Loser makes promises.
The Winner has a dream;
- the Loser has a scheme.
The Winner says, "I must do something";
- the Loser says, "Someone must do something"
The Winner sees opportunities;
- the Loser sees problems.
The Winner believes in win-win;
- the Loser believes for him to win someone has to lose.
My sincere thanks to Ramamoorthy and the anonymous author of this message.
Monday, January 1, 2007
Entrepreneurial values - Nice people can finish first!
Recently, I was involved in a discussion with a friend on entrepreneurial ethics and values. With both my children already having become entrepreneurs, this is something I keep debating with myself – on how to articulate this best. Here are some of my beliefs and thoughts.
Intellectual honesty: It is the first thing one expects from an entrepreneur. An entrepreneur is dealing with wealth – which can be dangerous and tempting. I would say, in order to qualify to build and handle wealth, intellectual honesty is a prime attribute an entrepreneur must have. It is like the cashier of a company, who handles large cash regularly, is expected to have an impeccable integrity with cash.
Walking the talk: On ethics and values, if you do not believe in them deeply, it is easy to talk and far more difficult to walk that talk. You will have to strongly internalize and believe on the values deep from the guts, for you to honestly practice and demonstrate in your day-to-day actions.
Unwritten promises: There are many written agreements and contracts. But the key issues are often unwritten. An entrepreneur known to me was in a situation where one of his venture investors wanted to be bought out at a very nominal value. It will be a virtual write off for the investor. It was a new investment manager taking over and he wanted to clean up the stable. The entrepreneur believed the company is turning around. He could have easily allowed the investor to exit, making himself and the other shareholders richer. But, he asked for a meeting with the head of the investment firm, pleaded with him and convinced him to stay for another year so that he can provide a better exit. The investor was impressed and agreed. And one year later, he exited with an attractive IRR. I think there was no other way in which the entrepreneur should have behaved. The entrepreneur had accepted funds to generate value in return. If the investor pulled out for whatever reason with a negative return, the entrepreneur has failed in his most important and sacred duty and promise to return ROI - that was an unwritten promise.
Returning value to community: I can’t agree less with Guy Kawasaki when he says “an entrepreneur has to make the world a better place and reap some economic rewards for doing so.” The entrepreneur surely has profits and wealth creation in mind. But he has another noble duty of building value for the community; he has taken the responsibility for using some human and financial resources put at his disposal, in an ecosystem provided by the community around him. Without the community, he would be dead. We are not saying the extreme left view of putting wealth distribution far ahead of wealth creation. But there is a problem when the created wealth stops with the entrepreneur and does not reach the community. Of course, by the simple act of building a successful enterprise, an entrepreneur pushes oxygen into the society – increased cash flow and economic activity through the community, creation of new jobs, taxes that are put to useful results by the Govt., etc. One can argue, “My job as an entrepreneur is to create wealth. It is the job of the Govt. by means of the taxes they collect from me to serve the community.” I disagree. There has to be a conscious effort by the entrepreneur more than just paying his taxes. The entrepreneur is an innovator and problem solver. He is in a position to solve many problems directly or indirectly. He mustn’t shy away from those opportunities. Often, such actions don’t affect his primary responsibility of building wealth. On the contrary, they will be beneficial for the enterprise in the long run. When considered carefully, the enterprise can always make an impact on the community.
Sharing the wealth: Create massive wealth and also share them with everyone – starting with the employees. I read an article last fortnight in NYT. Goldman Sachs’ 2006 compensation for its people was up 40% and reached an average of $ 623,000 per employee. I have no idea how much Goldman Sachs thinks of the community. But I am impressed with the distribution to its employees. A secretary gets $ 120,000. The shareholders can’t complain; they are very happy too. The company generated an average of $ 350,000 as pre tax profits per employee. It is more than GE, Microsoft, and Google, another very successful wealth generating machine. As a % of revenue, they took much less as compensation compared to the industry peers. And, their fixed comp was much lower than their competitors. They did not gain at the cost of the shareholders. They have outperformed everyone else. On the other hand, it may sound a bit obnoxious though – how can people take such a huge pay, while even in the US, there are people who are starving and working at far lower wage levels; the inequality it creates is worrisome. But having a large group of highly paid employees is far better than building a single super rich Billionaire owner. And, capitalism rewards those who take risks and adapt best to change and create profit opportunities. As an old adage goes, “Capitalism is surely the worst economic system on the planet except for all the others”. When employees get part of the wealth, it spreads. Equity stock options are another key wealth distribution mechanism. When you make your employees rich, the sharing begins, and it percolates out. Some of them may go out and start another successful venture themselves. That is good for the community. By treating fairly your vendors, your service providers, your clients and others the sharing continues.
Treating the vendor fairly: Two of India’s top companies differ dramatically in the way they treat their vendors. Both negotiate hard and get the best terms. In the case of one, every vendor is an unhappy soul. The vendor feels cheated; treated with no consideration; promises are never kept; and never paid in time. In the case of the other, the vendors respect the company; they are treated fairly; and when it is time for payment, the company calls the vendor asking to collect the check. And the latter is the far more respected and successful company in the country. Vendors as well as other eco system of business need to be treated well. This does not mean don’t negotiate. Negotiate hard. But treat them fairly. The vendor is part of the system and is a partner in a way and he has to benefit. It is not a zero sum game.
Transparency: It is said about justice - Justice must be done and it must also be seen to be done. The perception is equally important. The transparency in an entrepreneurship makes a huge difference to the investors, employees, shareholders and others. It is not a secret society with key decisions being known only to the top man. In a transparent environment, all decisions can be related to the core values of the enterprise.
Fairness: The entrepreneur is often told that he has to be ruthless to succeed. This puts many in the wrong path. Yes, you will have to be tough, and be ready to make difficult calls; but there can be an underlying fairness in whatever is done. Chenghis Khan built the biggest empire in human history. He was very successful in doing that. He was considered ruthless. But, he also had a great reputation for being fair. That was a key reason for his success.
Well, will all these make it difficult to run an enterprise? Will the enterprise end up making less profit and fail in a basic commitment to the shareholder? No. It is hardly so! In the hands of a good entrepreneur, all these will add to additional value for the venture. A transparent and community conscious company will be respected more in the equity market; vendors when treated well will never let the enterprise down; they will give that extra effort; employees, treated fairly, will stick to the company and treat it as their own; they will go that extra mile. It all adds up. You really need not be mean to be successful. It is possible to be nice and also come first. Look around carefully, and you will find many examples.
Intellectual honesty: It is the first thing one expects from an entrepreneur. An entrepreneur is dealing with wealth – which can be dangerous and tempting. I would say, in order to qualify to build and handle wealth, intellectual honesty is a prime attribute an entrepreneur must have. It is like the cashier of a company, who handles large cash regularly, is expected to have an impeccable integrity with cash.
Walking the talk: On ethics and values, if you do not believe in them deeply, it is easy to talk and far more difficult to walk that talk. You will have to strongly internalize and believe on the values deep from the guts, for you to honestly practice and demonstrate in your day-to-day actions.
Unwritten promises: There are many written agreements and contracts. But the key issues are often unwritten. An entrepreneur known to me was in a situation where one of his venture investors wanted to be bought out at a very nominal value. It will be a virtual write off for the investor. It was a new investment manager taking over and he wanted to clean up the stable. The entrepreneur believed the company is turning around. He could have easily allowed the investor to exit, making himself and the other shareholders richer. But, he asked for a meeting with the head of the investment firm, pleaded with him and convinced him to stay for another year so that he can provide a better exit. The investor was impressed and agreed. And one year later, he exited with an attractive IRR. I think there was no other way in which the entrepreneur should have behaved. The entrepreneur had accepted funds to generate value in return. If the investor pulled out for whatever reason with a negative return, the entrepreneur has failed in his most important and sacred duty and promise to return ROI - that was an unwritten promise.
Returning value to community: I can’t agree less with Guy Kawasaki when he says “an entrepreneur has to make the world a better place and reap some economic rewards for doing so.” The entrepreneur surely has profits and wealth creation in mind. But he has another noble duty of building value for the community; he has taken the responsibility for using some human and financial resources put at his disposal, in an ecosystem provided by the community around him. Without the community, he would be dead. We are not saying the extreme left view of putting wealth distribution far ahead of wealth creation. But there is a problem when the created wealth stops with the entrepreneur and does not reach the community. Of course, by the simple act of building a successful enterprise, an entrepreneur pushes oxygen into the society – increased cash flow and economic activity through the community, creation of new jobs, taxes that are put to useful results by the Govt., etc. One can argue, “My job as an entrepreneur is to create wealth. It is the job of the Govt. by means of the taxes they collect from me to serve the community.” I disagree. There has to be a conscious effort by the entrepreneur more than just paying his taxes. The entrepreneur is an innovator and problem solver. He is in a position to solve many problems directly or indirectly. He mustn’t shy away from those opportunities. Often, such actions don’t affect his primary responsibility of building wealth. On the contrary, they will be beneficial for the enterprise in the long run. When considered carefully, the enterprise can always make an impact on the community.
Sharing the wealth: Create massive wealth and also share them with everyone – starting with the employees. I read an article last fortnight in NYT. Goldman Sachs’ 2006 compensation for its people was up 40% and reached an average of $ 623,000 per employee. I have no idea how much Goldman Sachs thinks of the community. But I am impressed with the distribution to its employees. A secretary gets $ 120,000. The shareholders can’t complain; they are very happy too. The company generated an average of $ 350,000 as pre tax profits per employee. It is more than GE, Microsoft, and Google, another very successful wealth generating machine. As a % of revenue, they took much less as compensation compared to the industry peers. And, their fixed comp was much lower than their competitors. They did not gain at the cost of the shareholders. They have outperformed everyone else. On the other hand, it may sound a bit obnoxious though – how can people take such a huge pay, while even in the US, there are people who are starving and working at far lower wage levels; the inequality it creates is worrisome. But having a large group of highly paid employees is far better than building a single super rich Billionaire owner. And, capitalism rewards those who take risks and adapt best to change and create profit opportunities. As an old adage goes, “Capitalism is surely the worst economic system on the planet except for all the others”. When employees get part of the wealth, it spreads. Equity stock options are another key wealth distribution mechanism. When you make your employees rich, the sharing begins, and it percolates out. Some of them may go out and start another successful venture themselves. That is good for the community. By treating fairly your vendors, your service providers, your clients and others the sharing continues.
Treating the vendor fairly: Two of India’s top companies differ dramatically in the way they treat their vendors. Both negotiate hard and get the best terms. In the case of one, every vendor is an unhappy soul. The vendor feels cheated; treated with no consideration; promises are never kept; and never paid in time. In the case of the other, the vendors respect the company; they are treated fairly; and when it is time for payment, the company calls the vendor asking to collect the check. And the latter is the far more respected and successful company in the country. Vendors as well as other eco system of business need to be treated well. This does not mean don’t negotiate. Negotiate hard. But treat them fairly. The vendor is part of the system and is a partner in a way and he has to benefit. It is not a zero sum game.
Transparency: It is said about justice - Justice must be done and it must also be seen to be done. The perception is equally important. The transparency in an entrepreneurship makes a huge difference to the investors, employees, shareholders and others. It is not a secret society with key decisions being known only to the top man. In a transparent environment, all decisions can be related to the core values of the enterprise.
Fairness: The entrepreneur is often told that he has to be ruthless to succeed. This puts many in the wrong path. Yes, you will have to be tough, and be ready to make difficult calls; but there can be an underlying fairness in whatever is done. Chenghis Khan built the biggest empire in human history. He was very successful in doing that. He was considered ruthless. But, he also had a great reputation for being fair. That was a key reason for his success.
Well, will all these make it difficult to run an enterprise? Will the enterprise end up making less profit and fail in a basic commitment to the shareholder? No. It is hardly so! In the hands of a good entrepreneur, all these will add to additional value for the venture. A transparent and community conscious company will be respected more in the equity market; vendors when treated well will never let the enterprise down; they will give that extra effort; employees, treated fairly, will stick to the company and treat it as their own; they will go that extra mile. It all adds up. You really need not be mean to be successful. It is possible to be nice and also come first. Look around carefully, and you will find many examples.
Tuesday, December 26, 2006
India Vs China – the contrasting giants, as the economic power swings back to Asia
For the last few decades, I was always focused on the United States. Running an Indian IT company, life was almost US centric. Business in technology space can never afford to ignore the US. Most clients were in the US. Most funding came from the US. The technology business culture came from the US. And I had some of my best friends living there. I used to visit the US at least once every quarter to meet clients and to drum up new business. But I realize for the past one year, I have been to the US only once while on the other hand, I have traveled about six times to China and more within Asia. I would have never imagined this a few years back. Something surely has happened in global economy and it is so powerful it has touched my own life! In India and China, there is so much excitement in the air – it was like the way I always felt when I stepped into the Silicon Valley - a lot of positive energy, enthusiasm, and optimism hanging in the air. Now it is in the Asian air!
How did this sudden change come about? Well, it had to happen and it was inevitable! Six hundred years back, 75% of world’s GDP was produced by India and China. And then with a combination of Guns, Germs and Steel to start with, (Guns Germs and Steel: The Fate of Human Societies - By Jared Diamond, published by Norton and Company), and with the industrial revolution and colonization, the world was “conquered” by Europe and later more recently by the US. By 1950, only about 5% of world GDP was being produced by India and China. Now the pendulum is swinging back. It is predicted that in the next few decades, 50% of world GDP will come from “ChIndia”, the increasingly common new term. These are two nations of great opportunity today. They are the new engines that will power the world economic growth. No wonder everyone I meet in the US today looks at me as a person coming from the most exciting place on the planet. For a long time, the feeling has just been the reverse.
With its GDP galloping, China is ahead of India by a clean 15 years – they started liberalization that many years ahead. After Mao’s death, Deng Xia Ping, the ultimate “practical man” made many pragmatic changes. With his now famous pronouncement – “What matters is - does the cat catch the mouse, and not whether it is black or white in color”, led the country away from dogma and into practical wisdom. And, India is finding its feet too. In 1992, pushed to the wall, an unlikely combination of leaders pulled the nation in the right direction. But, what an interesting contrast today – the two economies!
I had visited China on and off over the past decade. But, in 2004, when Flextronics acquired Deccanet, the Bangalore IT venture I had co-founded, I was asked to be the “custodian” of the China design operation of the company. Ash Bhardwaj, the man who made Asia happen for Flex, told me, “please go and see China and our plants there. The factories are music in motion…man…” he would say. And music it was! The huge manufacturing plants of Flex, by then under the watch of Peter Tan, another wonderful Flex executive who welcomed me and arranged to show around his plants. The plants were very impressive - massive in size, each the size of many football fields, humming with machinery and activity, large teams of young men and women, producing for the world, practically round the clock. Then on, I spent quite some time in China - visiting Flex plants, trying to decide on new locations for the Design operations, putting together new teams, meeting potential clients and so on.
I was struck by the general momentum. Many Chinese friends I met treated me well. India and China had at best a very testy relationship over the past four decades. The 1962 war was always in the memory. Added to that, another touchy issue for India was China’s close ties with Pakistan - the “arch enemy” for India. But, I found the new generation of Chinese was looking through economic and not political lenses. They hardly seemed to relate to the hostile past. For them, India is a country with which they shared a lot of culture, religion and spiritualism in the past, a country with whom they traded throughout history. Now, India for most Chinese is a country of beautiful women, people who can sing and dance at will (Bollywood inspired), good at maths…. There is big respect for India’s achievements in IT. Due to the long break in relationship, India is a mysterious neighbor; a puzzle couched in an enigma. And, it would seem that an average Chinese accepts an Indian far more warmly than an average Indian would accept a Chinese. Hopefully, as time passes, things will warm up both ways.
…India and China are a study in contrast...
India is a services driven economy today, while China is manufacturing driven. Both are powered by cheap labor. Both are facing a dwindling share of agriculture in their economy and are involved in the huge task of redeploying the labor.
Demography: Being the most populous nations on the planet, they have huge demographic advantage compared to the developed economies which find the raising average age and a reducing work force a big challenge. China however is now staring at the problem of a population aging too fast. Its “One Child” policy, while putting break on population growth, has given raise to a unique “1+6” problem. With the increase in average life span, old folks live longer and consequently, an average young man/woman in China has to produce enough to support two parents, and four grandparents. Some feel China is aging much too faster than it is building prosperity. On the other hand, India is aging slower and will continue to have a dynamic young population for decades. For the next 50 years, India will have a much younger population than its neighbor. But in case of India, the real problem is its poor record on education and basic infrastructure. A large population of illiterates is a huge problem facing India. If you want numbers, try 350 million plus illiterates! Keeping the average age lower does not seem to be a big demographic advantage to me if a huge part of the population can’t read or write. This is especially troublesome in a modern economy that is tending to me more information driven.
The Drivers of growth: The Chinese economy is powered by the Govt. and people are joining in. By contrast, in India, the economy is powered by the people (read entrepreneurs) and the Govt. (sometimes reluctantly) joining in. The Govt. is effective in China in spite of certain level of corruption and all other criticisms. Things just happen! People try and align themselves to the Govt. policies and cash in on new opportunities. I was pleasantly surprised when a lady entrepreneur in China took me for dinner with some key Govt. officials and they were all talking the same language – I mean same theme. China seems to have studied the Singapore model well and seems to have scaled it up to a much larger level. Over the last decade, Shanghai is transformed from a shanty town to a promising “New York of the east”. When you travel around China, you are shown a new metro, a new maglev train, a new expressway, a new airport, a new this and a new that. Things happen at breakneck speed, because the Govt. need not win arguments over every step it wants to take unlike in a coalition ridden polity like India. And, there are no prolonged fights to acquire lands for new factory, or road – good or bad. The Political leadership in China is savvy, nationalistic and with a clear problem solving mindset. Most of the top leaders in china happen to be engineers from their top schools. Engineers are essentially problem solvers. Look at the contrast – Shanghai and Bangalore started talking about new airports 15 years back. Shanghai now has a 12 year old world-class airport. And Bangalore just decided where to locate the airport and started work on it. Our politicians and bureaucrats have been pulling at each other, unable to move.
So, have I fallen in love with China? No, not exactly. I just think there are a few things India could learn from China. As I would say, China can pick up a few ideas from India too.
While there is clear case for improving the governance, India has a very large participative democracy. We can call our leaders names, and throw them out of power when they seem seriously flawed. We have a fourth estate that is very active and powerful. If grave injustice is done, like in the case of Jessica Lal, it can really put the Govt., police and judiciary on the mat and get things corrected. India is one of the few countries in the world that has built democracy first and is then building Capitalism– a far more difficult option than the reverse. While China has a fairly homogeneous population, India has a very diverse one. Many languages, cultures, and religions divide us. And we have to carry the old baggage of caste, which with its history of 1000s of years, may take another fifty to hundred years to disappear. With these, disadvantages we have done remarkably well.
The driving force for India has been its entrepreneurial spirit which is extremely strong. A foreign Joint Venture partner of mine came to India on my invitation. I showed off India to him – basically Bangalore and Chennai - the cities, the people and the companies. At the end of the three day trip, his comment was: “the infrastructure here is far worse than” what he expected. He just couldn’t understand how such smart people can’t solve this problem. But on the other hand, the companies he visited were “far beyond what he expected to see. The quality of people and the systems and processes are very impressive.” It is the entrepreneur who is the driver in India. And, today, the entrepreneurs do not come form a small family of industrialists; on the contrary, they are sons of school teachers, farmers, middle class working families; they come from every where; from a wide cross section of people.
And, we are a young nation as far as entrepreneurship goes – it is just 14 years old, when we broke finally from a socialistic past to respect individual entrepreneurship. In a way, we were really reborn as a nation in 1992. Then on, what we have achieved “in spite” of our leadership and Govt. is remarkable. We are really building our nation bottom up – with a massive participation from people. It can be very powerful and sustainable.
Big opportunities in the junction between India and China…
So, India and China are moving from practically nothing to account for 50% of world’s GDP amongst them in just a few decades. The two economies are very complementary in many ways. There are a lot of opportunities in the junction between these two economies. There is a strong case to start engaging each other. We must complement each other and “exploit” each other’s strengths. This will lead to a lot of new wealth being created. And that will spread prosperity to large sections that are yet to taste the fruits of development and growth. China can be a big market place for India. If they tried a bit harder, Bollywood for example, renowned for its packaging of emotions can have the whole of China eating out of their hands. China has a very weak entertainment industry. Indian services industry, running into a serious labor crunch at home for engineering manpower can exploit the relatively better labor position in China. And Chinese product companies could bring their product culture to India. Emerging product companies of India can use the strong supply chain of Chinese. A complex PCB today may take a month to turn around by a hard pressed PCB maker in India while in China, they can deliver in a matter of days. Yes, the opportunities are immense!
Twenty years back, my dream was to start a company in the US. Today, nothing could be less exciting and more daunting than that. Eight years back, I didn’t give China a second look. Today I am visiting it with increasing frequency. We are surely living in changing times, with fast changing equations. US does continue to offer a lot. The level of innovation, the entrepreneurial energy, the academic institutions, business dynamics are all there to see. In US everything seems to have “happened” though; one needs to make something dreadfully innovative to capture attention there. But, there is something very simple and exciting about Asia today. You do almost anything well enough, and you will be rewarded.
The trade between India and China which was at a few hundred million $s a few years ago, stands at $ 20 Billion now and is expected to cross $ 40 Billion by 2010. These are big strides. Time to engage with China!
And in my own scheme of things, I am trying to do just that. Of the many new ventures I am currently involved in, two are in China. It is not easy. Language, culture, systems, ethics, everything is different. But it is interesting to learn; and it is not impossible. At the bottom of it all, engineers are engineers and businessmen think business. If you look hard and stop typecasting and generalizing, you can find good people everywhere.
Two economies, different in their own ways, fast emerging to occupy key positions in a new emerging world – positions they always deserved. Time to learn; and time to engage!
How did this sudden change come about? Well, it had to happen and it was inevitable! Six hundred years back, 75% of world’s GDP was produced by India and China. And then with a combination of Guns, Germs and Steel to start with, (Guns Germs and Steel: The Fate of Human Societies - By Jared Diamond, published by Norton and Company), and with the industrial revolution and colonization, the world was “conquered” by Europe and later more recently by the US. By 1950, only about 5% of world GDP was being produced by India and China. Now the pendulum is swinging back. It is predicted that in the next few decades, 50% of world GDP will come from “ChIndia”, the increasingly common new term. These are two nations of great opportunity today. They are the new engines that will power the world economic growth. No wonder everyone I meet in the US today looks at me as a person coming from the most exciting place on the planet. For a long time, the feeling has just been the reverse.
With its GDP galloping, China is ahead of India by a clean 15 years – they started liberalization that many years ahead. After Mao’s death, Deng Xia Ping, the ultimate “practical man” made many pragmatic changes. With his now famous pronouncement – “What matters is - does the cat catch the mouse, and not whether it is black or white in color”, led the country away from dogma and into practical wisdom. And, India is finding its feet too. In 1992, pushed to the wall, an unlikely combination of leaders pulled the nation in the right direction. But, what an interesting contrast today – the two economies!
I had visited China on and off over the past decade. But, in 2004, when Flextronics acquired Deccanet, the Bangalore IT venture I had co-founded, I was asked to be the “custodian” of the China design operation of the company. Ash Bhardwaj, the man who made Asia happen for Flex, told me, “please go and see China and our plants there. The factories are music in motion…man…” he would say. And music it was! The huge manufacturing plants of Flex, by then under the watch of Peter Tan, another wonderful Flex executive who welcomed me and arranged to show around his plants. The plants were very impressive - massive in size, each the size of many football fields, humming with machinery and activity, large teams of young men and women, producing for the world, practically round the clock. Then on, I spent quite some time in China - visiting Flex plants, trying to decide on new locations for the Design operations, putting together new teams, meeting potential clients and so on.
I was struck by the general momentum. Many Chinese friends I met treated me well. India and China had at best a very testy relationship over the past four decades. The 1962 war was always in the memory. Added to that, another touchy issue for India was China’s close ties with Pakistan - the “arch enemy” for India. But, I found the new generation of Chinese was looking through economic and not political lenses. They hardly seemed to relate to the hostile past. For them, India is a country with which they shared a lot of culture, religion and spiritualism in the past, a country with whom they traded throughout history. Now, India for most Chinese is a country of beautiful women, people who can sing and dance at will (Bollywood inspired), good at maths…. There is big respect for India’s achievements in IT. Due to the long break in relationship, India is a mysterious neighbor; a puzzle couched in an enigma. And, it would seem that an average Chinese accepts an Indian far more warmly than an average Indian would accept a Chinese. Hopefully, as time passes, things will warm up both ways.
…India and China are a study in contrast...
India is a services driven economy today, while China is manufacturing driven. Both are powered by cheap labor. Both are facing a dwindling share of agriculture in their economy and are involved in the huge task of redeploying the labor.
Demography: Being the most populous nations on the planet, they have huge demographic advantage compared to the developed economies which find the raising average age and a reducing work force a big challenge. China however is now staring at the problem of a population aging too fast. Its “One Child” policy, while putting break on population growth, has given raise to a unique “1+6” problem. With the increase in average life span, old folks live longer and consequently, an average young man/woman in China has to produce enough to support two parents, and four grandparents. Some feel China is aging much too faster than it is building prosperity. On the other hand, India is aging slower and will continue to have a dynamic young population for decades. For the next 50 years, India will have a much younger population than its neighbor. But in case of India, the real problem is its poor record on education and basic infrastructure. A large population of illiterates is a huge problem facing India. If you want numbers, try 350 million plus illiterates! Keeping the average age lower does not seem to be a big demographic advantage to me if a huge part of the population can’t read or write. This is especially troublesome in a modern economy that is tending to me more information driven.
The Drivers of growth: The Chinese economy is powered by the Govt. and people are joining in. By contrast, in India, the economy is powered by the people (read entrepreneurs) and the Govt. (sometimes reluctantly) joining in. The Govt. is effective in China in spite of certain level of corruption and all other criticisms. Things just happen! People try and align themselves to the Govt. policies and cash in on new opportunities. I was pleasantly surprised when a lady entrepreneur in China took me for dinner with some key Govt. officials and they were all talking the same language – I mean same theme. China seems to have studied the Singapore model well and seems to have scaled it up to a much larger level. Over the last decade, Shanghai is transformed from a shanty town to a promising “New York of the east”. When you travel around China, you are shown a new metro, a new maglev train, a new expressway, a new airport, a new this and a new that. Things happen at breakneck speed, because the Govt. need not win arguments over every step it wants to take unlike in a coalition ridden polity like India. And, there are no prolonged fights to acquire lands for new factory, or road – good or bad. The Political leadership in China is savvy, nationalistic and with a clear problem solving mindset. Most of the top leaders in china happen to be engineers from their top schools. Engineers are essentially problem solvers. Look at the contrast – Shanghai and Bangalore started talking about new airports 15 years back. Shanghai now has a 12 year old world-class airport. And Bangalore just decided where to locate the airport and started work on it. Our politicians and bureaucrats have been pulling at each other, unable to move.
So, have I fallen in love with China? No, not exactly. I just think there are a few things India could learn from China. As I would say, China can pick up a few ideas from India too.
While there is clear case for improving the governance, India has a very large participative democracy. We can call our leaders names, and throw them out of power when they seem seriously flawed. We have a fourth estate that is very active and powerful. If grave injustice is done, like in the case of Jessica Lal, it can really put the Govt., police and judiciary on the mat and get things corrected. India is one of the few countries in the world that has built democracy first and is then building Capitalism– a far more difficult option than the reverse. While China has a fairly homogeneous population, India has a very diverse one. Many languages, cultures, and religions divide us. And we have to carry the old baggage of caste, which with its history of 1000s of years, may take another fifty to hundred years to disappear. With these, disadvantages we have done remarkably well.
The driving force for India has been its entrepreneurial spirit which is extremely strong. A foreign Joint Venture partner of mine came to India on my invitation. I showed off India to him – basically Bangalore and Chennai - the cities, the people and the companies. At the end of the three day trip, his comment was: “the infrastructure here is far worse than” what he expected. He just couldn’t understand how such smart people can’t solve this problem. But on the other hand, the companies he visited were “far beyond what he expected to see. The quality of people and the systems and processes are very impressive.” It is the entrepreneur who is the driver in India. And, today, the entrepreneurs do not come form a small family of industrialists; on the contrary, they are sons of school teachers, farmers, middle class working families; they come from every where; from a wide cross section of people.
And, we are a young nation as far as entrepreneurship goes – it is just 14 years old, when we broke finally from a socialistic past to respect individual entrepreneurship. In a way, we were really reborn as a nation in 1992. Then on, what we have achieved “in spite” of our leadership and Govt. is remarkable. We are really building our nation bottom up – with a massive participation from people. It can be very powerful and sustainable.
Big opportunities in the junction between India and China…
So, India and China are moving from practically nothing to account for 50% of world’s GDP amongst them in just a few decades. The two economies are very complementary in many ways. There are a lot of opportunities in the junction between these two economies. There is a strong case to start engaging each other. We must complement each other and “exploit” each other’s strengths. This will lead to a lot of new wealth being created. And that will spread prosperity to large sections that are yet to taste the fruits of development and growth. China can be a big market place for India. If they tried a bit harder, Bollywood for example, renowned for its packaging of emotions can have the whole of China eating out of their hands. China has a very weak entertainment industry. Indian services industry, running into a serious labor crunch at home for engineering manpower can exploit the relatively better labor position in China. And Chinese product companies could bring their product culture to India. Emerging product companies of India can use the strong supply chain of Chinese. A complex PCB today may take a month to turn around by a hard pressed PCB maker in India while in China, they can deliver in a matter of days. Yes, the opportunities are immense!
Twenty years back, my dream was to start a company in the US. Today, nothing could be less exciting and more daunting than that. Eight years back, I didn’t give China a second look. Today I am visiting it with increasing frequency. We are surely living in changing times, with fast changing equations. US does continue to offer a lot. The level of innovation, the entrepreneurial energy, the academic institutions, business dynamics are all there to see. In US everything seems to have “happened” though; one needs to make something dreadfully innovative to capture attention there. But, there is something very simple and exciting about Asia today. You do almost anything well enough, and you will be rewarded.
The trade between India and China which was at a few hundred million $s a few years ago, stands at $ 20 Billion now and is expected to cross $ 40 Billion by 2010. These are big strides. Time to engage with China!
And in my own scheme of things, I am trying to do just that. Of the many new ventures I am currently involved in, two are in China. It is not easy. Language, culture, systems, ethics, everything is different. But it is interesting to learn; and it is not impossible. At the bottom of it all, engineers are engineers and businessmen think business. If you look hard and stop typecasting and generalizing, you can find good people everywhere.
Two economies, different in their own ways, fast emerging to occupy key positions in a new emerging world – positions they always deserved. Time to learn; and time to engage!
Wednesday, December 20, 2006
Primary education in India - Applying entrepreneurship
Every one is gung-ho about the Indian economy. In the quarter ending Sept ‘06, the GDP grew by 9.1%. India is part of the BRIC (Brazil, Russia, India, China) economies, considered the most promising ones for the next 50 years. Asia, it is increasingly believed, is running on two engines – China and India; and these twin engines are expected to pull the world economy to new heights over the next few decades. Indian IT industry is making waves, and is continuing to grow at a robust pace. And, they are now undisputed world leaders in their space. At long last, manufacturing too is beginning to grow fast. Indian Telecom industry is healthy and has shown strong growth – among the fastest growing in the world today. Large investments are happening on infrastructure. $ 300 Billion is getting pumped into the infra sector in the near future. The new generation Indians don’t have the defeatist attitude of the earlier generation. The entrepreneur is driving the nation forward. There is hope and enthusiasm everywhere. There is a new “can do” spirit. With the developed nations getting older and running out of workers, Indian demography seems to have suddenly become an advantage. Is this going to be a “happily lived ever after” story?
Well, there are some dampeners – the most serious is education. The available data implies a very poor state of affairs indeed. I confess, I have not done a very serious research on the subject. A casual research on the web brought out the following data. I don’t want to split my hair on how accurate some of these are; but the general conclusion is very clear. We have a serious problem! And, I come from a very small village myself; I went to school every day walking 6 KMs each way as a child. And when I go back to my village today and see the school, I feel very sad because the quality of education today is far worse than what I received 30 years back.
2001 census concludes that our literacy rate has reached 65%. Every second woman in India is illiterate. And, nearly every third man is illiterate. It means a huge population can’t even read or write their names.
How do we stack up against others countries? Even within Asia, most are ahead of us. South Korea at 98%, Japan at 95%, Vietnam at 93%, Srilanka at 91%, Indonesia at 87%, China at 85%,...every one has done better. We can feel better only by comparing with Pakistan at 43% and Afghanistan at 36%. In Infant mortality, we are behind Pakistan, China, Brazil, and even Nigeria. Literacy rate among Schedules caste and schedules tribes – one of the poorest sections of Indian society is 42% and 35%. There is wide disparity between states - Bihar has 38.5% literacy (comparable to Afghanistan), while Kerala has 90% literacy. States like Andhra Pradesh, Madhya Pradesh, Uttar Pradesh, Rajasthan and West Bengal still have several districts where female literacy is less than 30 %.
According to the findings of the Public Report on Basic Education, the PROBE report, (Please see a brief summary in ashanet), only one to five per cent of out-of-school children are actually involved in earning significant wages. Many of the children working up to eight hours a day were not earning any significant income as they were involved in jobs like looking after their siblings, cattle grazing etc. and not in wage-earning labor. One heartening finding was that 98 % of parents felt that education was necessary for boys, and 89 % felt it was necessary for girls. It is not factual, therefore, to cite poverty and ignorance as the main causes for poor school attendance and large-scale drop outs. The increase in drop out rates is mainly due to the unattractiveness of the school and teaching processes. The PROBE report recorded startling data about the lack of or dysfunctional state of basic amenities in many schools. As many as 52% of the schools lacked playgrounds, 89% did not have toilets and 59% did not have drinking water. As for teaching aids, 26% did not have blackboards, 59% had no access to maps and charts, 67% lacked any kind of teaching kits, 75% had no toys for the small children, and 77% of the schools had no libraries. Absenteeism is rampant among teachers.
For a country that has such a large stake in winning the battle against illiteracy, India's expenditure on education is extremely low (3.5% of GNP). While it may be argued that decline in central spending is a step towards decentralisation, there is a general fear that in the new economic climate, government spending on primary education will remain stagnant, or even decrease. This will put education out of the reach of the poor families. Please see Infochange India.
And by the way, what is the definition of literacy? It is not obviously a school pass! The National Literacy Mission defines a literate person as one who can "with understanding, both read and write a short simple statement on his/her everyday life." However, it is true that in many cases, literacy ends with being able to sign one's name. As per the Indian HRD ministry data, the present illiteracy is ONLY 37% or 430 million people, while as per UNICEF and UNDP it is nearly 60% or 650 million people. Education is a state subject – the centre only gives policies. The implementation is bad in some states. More than 50% of kids drop out of school by the time they reach 5th standard.
Buoyed by stellar economic performance over the past few years, the mood in the top echelon of the country is defiantly self-congratulatory. India almost wants to grow up overnight and shed all the baggage of the past. Powered by a press, that like everywhere else in the world, reports only from the booming city centers, India is seen as chugging ahead full-steam – a land of engineers and management graduates.
From an agriculture based economy, the world has moved to industrial economy early in the 20th century and become knowledge economy now. The new millennium is dominated by knowledge, and we have a huge population of illiterates amongst us who will find it very difficult to participate in this. If we do not make them productive, the GDP can’t grow at the true promise and poverty will be slow to disappear. Even if the GDP does grow at a decent rate, and create a large consuming middle class, it will leave behind a huge mass of people – who can not grow with the economy, who will continue to be hungry, who may very well take up extremism at the one end or suicide at the other. Reservations, the easy tool for the political class, is not going to help solve this problem.
Well, I really didn’t want to depress you. But the status is pretty bad.
So what is the cause of all this? Looking at the data, it doesn’t need an Einstein to conclude the cause of all this: Poor quality; poor execution; poor funding and to sum it all, poor management of the education system.
Education is in the hand of the Govt. And Govt. has to take a large part of the blame. In India, Govt. means, poor accountability. If you are lucky, you get a Sreedharan to run Delhi Metro, a Sam Pitroda to run Telecom, a Vittal to run Dept. of Electronics, an Abdul Kalam to run the missile program, a Seshan to run the Election Commission and then something good happens; They leave a lasting impact. But, it is by sheer chance! In the last NASSCOMM conference, I was listening to a senior official from the Govt. in a panel discussion on rural education. The official was listing out a series of problems and gave a vague picture of what is happening to rural education. I was very uncomfortable listening and couldn’t stop wondering if someone is really in charge! As Rajiv Gandhi’s famously and correctly concluded, in India, only 15 paise out of every rupee spent by the Govt. truly reaches the real intended end use. We may take a few more decades and still house the world’s most illiterate population. We will have some of the world’s richest people and will also have a lot of the world’s poorest people. This is not acceptable.
OK, so we agree. There is a serious problem. What can we do about it? What could be a workable solution? Pushing and bashing the Govt. alone won’t help. The problem is too important and too big to be simply left to the system.
Now, there are some good lessons from how India created a large pool of engineering human resources. Every year, we now put about 450,000 engineers into our engineering education system. In view of what we see in primary education, this is a remarkable achievement! How did this miracle happen? Govt. had done good job in creating a few elite IITs and RECs. These institutions, while excellent themselves, produce only a small fraction of the total engineering manpower the country needed. Entrepreneurs entered the “business of education” with pure profit motive. Most of these engineering colleges are in south India. Historically South Indian families were more job minded (though it seems to be changing now with increasing number of entrepreneurs coming from the south) and parents were ready to spend money to buy decent higher education for their children which will fetch them a good job. Some of today’s well known private engineering colleges in India started as pure money making ventures. Some of them were pathetic operations to start with. But, slowly, they got better over time and gathered quality. While they are not exactly IITs, many of them produce pretty good quality. Many of the newest colleges today produce barely passable quality though. But, they too will get better over time. If not, they will be forced to disappear by the market forces. I suspect, no one – Govt. or private - really visualised this as a well thought strategy to produce large engineering manpower. There was and is a license raj in education. Whatever happened was in spite of that. Market forces simply took over. May be politicians were part of the market driven forces that helped achieve this. Many politicians run engineering and medical colleges. And they probably helped ensure that the trend continued. It is these colleges that truly powered India’s IT growth.
So, entrepreneurship did work in higher education. But, will that work for primary schools? It is not a straight forward comparison. Villagers do not have too much money to shell out. There is no great profit to be made in short to medium term. Massive investment is required across the country. But, I think it is possible. Let me explain how..
My view is to use entrepreneurship again as solution. The country excels in entrepreneurial spirit. It is one of the greatest strengths of the nation. Now, how to bring entrepreneurship to rural education?
The idea is to build a social entrepreneurship program which has the potential to significantly contribute. Helping a few schools while useful by itself does not have a big impact. There is a need to build something distributed and highly scalable. This concept evolves out of a small rural school I have been running through a social initiative of my first start up venture, Deccanet. The special child labor eradication school is in Laxmipuram, a village in Krishnagiri district, one of the more backward districts in India. We ran the school in collaboration with a Govt. of India program against child labor. It has so far put about 500 children through the program. Now, with the Govt. initiative in this village coming to an end, I decided to continue it on my own. This time, to build something more scalable and by playing a more active role.
The proposed program has four key components: (1) Profit motive to bring an entrepreneurial spirit, (2) Use of effective management techniques to deliver quality education, (3) Good branding to attract quality teachers and ensure more parents are attracted as "clients", (4) Adequate funding from non Governmental independent sources (so that, we complement rather than fight for scarce funds for education earmarked within Govt.).
Over the last 4 years, in Laxmipuram, I found a committed young person who is the teacher and manager of the school. His name is Sivaprakasam. Siva is a graduate; is a conscientious, passionate and hard working guy - a doer. Now and then, he wonders at a corner of his mind, if he should have gone to the city and made a better living. He could easily get a good job in the city and move on; but he wouldn’t. His commitment to the village keeps him going while many others come and go. Our program is around him, and many more such committed young people. When I suggested the idea to him, he got excited and brought the village head and a few others expressing support. When we started looking for a well located land for the school, one of the parents came forward to sell his property at a reasonable price. Incidentally, he was grateful for the school to have saved the life of his young son. (A routine health check organised by Deccanet three years back had revealed a very serious growth in the child’s kidney which we got quickly removed by surgery in a Bangalore hospital). Over the time we had won a strong support system in the village.
Laxmipuram will now have a regular school starting with a funding of about Rs 2,500,000 (about $ 50,000) which I contribute through a non-profit foundation. This funding is for capital expenses as well as operating cost for early period. We acquired a piece of land in the village and it is proposed to build a little school that would support about 100 children to start with. The school will have staff quarters that will accommodate about four dedicated high quality teachers. The teachers will receive a decent fixed salary and a performance linked reward. By providing a house right in the school compound we will ensure a good quality of life for the teachers; they need not travel to a nearby town every day. We can also attract quality teachers retired from regular schools and who now want a peaceful life.
We will work with other NGOs to ensure good training and teaching aids. Obviously, the “investors” (currently it is just me) will never make any money out of this. But the idea is to make Siva make a decent profit as a social entrepreneur. We provide the funding for him. He will run the school like an “entrepreneur.” Parents are his customers, education is a product he provides. If he keeps the quality and productivity high, and satisfy his clients, he will do well and make a decent living.
How does this work? Firstly we create the school infrastructure. Keeping scalability in mind, the school will be designed to get maximum for every Rupee spent. Good class rooms, playground, teaching aids, adequate staff quarters, toilets, blackboards, toys, reasonable computer systems, library, etc. will constitute initial capex. The operational expenditure will be essentially teachers’ salaries and other small running expenditure. We start by subsidizing the opex 100% during the first year. Then how does entrepreneurship work with subsidy?
From a centralised effort common to all schools in the program, we will help ensure effective management of the school. Siva will get good inputs in management. This will include identifying and hiring quality teachers, training the teachers, defining metrics to measure the quality and productivity, collection and analysis of MIS data, regular reviews and root cause analysis of problems, monitoring the hygiene, audits on the operations and finances, periodic evaluations, analysis of dropout trends, staff motivation, modern teaching practices, accounting and cash flow management, branding the school, increasing parental involvement, and others. At the end of the 1st year, Siva’s job is to ensure a good quality of education. And consequently, by the 2nd year, he should be able to begin to charge something nominal from the parents - may be Rs 25 ($ 0.5) per month per child to start. The payments may be in the form of rice, corn, vegetables or whatever. Siva will gradually reduce the subsidy he takes from the foundation and increase the contribution from the parents. As the Indian economy gets better, and branding of school improves, we expect the parents to pay the Rs 200 to 250 ($ 4 to 5 per month per child) as fees. We continue to work with Siva by giving management inputs – which the Govt. schools acutely lack today. With the cost structure so low, we expect it is possible for Siva to make profits at a reasonable level of fees from parents. We will ensure that Siva doesn’t over charge the rural parents.
The foundation will fund the project with a non-profit motive. A number of my friends are very eager to participate when the project takes off. I realy think if we can show this to work well, funding will be no problem. We are really betting on little Siva’s healthy profit motive combined with his desire to provide service to make the day-to-day management of the school very effective. He is expected to keep lowering the subsidy and reach a point when the school is fully self-funded. Based on an evaluation system, the lower the subsidy he takes and the higher the quality he delivers the more rewards we will give him. Eventually - may be in 3 to 4 years, when he takes no subsidy at all, he will start making a decent money for himself –enough to make him not to regret going to the town. He could open a branch school in a neighboring village and increase his income. There are a lot of idealistic young men out there who want to contribute and make a difference. People like Siva are very committed and hard working young men. I am sure he will succeed. Based on this experience, we propose to set up 100 new schools at the next stage – all in remote villages.
It is proposed to have a smart bunch of committed people as part of the central organisation, working on systems, processes, and all other management inputs. We will initially work with other agencies in all these. Eventually, we will brand this chain of schools and make some positive noise so that in future schools, parents come seeking us. It will require about $ 7.5 Million over a period of time to manage upto 100 schools and then scale it up and speared it all over the country. If done well, sky is the limit.
I met the young local collector of Krishnagiri when beginning to work on the project. I immediately saw an ally in him. Many young IAS officers all over the country want more people to get involved. Often, they are practical folks and are ready to give whatever support in getting school recognitions and other stuff. We will hopefully find strong allies among them.
Why do I believe this has a chance to succeed?
1. Profit motive of an entrepreneur: The social entrepreneur like Siva will make around Rs 15,000 a month from one school – 5 times his current salary. He will lose his sleep to make his school a success and work hard to realise the target – provide good quality education and let the “market forces” drive it. If he succeeds, he will scale up and manage a small chain of schools. He is entrepreneurial, he is local and he will marshal enough support. He is also committed. The choice of Siva is important.
2. Management inputs: The project will address management systems effectively with a central team working on it and helping to lay down systems and practices. This will ensure that the program is well managed. We may have smart MBAs supported by domain experts working on these at the central level - people who live and breathe effective management. We will invite eminent academicians, eminent thought leaders, successful entrepreneurs, and institutions to be associated with the project as it grows.
3. Funding and direction: “Investors” will make no profit out of it. The reward is only the satisfaction of paying back to the community. Initial funding will come from me and my close associates. Once we prove the concept, a larger funding will be arranged. My take on this is, if you prove first few school run well, funding the scaling up is not an issue. So many people and organization want to make a difference.
4. Set an example: By successfully setting up and running the initiative, we also set an example for others emulate. If some one copies the concept, it is good. More the better. It is a huge problem. Copy cats will be most welcome. We will share all our experiences and systems in due course with others for emulating the success across the nation.
This is a long haul project. A lot of patience and perseverance is required. For further progress on this, keep an eye on billionways > ventures > social entrepreneurship. If you wish to be put on my mailing list for being kept updated on the progress, please leave your comments and email address.
Subscribe to:
Posts (Atom)
