Tuesday, December 29, 2009

In India, Anxiety Over the Slow Pace of Innovation
NYT, December 9, 2009

This article highlights the importance of a supporting, societal, innovation infrastructure. It would be great if our friends in India could comment for our community--it is more than just being a great company:

"BANGALORE, India — In the United States and Europe, people worry that their
well-paying, high-skill jobs will be, in a word, “Bangalored” — shipped off to
India. People here are also worried about the future. They fret that
Bangalore, and India more broadly, will remain a low-cost satellite office of
the West for the foreseeable future — more Scranton, Pa., in the American
television series “The Office,” than Silicon Valley.

Even as the rest of the world has come to admire, envy and fear India’s
outsourcing business and its technological prowess, many Indians are
disappointed that the country has not quickly moved up to more ambitious and
lucrative work from answering phones or writing software. Why, they worry,
hasn’t India produced a Google or an Apple?

Innovation is hard to measure, but academics who study it say India has
the potential to create trend-setting products but is not yet doing so.
Indians are granted about half as many American patents for inventions
as people and firms in Israel and China
. The country’s corporate and
government spending on research and development significantly lags behind that
of other nations. And venture capitalists finance far fewer companies here than
they do elsewhere.
“The same idea, if it’s born in Silicon Valley it goes
the distance,” said Nadathur S. Raghavan, a investor in start-ups and a founder
of Infosys, one of India’s most successful technology companies. “
it’s born in India it does not go the distance.”

Mr. Raghavan and others say India is held back by a financial
system that is reluctant to invest in unproven ideas, an education system that
emphasizes rote learning over problem solving, and a culture that looks down on
failure and unconventional career choices.

Sujai Karampuri is an Indian entrepreneur who has struggled against
many of these constraints.
His Bangalore-based company, Sloka Telecom, has
developed award-winning radio systems that are more flexible, smaller and less
expensive than equipment used by phone companies today. Mobile phone companies
and larger telecommunications equipment suppliers are buying and testing his
products, but he has not been able to interest Indian venture capitalists. For
the last five years he has run his firm on $1 million he raised from

“I can only afford to trial with one customer at a time and
that takes three months to materialize,”
said Mr. Karampuri, who has
considered moving the company to the United States to be closer to venture
capitalists who specialize in telecommunications. “You are always worried about
paying next month’s salary to people. Should you keep the money for this trial
or next month’s salary?”

Companies like Sloka Telecom are important, analysts say, because they
are more likely to create the next wave of jobs than large, established Indian
technology companies, many of which are experiencing slower growth. These
companies could also help offset some of the outsourcing jobs the country will
likely lose because of greater automation and competition from countries where
costs are even lower.

There are historical reasons that starting a business in India
is difficult. During British rule, imperial interests dictated economic
activity; after independence in 1947, central planning stifled entrepreneurship through burdensome licensing and direct state ownership of companies and banks.

Businesses found that currying favor with policy makers was
more important than innovating. And import restrictions made it hard to acquire machinery, parts or technology. Inventors came up with ingenious ways to overcome obstacles and scarcity
— a talent Indians used the Hindi word “jugaad” (pronounced jewgard) to describe. But the products that resulted from such improvisation were often inferior to those available outside India.

“We were in an economy where, forget innovation, expansion was
discouraged, creating wealth was frowned upon, there was no competition to speak
said Anand G. Mahindra, who heads the Mahindra & Mahindra
business group and has spoken about the need for more innovation.
Indian leaders began embracing the free market in the 1980s and stepped up the pace of
change in 1991 when the country faced a financial crisis. Those changes
increased economic growth and made possible the rise of technology companies
like Infosys and Wipro, which focused on providing services for American and
European corporations.

Yet, the government still exerts significant control,
especially in manufacturing, said Rishikesha T. Krishnan, a professor at the Indian Institute of Management in Bangalore. “To start a services company it really takes you just two or three days to get going,” said Mr. Krishnan, whose book, “From Jugaad to Systematic Innovation: The Challenge for India,” is to be
published next year. “The moment you are looking at manufacturing, there are hundreds of inspectors and regulations.”

Raising money is one of the biggest challenges entrepreneurs
face. Venture capital funds have flocked to India in recent years, but they are more likely to invest in established businesses than young firms.

In the United States, Israel and elsewhere, the
initial, or seed, capital for many start-ups comes from rich individuals known
as angel investors. But most rich Indians prefer to invest with family members or close friends because its considered safer and provides assurance that the lender will be able to borrow from relatives in the future.

“If you want to raise $3 to $4 million, it’s doable,” said Sumir
Chadha, who co-heads Sequoia Capital’s Indian operations. “But it’s difficult if
you want to raise $300,000 or $400,000,” a typical investment at the early
stages of a company’s life.

When Cellworks Group, which has most of its operations in Bangalore,
was looking to raise money last year, executives talked to venture capitalists
here and abroad. But the company raised all of the money it needed in the United
States, because most local investors did not have the expertise to evaluate the
biotech firm, said Taher Abbasi, the chief executive.

Cellworks has planted its corporate headquarters and a small staff near
San Jose so it can be close to investors and American universities for research
collaboration on cancer drugs.
“To really kick off entrepreneurship without
local money is very difficult,” Mr. Abbasi said.
Still, he said, India has
its advantages. Engineers and biologists are plentiful, though they need to be
trained more than their counterparts elsewhere. And operating costs are a lot
lower than in the San Francisco Bay Area, which was critical more than two years
ago when he and his partners started the company with their own money.

There may yet be hope for Indian innovation.

Some are looking to fill the venture fund vacuum. A group called Mumbai
Angels holds Saturday meetings every two months at which entrepreneurs pitch
ideas to affluent investors. Members of the group have invested in about 20
companies, said Prashant Choksey, a co-founder.
Separately, N. R. Narayana
Murthy, the chairman of Infosys, recently sold $38 million worth of shares in
his company to start a new venture capital fund. Mr. Raghavan, the former
Infosys executive, has invested about $100 million in start-ups like Connexios
Life Sciences, which is developing drugs to treat diabetes and other diseases.
Many Indian universities have also started entrepreneurship programs and

Vivek Wadhwa, a former technology entrepreneur who now
researches innovation, said the climate for start-ups in India was a lot better than it was a few years ago. It should continue to improve, he said, in part because companies like General Electric have hired tens of thousands of engineers in India to work in research and development
“Once they
have been working on these projects for a few years they will outgrow the
companies that they are working for,” he said. “They will hook up with these
entrepreneurs that failed” on previous start-up attempts and create new

Another change may augur well. Until early this decade, the Indian
market was too small and isolated to make it very lucrative for businesses to
develop products here, so most technology companies focused on selling services
to the West, said Girish S. Paranjpe, joint chief executive of Wipro’s
information technology business. “That will change dramatically because the
Indian market has become bigger,” he said.

In the last eight years, the size of the Indian economy has roughly
doubled along with the importance of foreign trade. There could still be
something to envy and fear. "

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