Incredible India: Looking beyond a flat world
A recent invitation to join a Canadian delegation to India sponsored by TIE (the Indus Entrepreneurs) and the Canadian Venture Capital Association (CVCA) led to a real eye opener. The trip left me with a lot to ponder about how this corner of the world will play a significant role in the way we bring science and technology to market. As they say, it’s not what you don’t know that will kill you in business. Rather, it’s what you think you know but get wrong that will. I’m happy to say that some of the misconceptions I had about India have quickly been “realigned.”
Indeed, India does live up to all the hype we’ve seen in large part driven by the BPO (Business Process Outsourcing) industry. But there is so much more to India than what the VIP tour of the Infosys headquarters can reveal. Take a closer look at India and you will see huge implications for Canadian business, including the way we approach entrepreneurship and even social innovation.
For anyone immersed in the IT industry, the story of India’s ascent as a technology superpower has been well publicized. Like millions of others, I had read Thomas Friedman’s “The World is Flat” and I have an appreciation for the clichés we in North America apply to developing markets. But beyond all these snapshots, there is much more that needs to be looked at — beyond the brand association that many of us have formed about India being a country for low cost supply of IT/outsourced services and manufactured goods.
While we all know the world is flattening in terms of connectivity, making it easier for new clusters of talent to come together and connect into the global economy, there are some misconceptions about India. Both in terms of its current capabilities and its ability to shift from process innovation to more fundamental technology and commercial product development, the latter which will be driven as much by a rapidly changing domestic economy that for the past 15 years has averaged 18% growth. Even as the Rupee has appreciated, domestic growth driven by gains in consumer spending power has helped offset these impacts. Enough about the macro view: India is big. We know this. But what are some of the other facets we should look at in assessing India’s emergence as the economy to watch over the next few decades? And what are the implications and opportunities for us here in Canada? Here are some observations:
Entrepreneurship is core to the fabric of India’s development as a nation
Necessity here is truly the mother of invention. A country with such a huge population understandably does not have a lot of programs to support its people. Hence, one third of the urban population in India are entrepreneurs. Many people just can’t rely on established business or government to support them. They instead create businesses. And they are very proud to call themselves entrepreneurs. Look no further than associations such as TIE (The Indus Entrepreneurs), a non-profit global network of entrepreneurs and professionals, founded in 1992 in Silicon Valley by a group of successful entrepreneurs, corporate executives, and senior professionals with roots in the Indus region. There are currently 12,000 members in 48 chapters across 11 countries. TIE nicely addresses the diaspora of talent from India by allowing its senior charter members to give back to the communities they live in around the world – an effort that is certainly good for India as they generate and nurture furthur generations of entrepreneurs. Here in Toronto TIE is doing some excellent work through its mentorship programs and its TieQuest business competition.
Infrastructure in India is becoming less of an issue
It used to be said that in India the “telephones don’t work” the “trains don’t run on time” and the “power cuts off.” However, these and other major issues which have plagued Indian business are quickly being resolved. One of these issues in particular is quickly being resolved, telecommunications. The recent advances made here in the mobile telecom market tell you this is not Mr. Rogers’ neighbourhood. The simple need to communicate is driving unprecedented growth in the mobile industry. Estimates peg the growth of the domestic mobile market at eight million new customers per month. The networks work virtually everywhere, and low cost pricing ($20 phones and two-cent-per-minute network rates) spurred by a multiplicity of competitive carriers has created a mobile revolution. And this connectivity is laying the foundation for a whole series of opportunities for mobile m-commerce and networking applications that will remove a lot of friction in the economy – changes that will be most profound in rural areas that will experience huge advances in the overall standard of living.
Access to people, is fast becoming a key issue for Indian business
The BPO industry itself has created a war for talent in India. In key centres such as Gurgaon, a suburb of Delhi, a qualified candidate can find as many as 200 other firms within a ten kilometer radius. This has been driving labour rates up and forcing most firms to now focus on what they refer to as Tier-2 and Tier-3 cities with knowledge-based industries that are not as developed. These areas have lower wage rates while still providing a rich talent pool of university educated candidates.
The capital markets in India are open for business
By contrast to Canada, capital in India seems to be moving quite well at various stages from angel financing through to late stage VC investment. As can be expected, there is a fast growing segment of high net worth individuals both within India and Non-Resident Indians (NRI’s) who are looking to invest in early stage ventures. And there is a healthy Venture Capital industry. The Indian Venture Capital Association is even led by ex-pat Jaswinder Kaur (she is a former VC from Venture Coaches in Ottawa who grew up in Kanata). Notable firms from North America and Europe as well as Tier-A players such as Sequoia, Kleiner Perkins and Draper Fisher Jurvetson who also have plugged into sectors such as software, cleantech and transportation in India. This years TIE conference in Delhi featured a host of CEO panelists who had funding from top firms.
IT Today: Manufacturing Tomorrow
It is forecasted that the information technology industry in India, as a proportion of total growth will actually decrease as the manufacturing industry takes over as the top growth engine. It is interesting to note that the leading BPO services firm Infosys estimates that each IT job that is created in India in turn creates approximately 5 additional jobs in other sectors. By contrast to a lot of the low-level manufacturing that is done in China, India has a stated goal to maintain a competitive focus on high technology areas such as aerospace and automotive. Comparisons between China and India are frequently drawn and Indians clearly understand their advantage is not to compete head to head on manufactured goods in a race to the bottom. As the Indian Trade Minister, Kamal Nath commented at the TIE conference, “China is not a market economy. It sells what it produces. By contrast, India produces what it can sell.”
Consumerism is kicking the Indian domestic market into overdrive
While many people understand the export markets for India, perhaps the best kept secret is the domestic market opportunity. The new generation of consumers in India, who are being increasingly exposed to material goods, want what we have, and they are working hard to get it. Some of the trends that will fundamentally shape the growth of this domestic economy are astounding. Double income families are becoming more prevalent which in turn is driving huge growth in sectors such as the automotive industry. As can be expected, motorcycles make up a big part of the transportation landscape. However, players such as Hero Honda (a joint venture by the Hero Bicycle company and Honda Motors of Japan) are closely watching key purchasing trends that are changing as a result of this newfound affluence. As one industry executive commented to our delegation, “as children get educated and land higher paying jobs with BPO organizations, we are seeing it change the entire economic fortunes of their families as a good number of them bypass the traditional process of upgrading their motorcycles – instead they move to four-wheeled vehicles – a key sign that the family has arrived.”
So you may asking yourself, so what? What does this mean to me in Canada? The answer is that Canadian companies have huge opportunities to serve the Indian market and use this market to test new models of innovation – but there’s a catch (more on this later). Consider a few of these fundamental shifts that will take place in the coming few decades:
- What happens when the hundreds of millions of people in India move from 1 meal to 2 meals a day? Canadian companies such as McCain are already thinking about the implications of this as they move to build out their supply chain and manufacturing facilities in India.
- As millions move from subsistence to investment and remittance (people sending money back home to rural centres) what are the opportunities for Canadian financial institutions and insurers?
- Urbanization of cities in India is a key issue as the country looks to deal with explosive population growth and the need for infrastructure improvements. Large centres such as Mumbai, Delhi and Bangalore are busting with people and vehicles. While the move to push CNG powered vehicles in major centres such as Delhi has helped, this is only one initiative underway. The Indian Finance minister, Shri P. Chidambaram also speaking at the TIE conference stated one of the key strategies for the country will be the creation of 200 new cities over the next 15 years – each with approximately two million people. Canadian firms with a focus on urban planning and commercial/residential development as well as cleantech stand to benefit from these initiatives. A brief footnote note here: as we hear such ambitious tasks that government officials are committing to, it makes the municipal problems such as the revitalization of Toronto’s waterfront seem quite insignificant by comparison. I humbly suggest that our elected officials could find inspiration in a massive scale with a visit to India.
- Once all these new cities are built – in fact before they are built – there is a need to get people from A to B. The increased need for mobility is driving a huge growth in the transport sector. New domestic and international airports are going up all over India, in large part driven by a very competitive and well run domestic airline industry with carriers such as Jet Airways and Kingfisher Airlines. Already the usual suspects such as CAE are benefiting from this growth in the commercial aviation sector but there are certainly more Canadian firms who can benefit from this transport bonanza.
But here’s the catch. For Canadian firms to be successful in India, we need a look at innovation and entrepreneurship with a new set of lenses. We need to first understand the key demand drivers for this economy and how the factors for competition are so radically different. In short, the new game that will be played globally is “value innovation,” and India will be an incredible test lab from which to see how various products and business models play out. More on this later as we discuss these concepts further in our next post in this series on India.