Why no Google in India - Part 2

This is the second of my blogs on the reasons why there is no Google in India and what can be done about it.


The common beliefs and the truth about start-ups

Various reasons have been attributed to the start-ups culture in Silicon valley and else where. Like the proximity to investors, tax breaks, legal incentives, incubators, availability of workforce etc. [http://www.entrepreneurial-insights.com/startup-hubs-around-world-silicon-valley/]

But these are the accelerators and elements of a platforms for scaling up, rather than the necessary condition for the birth & success of a start-up. By themselves, they are not the sufficient ingredients to create a start-up culture.

According to Steve Blank, consulting associate professor at Stanford University and a lecturer at National Science Foundation and principal investigator at the University of California at Berkeley and Columbia University, growth in the number of start-ups is constrained by five factors :

1. The high cost of getting the first customer and the even higher cost of getting the product wrong.

2. Long technology development cycles.

3. The limited number of people with an appetite for the risks inherent in founding or working at a start-up.

4. The structure of the venture capital industry, in which a small number of firms each need to invest big sums in a handful of start-ups to have a chance at significant returns.

5. The concentration of real expertise in how to build start-ups.

All these factors are however altered favourably with the presence of a customer(s).

Nearly 48.8 million small businesses exist in India, most of them aren't funded, nor recipients of special government concessions or nurtured in incubators. The thing that gave birth to them and sustains them is - the presence of a customer(s).

All the means of production begin to fall in place with the appearance of a customer(s).

India with its large and diverse consumer market provides the fertile ground for much of these enterprises to exist. [http://articles.economictimes.indiatimes.com/2013-06-
09/news/39834857_1_smes-workforce-small-and-medium-enterprises]

Take a look at the eco-system of the Auto & Engineering industry in a place like Pune. Nearly none of them have been supported by VCs, most have survived and thrived despite adverse government regulations, infrastructure deficiencies, lack of expertise, and at best mediocre cities for their people to live in. The presence of customers (large auto manufacturers) has been largely responsible for a strong manufacturing start-up culture in the city.

A mid sized customer of ours, a supplier to Tata Motors, has over a hundred smaller suppliers supplying to them in turn.

There are a lot of small companies, toughened by years of living with constrains, that could grow out very rapidly under a more congenial environment. With the right environment (policies & infrastructure), many of whom could be part of the international supply chain and become world class players.

ACMA says the industry is driving towards a goal of crossing the US$ 100 billion mark including exports of US$ 30-40 billion by the year 2020.
[http://www.autocarpro.in/analysis-reports/upbeat-indian-component-industry-targets-growth-fy16-8743#sthash.swMu1QO5.dpuf]

India is probably the most competitive country in the world for the automotive industry. It does not cover 100 per cent of technology or components required to make a car but it is giving a good 97 per cent - Vicent Cobee, Corporate Vice-President, Nissan Motor’s Datsun.

What is Constraining the Software Product business in India

In comparison, the Software industry has not suffered from such constraining regulations, neither is the infrastructure requirement as demanding. It has done quite well in exporting software services, but not so with software product exports. Nearly all of the hardware (and software) used in India is imported. These imports, classified collectively under electronic goods, threaten to overtake the Oil import bill by 2020
[http://www.livemint.com/Industry/j6PvasGzddHr29lPDe63eL/Your-fascination-for-smartphones-is-driving-Indias-trade-de.html]

The reason could be the lack of an eco-system as robust as that of the Auto and Engineering sector.

Perhaps due to lack of cost constrains, maybe to ensure proximity with their customers, maybe to move rapidly, maybe to ensure compliance, the software service industry chose to mostly use pre-built and standard software (and hardware) made elsewhere (with a few exceptions).

So it was with other Indian businesses. To survive and grow, post industrial liberalisation, Indian businesses accelerated their use of the IT to build more efficient businesses, enable growth and enter new lines of business. Something that they had not given much heed to hitherto. The emphasis was mostly on speedy implementation and risk mitigation. CIOs mostly got busy with purchase, implementation and management of 'proven' IT systems. Most of government institutions and government owned businesses too followed a similar path.

The result is a large IT reseller and service segment but not may local makers of software & IT products.

Starting up a robust local Eco-System

As a company we've been fortunate in having gained support of some bold CIOs and CXOs who have supported us as customers for our product. The customers, especially those that supported us in the early years, were undertaking risks quite unusual of CIOs in India. The presence of customers, not just helped us financially, but it also gave us the context to create the product, helped us find systems integration & solution partners to enhance our offering. Helping us move towards a world class product.

Maybe it's time CIOs (and more so CXOs), put some time and resource aside to engage with and invest with local start-ups as a means to build new advantages for themselves. They stand to benefit from cost savings, unlocking new efficiencies, creating unique advantages for their businesses.

CIOs/CXOs could start with the periphery, with processes and parts of the business still not digital, with experiments on new business models, with start-ups that have demonstratable capabilities, as low cost experiments. The pay-off could be huge. The cost of failure not much. And the learning of great value a certainty for all.

They won't be a day too early in initiating it. Start-ups like Flipkart, Snapdeal, Ola, Quickr are already creating new systems of business that offers a platform for rapid scale and profits, by a more innovative use of technology. Running factories and business operations efficiently, having large production capacities, or ability to manage scale, might not be enough to survive in the new business environment where business rules are being rewritten at a rapid pace.

Such investment hold promise not only for the customer and the supplier (start-up), but also to the industry (through the creation of a robust eco-system) and country as a whole (through business & economic growth).

Who knows, it may just seed a Google here in India.

What do you say?

Why no Google in India

A Bit of History

On May 1, 1489, Columbus presented his plans to find a western sea route to Queen Isabella, who referred them to a committee. They pronounced the idea impractical, and advised the monarchs not to support the proposed venture.

The monarchs however, keen to expand the Spanish empire and to assure a better market position in trading, lent support to his plans. Leaving the royal treasurer to shift funds among various royal accounts on behalf of the enterprise. 

Columbus would gain immensely from the success of the venture, he'd be "Admiral of the Seas" and would receive a portion of all profits. The chances though were slim.

[https://en.wikipedia.org/wiki/Voyages_of_Christopher_Columbus]

It is popularly believed that a bunch of capitalists, entrepreneurs and brilliant fellows created what we call as the Silicon Valley, the seat of much technological innovation in recent decades.

However, the roots of Silicon valley go down much further and owe much to the steady consistent spending by the US department of defense and the US government through it's various strategic and national initiatives.

The Bay Area had long been a major site of United States Navy research and technology. In 1909, Charles Herrold started the first radio station in the United States with regularly scheduled programming in San Jose. Later that year, Stanford University graduate Cyril Elwell purchased the U.S. patents for Poulsen arc radio transmission technology and founded the Federal Telegraph Corporation (FTC) in Palo Alto. Over the next decade, the FTC created the world's first global radio communication system, and signed a contract with the Navy in 1912.

In 1933, Air Base Sunnyvale, California, was commissioned by the United States Government for use as a Naval Air Station (NAS) to house the airship USS Macon in Hangar One. The station was renamed NAS Moffett Field, and between 1933 and 1947, U.S. Navy blimps were based there.[12] A number of technology firms had set up shop in the area around Moffett Field to serve the Navy. When the Navy gave up its airship ambitions and moved most of its west coast operations to San Diego, the National Advisory Committee for Aeronautics (NACA, forerunner of NASA) took over portions of Moffett Field for aeronautics research. Many of the original companies stayed, while new ones moved in. The immediate area was soon filled with aerospace firms, such as Lockheed.

The Bay Area was an early center of ham radio with about 10% of the operators in the United States. William Eitel, Jack McCullough, and Charles Litton, who together pioneered vacuum tube manufacturing in the Bay Area, were hobbyists with training in technology gained locally who participated in development of shortwave radio by the ham radio hobby. High frequency, and especially, Very high frequency, VHF, transmission in the 10 meter band, required higher quality power tubes than were manufactured by the consortium of RCA, Western Electric, General Electric, Westinghouse which controlled vacuum tube manufacture. Litton, founder of Litton Industries, pioneered manufacturing techniques which resulted in award of wartime contracts to manufacture transmitting tubes for radar to Eitel-McCullough, a San Bruno firm, which manufactured power-grid tubes for radio amateurs and aircraft radio equipment.[13]

While using money from NASA, the US Air Force, and ARPA, Doug Engelbart invented the mouse and hypertext-based collaboration tools in the mid-1960s and 1970s.
[https://en.wikipedia.org/wiki/Silicon_Valley]

Most of these initiatives had a high degree of uncertainties in terms of costs, chances of success and lengthy gestation periods,  things that needed an appetite for risk, and resources much larger than private enterprise could muster.

Monarchies and governments can undertake much riskier and uncertain projects, having at their disposal a larger repository of resources. Especially when there is no immediate threat to their survival. They certainly must do so for strategic longer term reasons.

The strategic and intentional investment made by the US government helped establish the foundations of what is today's Silicon Valley and the reason for much technological domination of the US.

The State of Things

Unlike the government run initiatives in India that have generally yielded poor results, the US government chose to involve private enterprise in projects of strategic importance. With assured support and a chance of bigger rewards for success (more lucrative contracts in the future) the private enterprise bloomed. (As was the case with Columbus, with the monarchy supporting his venture). And with it bloomed the Silicon Valley.

Government's purchase of the technology in India is riddled with confusing conditions and requirements. It's a cobweb of rules that stifles enterprise and initiatives. Years of investments in government run research labs have resulted in little.

In his 2006 speech to the Nasscom, Dr. A.P.J. Abdul Kalam (then the president of India) talked of several initiatives that the government and the industry could jointly pursue, towards an audacious plan of more than tripling the projected revenue for 2010. He outlined what he called the World Knowledge Platform as a means to doing this. There were of course no takers either in the industry or the government for such distractions. The government of the day was firmly focused on income redistribution and had little time for anything else. The industry was cranking ahead gaining robust revenue growth year on year. Everyone was busy with the issue immediately ahead of them. Lest someone else eat their lunch. Also perhaps the industry was skeptical that such an initiative would actually take-off the ground.
[http://www.abdulkalam.nic.in/abdulkalam/sllatest1.jsp?id=733]

The industry I think is less at fault. Governments can take longer term perspectives and provide the necessary support for such initiatives. India's space program e.g. that has come for much praise recently, has been an investment so long in returning any gains that most private enterprises would not dream of a future that far out. A government by it's very longevity and vast resources at it's command, is well positioned to support such investments. The industry though may be faulted for not responding to Dr. Kalam's call for suggestions on his ideas. Maybe if the industry had responded it would have triggered some initiative in the government.

And a Possible Way Out

Nevertheless, we're in 2015 now. The government of the day aspires to see companies like Google and Apple created here in India. It will be well advised to lead the initiatives, as all governments and monarchies with foresight have done through history.

But to do this, it must cut through the cobweb of government rules that kill such enterprise. Now that's not just a hard thing to do, but will probably take long.  While precious energy to start things up could lie waste. The way to do it would be to initiate special missions and projects outside the cobweb of government rules, with the private enterprises. The AADHAAR project is an example of such an initiative. So also the transformation of the system of issuing Pass Ports.

Private enterprise can deliver where government run initiatives fail for lack of a reward system and adequate freedom. The government can be both the an investor and a customer. Investing in the development and then purchasing the technology on maturation.

The other advantage of doing it outside the bounds of a government institution is so that enterprise can pursue the commercialisation of the technology outside of the government markets.

But can Narendra Modi's government take up such strategic investments with the Private sector without being accused of supporting crony capitalism? Maybe such projects are best done in secrecy. Maybe by creating special purpose vehicles/missions that are not bound by government rules but subject to CAG audits. Or maybe by allowing for 20% of the IT budgets of government establishments to be spent on innovations / transformation projects that should be run by local SMEs with proven track records.

That should release a lot of Seed Funding/Venture Fund for tech development. While providing ready customers (the government) for successful ventures. And with a steady source of revenue these enterprises could propel themselves towards a larger commercialisation of their project. Maybe end up becoming some future Google or Apple.

The social, economic and strategic payoffs for the country could be immense.

[I hope to write more about this as and when I can find the time and desire to do so. Would be happy to hear from you what you think about it.]

The 3 big things from PM Narendra Modi's Independence Day speech - Merit, Stand-up, Team

This is not the exact order in which he spoke but it makes for a better order to talk about it.

On the face of it the Prime Minister sounded a little defensive. Maybe because things aren't moving as fast as he would have liked them to. But he is firmly on the right track.

Merit India

"Why does somebody have to seek 'Sifarish' when a job is sought. It is not proper."

The Prime Minister spoke of getting jobs without Sifarish (favour). This is true for not just government jobs but also for government purchases and sale. He talked about the coal block auctions that were free of any favour. If his government can move India towards a more meritocratic society, he'd have made a big contribution. The side stepping of merit in government actions is perhaps the biggest reason why India and it's people have been denied their due. In the name of pro poor policies, saving costs and social justice the most shameless forms of corruptions have gained grounds. Compromising the outcome of much of what the government invests in.

"CBI has registered 1,800 corruption cases after we formed government."

Stand-up India

"'Start-up India' and 'Stand up India'"

What the Prime Minister meant was for people to stand-up for themselves and not wait for a mai-baap government to provide for them. Years of socialist thinking has made this country a land of beggars. People begging for doles, jobs, favours, concessions, anything. It is time we stood up and realised our own potential and regained our dignity. We've wallowed in self doubt for far too long.

Already India has the one of the highest number of enterprises and self employment is the biggest employer in India. The small entrepreneurs and self employed will be the most likely beneficiaries of programs such as Jan Dhan, Atal Pension Yojana, Rural Electrification, Skill Development etc. And that would considerably add to our generative capacity.

"Govt will provide electricity to 18,500 power-less villages in the country in the next 1,000 days"

"All our programs and institutions should be helpful to the poor; have to empower them through financial inclusion."

"Each of 1.25 lakh bank branches should encourage at least one Dalit or adivasi entrepreneur and at least one woman entrepreneur." 

"Bank accounts are essential for integrating poor into the financial system, 17 crore people opened accounts under Jan Dhan Yojna." 

"We are looking at systems for enabling start-ups. We must be Number 1 in start-ups."

Team India

When the people see the leaders and governments that they have chosen turn self serving, it is natural for them to pursue a similar path in their own lives. Take whatever you can, and run home as fast as you can. When everyone is grabbing whatever they can, you feel like a fool worrying about anything outside of your own self interest and that of your family.

There might be a long history to it, of centuries of plunder wrecked on us as a country which may have made people this way. But it cannot be the character that defines our future. Because it will only prolong our agony.

The Prime Minister has been repeatedly goading the people to make a collective contribution and is making sincere efforts to make it happen.

In his speech, he talked about the various initiatives like MyGov.in, Giving Up LPG subsidy, SwachhBharat etc. and the enthusiastic response it has got from the people. It is heartening to see this. More of it is required.

"20 lakh Indians have given up LPG subsidy"

"Children have contributed immensely to #MyCleanIndia"

After all, we are the beneficiaries of un-measurable grace of others. Interdependence is built into all of human society and indeed into all of life. The more we do out of this realisation, the faster we'll move on the paths of progress.

May the people of my beloved mother land always be free of self-doubt, free of illusion, free of deceit.