India and "creative chaos"

Posted by: Steve Hamm on November 10

It’s impossible to think about India without thinking about China—and vise
versa. And the contrast is sharp. China is an orderly, top-down, plan-oriented
state with plenty of capitalist drive but not a lot of creativity. The
infrastructure in its big cities is first rate. But, of course, it’s not
democratic. India’s an unruly democracy—with government as chaotic as its
traffic. Which system will win? China clearly has the early lead, but I wouldn’t
write India off. The concept of creative chaos is one reason. This language was
introduced to me a couple of days ago by Leo Apotheker, head of worldwide sales
and marketing for German software giant SAP. He visits India 4-5 times per year
and has noticed that the top Indian entrepreneurs he meets look at business
problems and opportunities differently than a lot of Western leaders—and they
come up with strategies that knock the established global business players off
balance. They think this way because they have to be creative to overcome the
chaotic business and political environment in India. “I think that long term
India will outperform China,” he told me. “They have a culture of chaos. A
culture of chaos and a strong education system, together, are more important
than infrastructure.”

Finally, Western companies see the greatest potential for revenue growth
among emerging economies such as India's and China's. In the 1960s, Indians
accepted Jeeps with the steering wheel on the wrong side ("wrong" by local
standards, since Indians drive on the left side of the road). U.S. designs were
considered naturally superior. But today, these economies are unwilling to
accept mature, hand-me-down product designs from the West. For products to enter
these markets successfully, they must be designed to meet local needs. Smart
Western companies have realized that such redesign is better performed in
economies that are closer to the target markets.

These four factors have created the need for smart Western companies to
globalize their product development. The difficulties of including an R&D
team in India are not minor.

Corporate Governance

Foreign companies operating directly in India are generally held to a higher
standard of corporate responsibility than their domestic counterparts. Even
companies with stellar social reputations, such as Tata Motors (TTM),
are at risk of suffering local backlash: Protests about land acquisition for a
new factory in West Bengal caused the company to relocate a proposed plant to
Gujarat, at the other end of the country. Moreover, if companies choose to
outsource rather than operate directly, they need to choose their partners
carefully. While Satyam Computer Services (SAY)
was not very active in outsourced R&D, recent admissions of creative
bookkeeping by its former chairman have led Western companies to reevaluate any
major outsource partner. In our experience, most new-generation Asian vendors
maintain high standards of corporate governance.

Other subtle but important cross-cultural challenges make the transition to a
global R&D team difficult. But smart and nimble companies that suffer the
pain now in recessionary times will emerge much healthier when the economy turns
around.

In our consulting work, we are frequently asked if Indians can design a
complete product. The starting point is often: "Sure, they're good for
lower-level or service tasks such as digitizing old-fashioned paper blueprints
or for performing esoteric finite-element analysis. But what I need is a
complete product, and I don't think I have seen anything like that from India."
The rules are changing. Sometime this year, Tata Motors will ship the
lowest-cost car in the world, the Nano. To us, it's not the low cost that is
exciting, it's the innovation. In addition to developing a best-in-class design,
Tata has extended the innovation to the design process and the supply chain by
depending on suppliers to squeeze the best price-to-value ratio for an
automobile uniquely designed for punishing Indian roads. A rear-mounted pressure
die-cast engine, wheels that sit at the very extremities of the body, and a
single windshield wiper indicate that this is not your average cracker-box
four-wheeler. Even the distribution model is innovative: The dealer will perform
some final assembly on all Nanos just prior to sale.

Other innovations abound. Indian scientists have developed novel treatments
for migraine and for psoriasis, a serious skin condition. These drugs are in
advanced "Phase II" trials and show the potential of being blockbuster products
should they meet global approval. Additional new chemical entities are in the
pipeline, and it's only a matter of time until we see a pharmaceutical success
from India that is based on intellectual property developed there.

Seek and You Shall Find

The vast majority of growth in product development and sponsored research in
India is under the radar since it is conducted by external vendors on behalf of
European and North American clients; nondisclosure agreements prevent public
dissemination of much of this work. But forward-looking executives ignore this
trend at their own risk. In recent years we've helped R&D executives in
consumer products, chemicals, industrial machinery, energy, medical devices,
aerospace, video games, and other industries find and manage product development
vendors in India and China.

It is natural to ask if the current economic slowdown will alter the rate at
which innovation in India will grow. We believe there may be a temporary hiccup
in R&D globalization, caused primarily by companies freezing in their tracks
as they reassess the new financial realities. But as soon as they rebuild their
product road maps, nimble companies will actually accelerate their globalization
efforts, pushed harder by tight budgets and the realization that the old ways
can be disastrous. We saw exactly this trend in the information technology
business during the recession of 2001-03. IT vendors such as IBM (IBM),
Tata Consultancy Services (TCS.BO),
Infosys Technologies (INFY),
Wipro (WIT),
Accenture (ACN),
and others increased their India staff rapidly. In the current environment, TCS
has expanded by buying Citi's (C)
India offshoring business for $1 billion, and Infosys CEO Kris
Gopalakrishnan recently told BusinessWeek that his company "is
hiring" and in fact "found there will be an increase in allocation for
offshore work" by its clients.

We believe that the same is true for the outsourcing and offshoring of
R&D. In fact we think such innovation will be the next IT and that companies
that are proactive about R&D globalization will gain competitive advantage
over slothful competitors.

Gunjan Bagla is managing director of Amritt, a
management consultancy based in Los Angeles. He is author of Doing
Business in 21st Century India (Hachette/Business Plus, 2008). Atul Goel,
a senior adviser with Amritt, earned a PhD from Yale University and has over 20
patents from his prior tenure at Hewlett-Packard and Agilent Technologies. Both
are graduates of the Indian Institute of Technology Kanpur in India.

Innovation from India: The Next Big Wave

<!--DECK-->Innovative companies the world over are discovering the research
and development advantages to be found in India

A new portable electrocardiogram machine, the MAC 400, can take 100 EKGs on a
single battery charge and weighs less than three pounds. This is appropriate for
rural areas in emerging markets where electricity is not always readily
available and where patients cannot easily travel to urban diagnostic centers.
The product's roots are as remarkable as its capabilities: The MAC 400 was
designed at General Electric's (GE)
John F. Welch Technology Center in Bangalore by a team of Indian engineers. Most
of the early growth at this research and development center, GE's largest
outside the U.S., took place during the 2001-02 recession. Today, the 50-acre
campus employs 3,500 scientists and engineers; they've created patents on
aircraft engines and locomotives in addition to medical devices.

Many other companies are, like GE, turning to Indian talent for new product
development. Technological innovation has powered the rise and the economic
domination of the West for two centuries. With scientific research, technology
development, and product innovations from the steam engine to the World Wide
Web, the West has led the world in wealth creation. A vibrant and structured
educational system coupled with a strong intellectual property regime has
enabled the creators and owners of ideas to profit handsomely.

But the balance of power has begun to shift. Despite the current economic
problems both countries face, we will soon witness a dramatic rise in the
participation of India and China in global R&D. The first reason for this is the
diminished role of corporate laboratories that were the birthplace of many of
the ideas of the 20th century. Bell Labs, Xerox Palo Alto Research Center, and
IBM TJ Watson Center no longer enjoy the same preeminence that produced ideas
such as the transistor and the mouse. Today's nimble companies rely on
ecosystems of external innovation to drive new products to market; venture
capital and private equity investors are eager to fund collaborative innovation
for quick wins but have little appetite for long gestations for science.

"Distributed Development"

In the drive to seek the best return on invested capital, important
components of these ecosystems have moved offshore and away from the West,
creating specialization and disaggregation. Collaboration tools and disciplined
design techniques make it conceivable for people who are not in the same
building to work together as if they are neighbors. The difference between being
one building apart and two continents apart becomes less significant. Once this
"distributed development" becomes a reality, it is natural for portions of such
work to migrate to locations where large numbers of talented scientists and
engineers are more readily available. India, for example, graduates more than
100,000 English-speaking engineers each year, so Western companies find it
particularly attractive as a destination for this work. On the other hand,
first-world countries have declining populations and a lower percentage of
students choosing technical careers. Distributed development is the second
inexorable reason for the forthcoming rise of emerging company R&D.

Third, in many industries, increased competition has pressured companies to
speed products to market as never before. Because profits from new technologies
are highest before the technologies become commoditized, if a new product has a
four-year life and you are one year late to market, you may lose not one quarter
but rather half of the potential profit from the product. Leaders in R&D,
unable to hire enough qualified engineers in the West, turn to Asian resources
to keep up with this faster pace of development. Time-to-market pressure
continues to drive new product initiatives to leverage talent in India.

India's Singh: West Should Learn from Developing Countries

<!--DECK-->When it comes to handling anti-globalization and protectionism,
India may have advice for industrialized nations, says Prime Minister Singh

Even as world leaders convened to hammer out some kind of consensus perched
on the edge of the river in London's Docklands, Prime Minister Manmohan Singh
called on leaders of industrialised nations to take tips from developing
countries on how to handle anti-globalisation and protectionist sentiment among
their disgruntled populace.

"Leaders of developing countries have struggled to overcome doubts and fears
of our public to persuade them of the merits of integrating with the global
economy. I believe we have had substantial success... and these hard-won gains
will be destroyed if markets in industrialised countries are not kept open in
these difficult times. I must emphasise that this is an area where leadership
must come from the industrialised countries," he said, addressing his fellow
heads of state just before the actual summit.

"As we deal with the immediate problems, we must also be careful not to
sacrifice the gains of openness of trade, direct investment and immigration," he
said.

Mr Singh also raised and identified concerns of the new 'financial
protectionism' saying the biggest hit developing countries have taken is in the
collapse in trade, and unprecedented decline of almost 9% in trade volume in
2009, as well as a massive decline of private capital flows at close to $700
billion in 2009, with little prospect of a significant revival in 2010.

This, he warned, has been encouraged by "financial protectionism built into
the conditions for assisting banks in industrialised countries," clearly
singling out strings attached to billion dollar bank bailouts in western
countries.

"We must ensure that countries hurt by the massive withdrawal of private
capital that has taken place, which is unlikely to be reversed in 2010, are able
to rely upon an increased flow of resources from the international financial
institutions," he said.

He also told his rich-country counterparts that while it is hard on their
taxpayers, they need to convince their voters and taxpayers that the banking
system needs to be revitalised, even if there is justifiable outrage about
bankers' mistakes and bonuses.

He also came out on the side of the Anglo-American consensus that more
stimulus is better than less, saying that "risks lie in doing too little rather
than too much, and we are not doing enough to ensure recovery in 2010. If we
cannot agree to do more, we should at least send a clear message that we will
watch developments carefully in 2009 and act speedily to do more if necessary."

Arts and Entertainment: Ashvini Yardi

Age: 36
Programing Head, Viacom Colors

Yardi, who has a fascination
for Louis Vuitton bags, could easily act in one of her serials but prefers to be
behind the scenes. She is the programming chief at Colors, the upstart
television channel from Viacom that rocketed to No. 2 in the Hindi general
entertainment genre within six months of its launch last July. Yardi has changed
the rules of programming by giving viewers contemporary plots instead of the
junk they were fed as entertainment. After spending 14 years at local channel
Zee, Yardi recently succeeded in dislodging the market leader, News Corp's Star
Plus.

Media: Amit Varma

Age: N/A
Blogger, Indiauncut.com

Blogger Amit Varma brings a
particular libertarian point of view to his columns and blog items, but also a
risqué sense of humor that keeps readers hooked. He won the 2007 Bastiat Prize
for his columns in Indian business paper Mint, and for a select
group of Indians, he represents a libertarian, anti-tax and anti-government
sensibility that is still quite rare in the country.

Sports: Sachin Tendulkar

Age: 35
Cricket Star

India's most revered cricketer, Sachin
Tendulkar broke onto the world stage at 16 and since then has become the highest
scorer ever in both forms of the game. Picked as the second-best batsman in
history by Wisden, the renowned cricketing almanac, Tendulkar often walks out to
the batting pitch to the roaring expectations of hundreds of millions of Indian
cricket fans. But off the field, he has become the largest sports brand in
India, signing promotion deals that are reported to be close to $45 million over
his lifetime.

Media: Tarun Tejpal

Age: N/A
Editor, Tehelka magazine

In the 10th year anniversary of
Tehelka, an unlikely magazine that mixes hard-core investigative
journalism with pitch-perfect art and cinema reviews and fiction, Tejpal has
emerged as a celebrity journalist like no other in India. Best known for a sting
operation that revealed rampant bribery in India's defense acquisitions, Tejpal
launched Tehelka (which means "sensational" in Hindi) on the back
of donations and pre-launch subscriptions from readers who supported
investigative journalism. Since then the magazine has exposed government
involvement in the 2002 riots in Gujarat, which killed nearly 2,000 Muslims, and
has become a benchmark for other Indian magazines. It remains commercially
unsuccessful, though, changing formats multiple times in an attempt to gain more
readers and advertising. Tejpal is also the author of a bestselling novel,
The Alchemy of Desire, which received a glowing review from Nobel
Laureate V. S. Naipaul.

Business: Dilip Shanghvi

Age: 53
Chairman and Managing Director, Sun Pharmaceuticals

Dilip
Shanghvi's low-key management style has turned Sun Pharma, maker of generic and
branded drugs, into one of the most profitable pharma companies in India. Sun's
priorities include cardiology, neurology, and psychiatry drugs. Shanghvi pursued
M&As at home and overseas at a time when Indian companies rarely went
shopping. Having waged a two-year legal battle, he hopes to score a big win soon
with Sun gaining control over generics drugmaker Taro Pharmaceuticals of
Israel.

Arts and Entertainment: Ronnie Screwvala

Age: 54
Chairman UTV Group

It is said that Ronnie Screwvala, the
head of Mumbai-based television and film production and distribution house UTV
Group, smells opportunities even when he has a cold. From running a recording
studio to producing films with Hollywood studios, he was the first to detect the
potential of the Bollywood-Hollywood connection. Walt Disney has a 57% stake in
UTV, and Screwvala has co-produced three films—M Night Shyamalan's sci-fi
thriller The Happening, Mira Nair's Namesake, and
Chris Rock's I Think I Love My Wife—with Fox. He also has a tie-up
with Will Smith's Overbrook Entertainment to make an animation and a live-action
film.

Technology: Shailesh Rao

Age: 36
Managing Director, Google India

When Google decided that
India was going to be a strategic destination, it appointed Shailesh Rao to head
operations in 2007. In most Asian countries, local search engines dominate, but
in India, Google is the clear leader in search. Rao wants to consolidate that
lead with a panoply of products for Indian Internet users. The Kellogg graduate
says he spends much of his time meeting everyone from government and state
officials to parents and children to propagate Google's mission in India.

Nonresident Indians: C.K. Prahalad

Age: 67
University of Michigan

Of the Indian consultants and
experts with a truly global reputation, C.K. Prahalad is perhaps the best known.
An author and professor at the University of Michigan, he specializes in
figuring out how exactly the top layer of leadership in an organization can push
it toward remarkable success.

Technology: Deepak B. Phatak

Age: 61
Head of Kanwal Rekhi School of Information Technology, IIT
Bombay

An open-source evangelist, Phatak, head of Kanwal Rekhi School of
Information Technology, IIT Bombay, has inspired and helped an entire generation
of youngsters morph into thought leaders. One of the most respected teachers,
Phatak is always surrounded by his students and has made computer science a much
sought-after stream not just at IIT but at other Indian universities as well. To
reach out to a larger student universe including rural India, Phatak started
Eklavya, an online distance-learning program for the IITs.

Entrepreneurship: Chetan Maini

Age: 39
Deputy Chairman and CTO, Reva Electric Car Company

Chetan
Maini is the man behind Reva, the first electric car made in India. Maini's auto
romance began young. From making a remote-controlled toy car at 11, he then
built toy planes and a go-cart with a scooter engine. The mechanical engineer
from Stanford then built solar and hybrid cars till he made the 3-door hatchback
Reva. Now Maini wants to capitalize on the global demand for hybrid and green
cars. With venture funding from Draper Fischer Jurveston and Global Environment
Fund, he is setting up a second plant in Bangalore, with a capacity of 30,000
vehicles by the end of 2009.

Finance: Vijay Mahajan

Age: 54
Chairman, Basix

Mahajan is a microfinance icon in India.
The electrical engineer from IIT-Delhi and a post-grad from Princeton is a
leading social entrepreneur, working for rural economic development since 1981.
From setting up a nonprofit, Pradhan, to creating microfinance company Basix,
Mahajan's mission is to promote rural livelihood to Indians who live on less
than $2 a day. Basix is one of the first microfinance enterprises in the world
to attract Indian and foreign debt and equity investments, providing livelihood
to over 1.5 million customers. Mahajan's in-depth knowledge of the farm sector
has made him a much sought-after adviser with the Planning Commission and many
Indian states.

Financiers: Vinod Khosla

Age: 54
Founder, Khosla Ventures

These days, technocrat Vinod
Khosla, co-founder of Sun Microsystems and former partner at leading Silicon
Valley venture company Kleiner Perkins, visits India as often as he can. Khosla,
who claims that "risk is a religion," has been a great source of capital for
such Indian enterprises as biofuel company Praj Industries, SKS Microfinance,
and Aravind Eye Hospital.

Enterpreneur: Ashok Jhunjhunwala

Age: 56
Leader, Telecommunications and Computer Networks Group, IIT,
Madras

A firm believer that India needs Indian solutions, this professor
at IIT, Madras goes beyond just teaching. Ashok Jhunjhunwala is an entrepreneur
who has founded seven companies centering around new technology or innovations
in existing technology. His TeNet group has incubated many telecom and banking
products for rural markets, like a low-cost ATM and a remote medical diagnostic
kit.