In response to the announcement in Hindustan Times that the newspaper proposes to show case innovations in India, Dr. Vidyasagar responds as below. Dr. Vidyasagar is Cecil and Ida Green Professor at University of Texas at Dallas. He is the head of the department of bio-engineering. All views below are his.
Innovation in India
(Dr. Mathukumalli Vidyasagar)
The URL contained the same introduction but not the 14-page special section. So I do not know what was in the article. In any case, it is good to see HT take up this topic; but I wanted to add a few observations, based on my having spent the past 20 years in India working in R&D, first in Defence Research Development Organisation (DRDO – under former President Kalam) and later in Tata Consulting Services (TCS). Before proceeding to my main points, I would just like to add one caution: We should not interpret “innovation” very narrowly as “something that gets noticed by the West”. That would be just a post-colonial hangover.
1. Indians have been at the cutting of edge of innovation for decades; but they have not reaped the benefits of it, and have allowed others to retain the IP and attendant benefits.
2. There are no true angel investors in India, only early stage investors.
Let me elaborate each of these points.
I. Indians have been innovating for years!
Contrary to what many in the English media believe, Indian IT companies have been providing cutting-edge solutions for years now. Way back in 1986, the world’s first workstation based on the Intel 80386 microprocessor was built by Wipro! More recently, when the iPod was launched, the chipset had to be designed and tested in an extremely tight time schedule. The only way in which this could have been done was to split the work between San Jose and Hyderabad. Thus one could say quite rightly that the first version of the iPod was at least half designed in Hyderabad. TCS’ project for Ferrari to allow them to analyze and fine-tune engine performance in near real-time is another example. So it is not exactly news to us insiders that Indian IT companies have been providing state of the art solutions in a variety of domains.
The main shortcoming has been that, for the most part, Indian companies have NOT BENEFITED from these contributions. In almost all such instances, the work was done on a strictly contractual basis, meaning that the customer retained 100% of the IP, and the Indian company did not benefit from the upside when the product proved a hit. This was due not only to the customers’ insistence, but also to the reluctance on the part of the Indian IT companies to envisage any model besides MSAs (Master Service Agreements), hours billed, head counts, etc. For instance, in one case which I am not allowed to mention due to confidentiality, I could actually browbeat our account manager to retain the IP with TCS for a very high-profile project (after he swore up and down that the client would never agree — but they did!). But AFTER that, there was zero interest in packaging and commercially exploiting the IP — WITHIN TCS! “Work once, earn once” is the only model that everyone at the top of the Indian IT companies understands, and they simply don’t “get” the model of “work once, earn over and over again”.
Of course merely owning IP does not by itself lead to revenue. One has to invest in packaging, marketing, sales, customer support, upgrading, etc. With its remarkable success in its current business and revenue model, Indian IT has grown complacent to the point of hubris, and simply does not feel the need to do any of this. They are not investing in R&D even when they are making 20+% profit margins, because they are more interested in squeezing an extra “point” (that is, 0.01%) of profit margin, than in investing for the future. Imagine that not a single Indian IT company is investing more than 1% on R&D, and other than Infosys, no other company is investing more than 0.25% on R&D! This is truly a scandalous situation. No business model lasts forever, and one day our IT companies will also be knocked off their perch. When that happens, they will have nothing to fall back on.
II. There are no angel investors in India, only early stage investors
It is often repeated (usually by people who know nothing about such matters) that the reason why India does not have so many start-ups is that Indian society places a stigma on failure, which is not there in the USA. This kind of psycho-sociological babble is very popular with certain types of people. The truth of the matter is that the VC community in the US is basically a highly incestuous community (the politically correct term is “networked”) that looks after its own and mans all barricades against the rest.
Living as I do in Dallas, which as everyone knows is home to a lot of billionaires but not a lot of VCs, I often say jokingly that it is far easier to generate an endowment in Dallas than an angel investment!
In India, by and large people with money are far too cautious in making angel investments and counting on the law of averages to work in their favour. Instead they make what are in reality early stage investments, once the idea has already been proven. This cultural difference limits our Indian start-ups to very “cheap” ventures (by this I mean ONLY that failure is inexpensive, and nothing more!).
I have often been amazed as to why our successful businessmen, who have many hundreds if not thousands of crores, do not simply invest up to 50 lakhs in a wide range of start-ups. If only a few of them would find the courage, I think our Indian scene would be transformed.