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Archive for June, 2012

Innovation: the only rescue package for India

The bottleneck is often more important than the pipeline. Graphic courtesy Mitch Ditkoff

If the Europe today is being reckoned as a slow motion train wreck, how should we explain the situation in India? India’s can be reckoned as a situation where a person living happily in a house having deadly radioactive materials and behaving as if nothing is wrong. The radiation unhurriedly but insidiously and interminably performs its task of destruction even as the person lives in blissful ignorance. Let me explain. The demographic dividend of a young population is a short-lived phenomenon of 15-20 years after which the cycle will start reversing. An inherently flawed and underequipped education system is destroying the potential of this young population. A completely corrupt administration has robbed India of good brains and made them lose the incentive to do good work in India. It has also shaken the traditional belief that doing honest work is good and created angst in the country’s youth.

However, by far the greatest thing holding India back is a complete lack of innovation. A ridiculous, rote based, obsolete education system is set to work on a person till around 21 years of age. In these years it is learnt from active experience that thinking differently only leads to lower marks and it is safest to follow the herd and mimic things. No wonder Indians are leaders in imitation. In colleges, technologies that became obsolete 20 years ago are taught to final year students.

How do nations become great? By the same thing that makes a brand or a company great: a differentiating factor. In ancient history, India’s: exotic agricultural products, natural resources and knowledge; Post Renaissance Europe’s: scientific discoveries and innovation in warfare including both technology and tactics; Today’s China’s: cheap and effective labour; Japan’s: innovation; USA’s: all round strategic approach, geographical protection from attack, abundant and diverse natural resources and most importantly innovation.

Natural resources do play an important role in development. The Middle East, Russia, Latin America and most of Africa abound in natural resources. However, their report card in development has been poor. The most successful of these, the middle eastern countries may be rich and developed but have virtually no political and military power and can be crushed underfoot anytime as also clear from recent instances.

The Japanese are by far the best example of how a crippling lack of natural resources can be overcome through a mixture of innovation and sheer hard work. Japanese innovation is visible in their techniques as well as their management style.

Hard work is cited by most people as the most critical determinant of success. I disagree. Hard work could decide success but it is only as good as another differentiating factor. It is also a very weak differentiating factor because people work hard across countries. Hard work works but in conjunction with something else. If hard work were the sole criterion, the Africans should have been the most developed race. After all, they are the fittest and the toughest as is clear from their athletic performance and they have worked the hardest as slave labour.

Today, the Americans and Europeans feed off the innovation they have been doing for centuries. They own the technology and sell it to the developing world at extortionate prices. The free market forces which are supposed to take the price of technology down do not exist as there are huge entry barriers and the companies know that price wars would not suit anybody. Take defence for example. Research in this field requires gargantuan amounts of time and money and there are a plethora of failed products. R&D may take billions of dollars with no guarantee of success. However, once a product is developed companies are able to market it at unbelievable prices. Their competitors may compete on price but they rarely do so beyond an extent because of the high degree of customization in specification in this segment. Indians pay premium money for wearing foreign brands. Have they ever really wondered what goes behind the appeal of the Armani and what it is really worth?

Customization and brand specialization is a concept that beats standardization by hundreds of miles in moneymaking. Standardized products face competition on price, distribution and a plethora of local factors. Their margins are decided and are extremely sensitive. On the other hand, customized products or branded items command their own price. Compare a restaurant and a grocery store. The restaurant may deliver the same food as other restaurants but could claim uniqueness and marketing, décor, ambience or food quality and thus establish a brand. The regular grocery store could almost never claim any of these for charging a higher than market price. No customer bargains in a restaurant. Every customer bargains against vegetables.

The more intangible and non-standardized the value addition the greater the room for profit.

The point is that innovative products make money. Brands make money. We own no brands (Bose audio systems is an exception) and the way we are going we will own none in years to come.

I will be blunt. I do not believe India could ever become even a quarter developed by buying every piece of technology from the West. We need to think big and move higher in the chain to where there is the highest value addition. It is pathetic that top Indian software engineers develop codes for Microsoft while our topmost ‘software’ companies service customer complaints. Out top brains too cannot be faulted beyond an extent. There is very limited scope for them in Indian companies and their natural risk aversion prevents them from starting something on their own.

Our top institutions hardly come out with any groundbreaking research in spite of years of research. Our countrymen have never had an attitude towards research. They are experts at the monkey trick of Palika Bazaar but as far as developing their own stuff is concerned they would never take the risk. Compare the amounts sanctioned towards research in India as a percentage of GDP against Western nations. Most importantly compare the indolence of the bureaucracy towards research with the eagerness displayed by the West. Our bureaucracy takes research as an unnecessary expense that is being borne only because doing away with it entirely could evoke scorn. Therefore they spend the least amount of effort on it.

Most Westerners who have heard of India believe it to be the land of spiritualism, yoga and mysticism. Many of them also know that most of their customer service calls are serviced by ‘those Indian mimics’. This may seem racist but sadly it is true. Mimicking is something of a forte’ for Indians. Just like Indians specialize in copying Lee and Levis jeans, they specialize in parroting American phrases in call centres without even understanding the meaning in many cases. It is something which comes naturally to a generation that has copy pasted 98-100% of their project work. As a student, I have seen classmates taking pride at how ‘brilliantly’ they managed to finish their projects in 20 minutes. It is no wonder that our countrymen are unable to produce anything of their own.

This mimicking ability is itself easily copied. The Chinese, Filipinos or Sri Lankans, to name a few, are increasingly getting more competitive in the outsourcing industry. Outsourcing thrives on English knowing cheap labour and lots of countries have cheap labour. It is a competitive advantage which is transient as far as India is concerned. Even if it were not transient, it is shameful to be proud of an industry that develops no employee skills except for limited English skills and a thicker skin. It is poor way to employ the commerce, engineering, pharmacy and even management graduates that are being industrially produced in our education factories. These graduates are practically unskilled labour unsuitable for any real industry. Our outsourcing industry, however, thrives on them.

Whether we like it or not, till the education system shines and ushers in a new class of students who can innovate, the only memory ‘India Shining’ is going to invoke is the failed NDA poll campaign of 2004.