May 25, 2012

"An Indian Facebook: A Distant Dream" - By Sanjay Anandaram

The recent Facebook IPO, which valued the 8 year old company with a 28 year old CEO at over $100billion, provided yet another opportunity for many to again ask: “When will India have a Facebook?” or some variation like “When will India build global products?”

While this makes for good discussion, some important points got missed. Namely that Facebook has been applying for a set of new patents in the past few weeks of which the top four published by the US Patent office include new ways of collecting messages from different devices and collating it with socially relevant conversations. And for the record, Facebook has over 800 patents.

While the Indian entrepreneurial ecosystem is changing for the better (pls refer http://startupjourney.blogspot.in/2012/05/it-takes-village-to-raise-child-article.html and http://startupjourney.blogspot.in/2012/05/entrepreneurial-ecosystem-what-is-it.html) with various elements coming together, it is instructive to keep in mind one very important gap – the lack of innovation - in the ecosystem. Innovation – not of the Jugaad or service process or business model variety - in turn emerges from Research and Development (R&D).

The Organization for Economic Co-operation and Development (OECD) defines R&D as "creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society, and the use of this stock of knowledge to devise new applications". Over the past 100 years, the role of R&D in the creation of the leading economies of the world has only increased. In the 21st century, this role will only accelerate.

The Indian picture on this front is dismal:

i) India spends 0.9% of its GDP on R&D with the private sector contributing less than 25%. The corresponding ratio for the US is about 2.7% with the private sector contributing more than the government - remember that the US economy is more than 8 times India’s and so the difference in absolute dollars spent is embarassing. The Indian manufacturing sector spends around 0.2% of sales on R&D while the pharma sector spends about 7%. The much vaunted IT sector spends a negligible amount, if at all. An estimated 150 R&D professionals exist in India per 1 million compared to 4300 in the US and 1180 in China.

A visit to any of the top institutes of our country will rather painfully showcase the fact that industry sponsored research at these institutes is almost always MNC sponsored research. The US produces close to 50,000 PhDs each year while India produces about 9000. The number of Computer Science PhDs awarded each year in the US is close to 2000 while India awards less than 200! That Indian industry doesn’t lay much store by R&D is evident. As the Prime Minister noted in a January 2012 speech at the 99th Indian Science Congress in Bhubaneshwar, “it is ironic that GE and Motorola have created world class technology hubs in India while Indian industry hasn’t.”

ii) It isn’t unusual at all for a startup in the US to be able to sell to large companies or to find much larger partners that help them get to market. Given the brutally competitive nature of that market, innovation is valued as a competitive advantage. The innovation and what it can do – save money, increase revenues, enhance productivity – is valued and dispassionately so, irrespective of the size of the company delivering the innovation. On the other hand, it is incredibly hard, if not impossible, for an Indian startup to partner with a larger company or to sell directly to a large Indian company.

iii) Indian startups too, having been born and nurtured in an environment that isn’t patient and supportive of innovation, are almost always oriented towards quickly spotting and efficiently capturing a new market opportunity. Highly entrepreneurial no doubt but hardly in line with producing “creative work that increases the stock of knowledge to create new applications.”

This article isn’t meant to be a diatribe against startups but to hold up a mirror to the state of innovation culture in India. It will take the concerted efforts, over many years, of the government, industry, academia, research institutes, investors, media, markets and of course startups to change the current culture in a meaningful manner. China has shown that it is possible to effect change.

Many years ago, when a friend interested in doing research left for the US, when I asked him why in my naivete, he replied “In India, R&D stands for Receive and Despatch, not Research and Development!” This Receive and Despatch mindset is visible in areas as diverse as mobile phones to IT services.

The serious ramifications of this kind of R&D is now all too obvious particularly in strategic sectors: - Defence: India is now the world’s largest arms importer making India incredibly vulnerable to external pressures. China indigenization policy is now in full force while we’re still floundering - Telecom: According to a June 2011 paper by Prof Jhunjhunwalla of IIT Madras, India’s telecom import bill in 2009-10 of over $20billion was second only to that of oil! The paper laments the lack of R&D, Design and IPR in India. Isn’t it strange that with over 800m telecom subscribers, we don’t have a single Indian telecom technology company or even an indigenous mobile phone company with some IPR? The entire telecom network of India runs on imported technology. Contrast this with the Chinese approach.

All of us interested in Indian innovation, in unleashing its entrepreneurial potential and in seeing an Indian Facebook emerge, need to sit up, take notice and act in concert.

What do you think?

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings close to two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.