Delhi, January 5, 2010—The biggest challenge and therefore opportunity faced by India is its demographic dividend: there are over 500 million youth under 25 years of age and 350 million under 15 years. Thirty percent of them are in cities. Only a small percentage of these youngsters will obtain university degrees. The majority will need vocational training.

The government has understood this challenge and has set up the National Skills Development Corporation, which is developing policy to educate 500 million people in the bottom of the pyramid in vocational skills. These people will become retail staff, telecom field workers, commercial vehicle drivers, rural consumer sales, mechanics, factory workers, et cetera.

While the scale of the opportunity is huge, the cost of training these workers has to be extremely low, as most of them don’t have any assets and will either have to be subsidized by the government or will have to take loans. Most come from families that are not in the organized sector—in other words, they do not have any concept of structured employment—so the dropout rate is high. Many entrepreneurs have entered the education market in India—the number of new universities and K-12 schools is staggering—but very few are willing to enter the vocational training market, as it is very difficult to make money.

That is why the national government has begun to take the lead in vocational training. For example, the government has taken 150 of 1,500 government-run Institute of Technology (ITI) and entered into public-private partnerships. Other government departments are paying private sector vocational training companies a fixed amount for every person they train successfully.

Most major US universities are engaged in discussions on establishing some presence in India. MIT has been given a five-year contract to establish a Global Health Institute in Delhi. Rumors are that MIT may establish a joint venture business school in India soon. Bob Brown, President of Boston University, will be in India in a couple of days. Boston University just established a new position, Vice President for Global Operations, to lead BU’s efforts in establishing a global presence. India is a key part of this vision.

The current generation in India is called the “why” generation. After generations of being told what to do and how to think by parents, teachers, and other elders, young people are questioning all aspects of Indian life. In the urban middle class they are driving a consumer culture, similar to America’s: coffee shops, bars, cars, clothes. They are also demanding equality for women and gays and in fact getting laws changed to reflect these new social mores. And they are globally savvy, plugged into Facebook, sometimes working for multinationals and traveling abroad frequently.

But the bottom of the pyramid, particularly in rural areas, is completely disenfranchised from this global reality, and how India deals with them in the next two decades will determine whether it remains a pluralistic democracy. A possible alternative is a populist, labor led, violent revolution.

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Delhi, December 29, 2009—The ruling Congress Party turned 125 years old today to muted fanfare. Founded in 1885, it became the main opposition to British rule, eventually coming to power in 1947 when India reclaimed its independence. The party remained in power for 30 years, until losing its position in 1977. Since then it has been in power off and on. One constant has been the leadership of the party, an unbroken line of Jawaharlal Nehru, his daughter Indira Gandhi (assassinated by her Sikh bodyguards), her son Rajiv Gandhi (assassinated by Sri Lankan Tamil separatists), Sonia Gandhi (Rajiv’s Italian born wife), and soon, if his mother (Sonia Ghandi) has her way, Rahul Gandhi. Apart from a brief period of emergency rule brought on by Indira Gandhi in the 70s, India’s messy democracy has somehow kept the country together.

Nehru ruled India for close to 20 years after independence. People have faulted him for taking India down a socialist, planned economy path called the License Raj, with most industries nationalized and bureaucrats deciding who produced what. Free market liberalization began when Rajiv Gandhi came to power in 1984, bringing in a new generation of bureaucrats. True market reform was forced on India in 1993, when the country almost ran out of foreign reserves; the prime minister today, Manmohan Singh, was finance minister then. Nehru is now recognized for establishing world-class institutions that are now bearing fruit: the armed forces research centers, post-secondary educational institutes (Indian Institutes of Technology, Indian Institutes of Management, All India Institute of Medical Sciences), the Indian Space Research Organisation, Central Drug Research Institute, and the Bhabha Atomic Research Centre.

These were institutions of hard power. India has a rich cultural history that was nearly extinguished during British rule. After independence it began to be revived, patronized by the newly wealthy in India and the Indian diaspora primarily in the U.K. and U.S. There were the classical arts and then there was Bollywood cinema. Practically every Indian, rich or poor, knows the words to all the popular film songs from movies of their generation. In a country as diverse linguistically and economically as India, Bollywood has been as instrumental in keeping the country together as democratic politics. As I have traveled around the world, in Asia, the Middle East, Russia, I have been astonished that people have known all the old time Bollywood stars. This is the projection of India’s soft power.

The political class came to power in a time of Gandhian idealism, with the British relatively peacefully extricated from the subcontinent. The political class quickly grabbed most of the reins of power, nationalizing all major industries in the 1950s and 1960s. This power corrupted the political class, some of whom enriched themselves to obscene levels: this is what I mean by the headline “billionaire democracy.” Fortunately, the entrepreneurial middle class is slowly eclipsing the political class, and there is a feeling of inevitable reform of the government’s 40 million employees.

The Partition of India and Pakistan was painful and has been a drag on both countries’ economies and psyches’ since Independence, but India has moved on, remaining a secular democracy driven by a free market economy. Pakistan has remained a feudal state, ruled by a tight political class supported by the military. India is coming to the realization that a stable Pakistan is better for India than a breakup of Pakistan. The middle classes of both countries have similar aspirations; the problem is that in Pakistan the political class is dominant and needs the “threat” of India to stay in that position.

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Mumbai, December 23, 2009—There are now 500 million cell phone subscribers in India. In the major metropolitan cities, penetration rates are close to U.S. levels. A golf caddy, who makes about Rs 300 ($6) per day, has a cell phone so golfers can reserve him for a round. The 500 million subscribers appears to be a large potential market for mobile value added services (VAS) such as cricket scores and Bollywood ringtones. However, unlike the U.S., where an iPhone app can reach tens of millions of consumers, India has a fragmented consumer demographic. There are five dominant cell phone operators in India, each with about 100 million subscribers.

But these operators have to be looked at as 60-80 “companies,” since each of India’s 28 states and 7 union territories is different in language, culture, and, therefore, consumer needs. Most of the cell phone growth is now in rural areas that still retain centuries old ways of living.

Indian startups have learned to operate in a high growth, low cost, and fragmented market. In practically every consumer category, India is the toughest market in the world: in telecom, India has the lowest ARPU (average monthly revenue per user). Which has gone from about $7 to $2-3. India is manufacturing the cheapest car in the world, the Tata Nano, which retails for Rs 100,000 ($2,000). A tandoori roti, which costs $2 in a Boston restaurant, can be purchased for Rs 2, or about 4 cents, in the alleys of old Delhi; a heart bypass surgery which costs $30,000-$50,000 in the U.S. is available for roughly $2,000-$6,000 in India with equal mortality outcomes.

China is following the Japanese and Korean economic model of supporting oligopolies of scale-size companies in every industry with access to low-cost capital. Indian companies, though, are engaged in vicious, even unhealthy, competition that requires constant innovation to bring costs down. Investment capital is costly. Therefore, most Indian companies operate with bare minimum up-front capital investments and a pay-as-you-grow investment model.

I visited an Akshay Patra kitchen, a charity providing free mid-day meals to school children, and marveled at how it is delivering over a million meals daily for $24 per child annually. Operating in 17 cities across India, each location customizes meals to suit local tastes. Such as rice in the south and wheat rotis in the north. Founded by a religious Hindu organization, it is being financially and organizationally supported by a number of IT millionaires, including Narayan Murthy of Infosys and Boston’s Desh Deshpande. Akshay Patra is innovating in manufacturing (specialized roti machines that spit out 30,000 rotis an hour), supply chain efficiencies, and IT infrastructure to manage and track health and success outcomes for the children.

Emerging from the chaos that is India are entrepreneurs who use juggar to get around daunting obstacles: an inefficient and corrupt government, consumers with very little buying power, and infrastructure that cannot keep up with demand. These entrepreneurs, once they establish scale operations in India, will be ready to compete in global markets.

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Jaipur, December 22, 2009—I have come to Jaipur, a major tourist attraction, for the TiE Charter Member Annual Retreat. Some 250 charter members from across the 53 chapters of TiE are in attendance. These are some of the most successful entrepreneurs in the U.S., UK, India, Canada, Singapore, Malaysia, and Japan. The retreat begins with a meeting of the Board of Trustees of TiE, of which I am a member. In addition to a number of housekeeping issues, we agree to accept a proposal to start TiE’s 54th chapter in Brussels. There is a sizeable contingent from Boston, including Desh Deshpande (chairman of Sycamore Networks and an early investor in Airvana and A123Systems), Shikhar Ghosh (founder of Open Market, Harvard Business School lecturer), Venkat Srinivasan (founding CEO of eCredit and Rage Frameworks), Vik Mehrotra (founder and CEO of Venus Capital Management), Jit Saxena (chairman of Netezza), Amit Kanodia (CEO of Lincoln Ventures), and Amar Sawhney (CEO of Ocular Therapeutix). There are few other events that provide such a snapshot of the global health of entrepreneurship.

Not only a major tourist destination, Jaipur is also the jewelry capital of India. Coincidentally, the annual jewelry trade show is happening while I am here. I had a chance to browse the show with my wife. Despite a Rs 400 ($10) entry fee, which is a lot for India, the show has attracted a throng of consumers looking at the latest necklace, earring, and bracelet designs. There is probably hundreds of millions of dollars worth of jewelry at the trade show, and there are a lot of transactions happening. Indian women reportedly buy more gold and jewelry than any other country. No sign of recession in Jaipur.

Jaipur was the seat of one of the richest maharajas in India. It is also an example of how concentrated wealth can spawn the most amazing architecture and art but can also corrupt and unravel dynasties. The Maharaja of Jaipur is now an ordinary citizen with a fraction of the wealth his grandfather had. I am reminded that empires fall for one major reason: being overstretched militarily. This was partly the cause of the fall of Jaipur’s maharajas, as they had to spend a large part of their treasury in fighting wars with neighbors and then with the British. This an important lesson for the U.S,. We are running huge deficits to fight wars in Iraq and Afganisthan, and also to maintain military presence in Europe, Asia, and now the Middle East and Central Asia.

Had a chance to listen to the Standard Charter Bank’s Asia CEO chat about economic issues. Some very interesting insights:

• There are three economic drivers for countries: financial resources (China, Quatar), natural resources (Canada, Australia, Brazil), adaptation to change (U.S., South Korea). Other countries have to pick one of these strategies
• The U.S. consumer has been the driver of the world economy over the past few decades, now the U.S. consumer has to spend less and save more, whereas the Asian consumer has to spend more and save less, something the Chinese consumer in particular will have to learn to do.
• There are huge consumer spending growth opportunities in China and India: the U.S. consumer buys an average of 7 pairs of shoes annually. Chinese and Indian consumers buy 0.1 shoes per capita.
• Retail forms 0.2 percent GDP in India (in spite of having 15 million shops), Walmart alone is 0.3 percent GDP in the U.S.

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Driving from Delhi to Jaipur on the Delhi-Jaipur highway, December 17, 2009—The new 10-lane Gurgaon highway, opened a year back, is already at capacity. The first 30 miles. through the industrial suburbs of Delhi, are stop-and-go traffic. The Maruti-Suzuki car factories and Hero-Honda motorcycle factories and their parasitic ecosystem for auto jug manufactures ring the highway. Commercial trucks, many of them dilapidated and overloaded and lumbering along at 15-20 mph, make up two-thirds of the vehicles on the road. There is a murky haze over the highway, and the industries we are passing by and the winter sun feel distant. The trucks have grizzled, unkempt drivers, many with a navigator/helper riding shotgun with his arm hanging out waving on overtaking vehicles, who blast their horns for added caution. Like in America, these trucks are the blood, and the roads the arteries, of the economy. Unlike America, but like many other things in India, they are inefficient, but supported by abundant, therefore low-cost, labor.

I am back in India after 10 months, ostensibly attending the TiE (The Indus Entrerepreneurs) charter member retreat and the annual TiECON India conference (dubbed the TiE Entrepreneurial Summit or TES), this time in Mumbai. The theme of the conference is Jugaar, a very Indian management concept, or lack thereof. Jugaar means to cobble together a solution to a problem quickly and with no planning. Markets around the world are changing more rapidly, driven by labor mobility, online commerce, and technology. Planned economies and business culture in places like Japan and Germany are at a disadvantage. India, perhaps, has an advantage with its Jugaar culture in supplying to fast-changing markets. Of course, in markets such as creating and maintaining physical infrastructure, Jugaar is a disaster, and that is evident in India.

This Jugaar management style that Indians, including Indian-American entrepreneurs, employ can be advantageous in fast-changing, or shall we say chaotic, environments. The dotcom era was just such a period, and Indian-American entrepreneurs, especially in Silicon Valley, thrived. A similar environment exists in India today, with rapid urbanization and a growing middle class that wants all the same products and services Americans are used to. India has bounced back from the recession in less than a year, with record car sales in November. Annualized GDP growth dipped to 6% at the depth of the recession, but is back to over 8%. Unlike China, this growth is driven by domestic consumption, not exports or government spending on infrastructure. Entrepreneurship is thriving in India. TES has 2,000 people registered. By comparison, TiECON in Silicon Valley, the largest gathering of entrepreneurs in the U.S., had 4.000 registrants in May 2009, and TiECON East in Boston had 800.

[Editor's note: As he did last December, Xconomist Vinit Nijhawan has returned to his native India touring and reporting on its innovation culture and community. This is his first travelogue post from December 2009. You can find a guide to last year's dispatches here.]

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I joined Boston University (BU) as a Lecturer and Executive-in-Residence in January 2008 and have been teaching courses on entrepreneurship to MBA students. My academic career has expanded recently with two projects.

First, I am collaborating with a friend and colleague Vivek Wadhwa at Duke University (I’m now an Adjunct Research Scientist at Duke’s Pratt School of Engineering) to expand on his study about the impact of entrepreneurs on technology startups in the U.S. We are researching the impact of skilled immigrants on other sectors such as academia, retail, hospitality, healthcare, etc.

Second, I am launching the BU Kindle mentoring program to educate faculty, students, and alumni to facilitate early stage business formation. BU Kindle provides a unique opportunity for seasoned entrepreneurs and business executives to have direct and meaningful interaction with the BU community.

The Boston University Kindle Mentoring Program

MIT has several mentoring programs that have been instrumental in the institute’s success at commercialization and company formation. The MIT Enterprise Forum, the MIT Venture Mentoring Service (VMS), the catalyst program at the Deshpande Center, and the MIT-HST Biomatrix are providing mentoring services to different constituencies.

BU has 3,900 faculty, 2000 laboratories, and 13,000 graduate students and received $336 million in external research funding in FY2008 (July 2007-June 2008). According to the Association of University Technology Managers’ 2006 licensing survey of US and Canadian institutions receiving more than $250 million in research funding, BU was at the bottom of the 3rd quartile for research dollars spent per license granted.

BU Kindle is a step towards accelerating commercialization of BU intellectual property and to encourage BU faculty and students to launch commercial ventures. BU Kindle will connect BU faculty and students to seasoned entrepreneurs and business executives in Massachusetts by creating a custom mentoring model based on the ones at MIT, including the MIT VMS.

BU Kindle joins several other programs at BU that support and encourage commercialization:

Additionally, BU created ITEC, the Institute for Technology Entrepreneurship & Commercialization, in 2007 with the mandate to integrate entrepreneurial activities across the university. ITEC has developed several innovative programs, including eSPRIT (Entrepreneurial Students Participating in Research and Innovative Technologies) and a $50K business plan competition for students. Furthermore, BU students run several entrepreneurial focused clubs where students gather to learn about opportunities and form teams to pursue opportunities.

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Boston, Tuesday, January 20–I have been back from India for about two weeks and have had time to reflect on my trip and to view my hometown of Boston with a fresh pair of eyes. The front page news in India was about Satyam Computer Services’ $1 billion fraud and India’s impotence in stopping Pakistani-supported terrorism. Back in Boston the headlines have been been about Madoff’s $50 billion fraud and Israel’s Gaza war. The flat world indeed!

Satyam’s fraud is being compared to Enron, though it is likely that Satyam, with hundreds of Global 1000 customers, will survive. Ramalinga Raju, the former chairman of Satyam, and his brother are being held in jail; Madoff remains in his $7M apartment on bail. As I think about these two events, I am struck by one commonality: the ability of smart people to fleece others in their close communities.

In the case of Madoff, the global Jewish community is shocked at how he defrauded several Jewish philanthropies and individuals of billions of dollars. Raju comes from a tight community of Rajputs (the warrior class who are predominantly in northern India) who came to Hyderabad to serve the Nizam, or King, in pre-colonial times. Raju comes from a landowning farming family with strong connections to the state of Andhara Pradesh (AP), whose capital is Hyderabad. He has a web of connections to the business and political elite in AP, who will find it difficult to distance themselves. Likewise, I imagine the Jewish community is concerned about the negative image of the community as a result of Madoff’s misdeeds.

As is evident from all the strife around the world, humans are still drawn to their communities. The U.S. is increasingly settling into like-minded communities who overwhelmingly vote Democrat or Republican. Having just watched President Obama’s inauguration speech along with a couple of hundred people in the cradle of American democracy, the town library in Lexington, I am hopeful that the divide-and-conquer colonial era is drawing to a close. We have the first brown-skinned leader of a predominantly white-skinned country, son of a citizen of Kenya, a former British colony. In his inaugural speech Obama said “our patchwork heritage is strength not weakness,” and I truly believe that both the U.S. and India share this patchwork heritage. The Indian peninsula has seen inward migration from the first humans to leave Africa 60,000 years ago to Aryans from Central Asia, Muslims from Turkey, Jews from Spain, Zorastrians from Persia, and Christians from Europe. In spite of these migrations, or perhaps because of the relatively peaceful integration of these immigrants, for hundreds of years India was the richest region on the planet. The U.S. is now the richest country in the world, and the citizens of the U.S., in choosing Obama as President, have astonished people around the world, many of whom live in former European colonies.

Barack Obama has a unique opportunity to lead the U.S. and the world into a new transnational era, jumpstart a post-carbon economy, bring about free trade in goods, and solve major post-colonial border disputes (Kashmir, Palestine, several in Africa) that will go a long way to weakening the foundation of Muslim terrorists. Just as he energized a new U.S. generation by using the new person-to-person medium of the Internet to transmit his message, perhaps he will directly communicate to hundreds of millions opted-in cell phone users across the globe with a new message: “Let us build, not destroy.”

Boston and Massachusetts are at the center of this new transnational era. Many of Obama’s close advisors hail from universities and public institutions in the Boston area. The children of the political and business elite from many countries around the world come here to study, and whether they stay or return form bonds with native-born Americans that last a lifetime. A formal social network of Boston-area alumni would certainly span the world and keep Boston relevant in the 21st century…calling all entrepreneurs!

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Mumbai-Delhi, Tuesday, December 23—I boarded the overnight train to Delhi at Bombay Central Terminal (the mixed use of old and new city names for Bombay is a metaphor for old and new India—the old structures retain the original Bombay, and everything new is named Mumbai). I had forgotten to print out my e-ticket and was prepared to battle/sweet talk my way onto the train. My last train ride in India was over 20 years ago, and I have a lasting memory of patiently standing in a queue that never moved to purchase a ticket, as people kept muscling their way to the front of the line. Getting on the train required sharp elbows and more than likely the conductor had sold your seat to the highest bidder. The contrast this time was stark. I had to pay Rs.50 ($1) to get a ticket printed out on the train. The familiar red-clad coolies/porters were still around, but there was no need for their help; the boarding of the train was orderly, seats were assigned, and the conductor was Amtrak-like amiable.

The train departed Mumbai on time, the orderlies prepared my bed in the four-bed compartment with spartan but crisply laundered sheets, and I promptly went to sleep. A couple of hours later I was joined in my compartment by two gentlemen who had boarded at an unknown station. I was on the Rajdhani express, a series of overnight trains between the metropolitan cities in India. My ticket had cost about $65, a flight would have been $110. I wanted to experience train travel and get a sense of the geography of India’s industrial corridor running between Mumbai and Delhi, encompassing the modern states of Maharashtra, Gujarat, the central state of Madhya Pradesh (MP), the tourist state of Rajasthan, and the largest and one of the poorest states in India, Uttar Pradesh (UP). I was traveling on the most expensive ticket on the Rajdhani; the least expensive was about $1.50.

I woke up at the crack of dawn when the porter entered the compartment to offer tea. I watched the sun rise over a misty, flat landscape. Everywhere I have been in India the sky is hazy. I cannot ascertain if it is industrial pollution, winter mist, or smoke from wood fires, or perhaps a mix of all three. Even here in the countryside the sky is hazy. It is as if the entire country is an incense-filled temple. The passing landscape is a dusty brown and is dotted with patches of green marking small farms, stunted trees, and an occasional herd of cows. Every 30 minutes or so we pass through a small town with a train station. Garbage is strewn everywhere on the tracks, and occasionally there is a garbage dump alongside the tracks at the edge of a town, with foraging pigs and cows.

One of my companions is a Sikh gentleman (see photo) whose cell phone jingles a bhangra ringtone every few minutes. He appears to be a little under the weather and sleeps in between calls and occasional visits from people on the train: “Papa-ji kaisay ho!” (How are you, pops?). Just passed a larger town called Ratlam. We must be in MP, since this where my wife used to get off to go to Indore, the capital of MP, and onto the hill station of Mau to visit her aunt.

The landscape is greener now, dotted with yellow fields of mustard, irrigation-fed no doubt as the last rainfall was likely during monsoons in July/August. The train passes over largely dry riverbeds. Power lines and telecom towers are everywhere. Motorcycles and trucks wait at level crossings. Kachrod station passes by in a flash of yellow walls and red bougainvillea. A field of cotton with a dozen men and women hand picking. A southbound flatbed freight train passes by, our train slows down with jerky braking, dwarf palms dot the sides of the tracks. I recall Yasheng Huang of MIT mentioning that India is a tropical country while China is a temperate country and life is more difficult in tropical climates. Two days before Christmas I am sitting in an air-conditioned train looking out at laborers working in what appears to be hot sun. In the bathroom I poke my hand out the open window and the air feels cool. We fly by Nagda, a larger town in MP. I have a conversation with a porter in the hallway. Apparently this is a special Rajdhani that runs during holiday periods. He says that it is not as luxurious as the daily Rajdhani from Mumbai to Delhi.

I don a long-sleeved t-shirt as the AC is slightly chilly. I have managed to avoid … Next Page »

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Pune, Monday, December 22—I visited the cerebral city of Pune, 120 miles southeast of Bombay (Mumbai), on the Deccan plateau. Pune is the closest parallel city to Boston, with a multitude of universities and government research labs. I attended high school in Pune over 30 years ago. The city was unrecognizable, with huge population and industrial growth. While no Detroit, the automobile industry has a big presence in Pune. It is the headquarters of Bajaj, the largest worldwide manufacturer of two-wheelers (scooters and motorcycles), and three-wheelers (those ubiquitous yellow-black auto rickshaws that Hollywood sees as a caricature of India). Tata Motors builds trucks, buses, and now cars in Pune. My father had brought us to Pune, called Poona in those days, to help launch the Tata Motors truck plant in 1970. Pune has also become a growing IT hub of product development outsourcing.

I thought I might escape the crushing traffic jams of Delhi, Mumbai, and Bangalore while I was in Pune; I was mistaken. If there is a symbol of modern India, it is that of honking cars and two-wheelers crawling along at walking pace. The three-lane toll expressway from Mumbai to Pune was just like the Mass Turnpike; we were cruising at 70 miles per hour. However, it took two hours getting out of Mumbai and two hours to get into Pune, covering about 10 miles in each case. India’s transportation infrastructure cannot keep up with the growth of vehicles on the road. Most of the vehicles in India are in the four metropolitan cities, with Delhi alone adding about 1,000 new vehicles per month. India cannot emulate the U.S. and depend on roads alone for transportation; it has to build a public rail transport system in cities.

The intercity railway network is the largest in the world, with over 2 billion passengers transported quarterly. I have decided to take an 18-hour train journey from Mumbai to Delhi in first class sleeper. I booked the trip online at the Indian Railways website in just a few minutes. The Indian Railways is one of the few government departments that has improved service for the public in the past few years. The Railway minister in Parliament is the erstwhile Lalu Prasad, a breathtakingly dishonest politician who as the Chief Minister of Bihar brought that state to terminal economic decline. In true American style, he has reinvented himself as a competent federal minister, earning a case study at Harvard Business School.

Bangalore’s new airport was delightfully efficient and clean ,and I have heard that the new airport in Hyderabad, the life sciences capital of India, is even better. Air travel is cheap and generally a delightful experience within India. Railway station and airports will soon be connected to urban public transport. Delhi, Bangalore, and Mumbai are all building a metro system, with Delhi clearly in the lead.

The electricity grid in India is notoriously unreliable. Most of the problem is due to demand outstripping supply. It is also due to the enormous leakage of power, ie power that is stolen with the complicity of corrupt municipal officials. As a result, there is a huge industry of distributed backup power; every house and office has battery backup, UPSs, and diesel generators. The noise and air pollution from these backup generators can be experienced at any retail marketplace. With the nuclear cooperation agreement signed with the U.S. (and France and Russia), India is embarking on construction of a dozen or so nuclear reactors. India is going to buy this reactor technology from these countries, and there are billions of dollars of business up for grabs. From what I have heard, U.S. companies are in third place.

India’s biggest infrastructure challenge is that of clean water. Most of the country receives rain only during a 2-month-long monsoon season. The rest of the year water is available from the ground or glacier-fed rivers. Municipal water is generally contaminated and available for only a few hours a day. Most people augment municipal water by buying water from private suppliers who ship it in tank trucks. Every house and building has water storage tanks that need to be cleaned regularly so the water doesn’t get further contaminated. Every house also has a water filter to produce drinking water. Bottled water is common and a must for foreigners like me.

Amongst the Christmas greetings I am receiving on my Blackberry is one that has a hilarious comparison of cow economics in various countries: Indian corporation, you have two cows, you worship them; Chinese corporation, you have two cows with 300 people milking them, you declare full employment and imprison the journalist who tries to tell the truth. U.S. corporation, you sell one and force the other to produce the milk of four cows and then hire a consultant to analyze why the cow dropped dead! Feels bizarre reading emails from Detroit about cows while I gaze out at scrawny cows nibbling in the fields we are passing by.

[Editor's note: This is Part 6 of a travelogue written by Xconomist Vinit Nijhawan, who is in India visiting venture capitalists and startups with an eye to bridging the Boston and Indian startup ecosystems. We published Part 1 on December 5, and you can find a guide to all Nijhawan's India posts here.]

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Mumbai Friday December 19, 2008—The TiE Entrepreneurial Summit in Bangalore was a huge success–the sponsoring hotel was barely able to manage the large crowd. What struck me was how young the crowd was and how aggressive the entrepreneurs were in approaching anyone who looked like they had money to invest.

Speaker after speaker lauded the “demographic dividend” offered by all those young people and to be reaped by India. Implicit in this comment was that this group would be well educated. Everyone by now has heard about the Indian Institutes of Technology (IIT) and the Indian Institutes of Management (IIM) and perhaps even the All India Institute of Medicine (AIIM). These fine institutions graduate just tens of thousands students annually. There are many other engineering colleges and management institutes, but the most are not graduating world-class talent. This is even more evident in high school. The elite private high schools (Cathedral, Campion in Mumbai, and Sriram, Modern in Delhi) are excellent, but most Indian teenagers in the metros get subpar education at public high schools. In smaller towns the options are even fewer.

Nonetheless, the kinetic energy of these young entrepreneurs is infectious. One young man bewitched our table with tales of a multitude of startup companies that had been selected by his cleantech non-profit for fundraising help. These varied from electric scooter companies to biodiesel producers. A couple of us were ready to start a company to import scooters to the U.S.! The unwritten story behind these eager entrepreneurs is the hard work they have put in to get to where they are. It starts in elementary school. Most students put in a full school day (including hours of commuting), and then take extra tutoring to prepare them for entry exams to the elite private high schools. To get entrance to an IIT or medical school, students have to study 5-6 hours per day for couple of years, in addition to attending regular school hours. Only one in a hundred applying get into these elite colleges. It is questionable that all this studying prepares Indian youth better than American youth for real world jobs, but it certainly instills a strong work ethic.

Traditionally, youth is celebrated in the U.S., but in India age (read wisdom) is respected. This seems to be changing, especially in the workforce. An executive search professional I was chatting with said that many executive jobs came with a stipulation that the candidate be younger than 45. With so many young people available, why pay extra for tired, old wisdom?! I don’t know if the average age of Indian companies is lower than that of U.S. companies, but the senior ranks certainly seem younger.

TiE is launching a chapter in Tokyo, and I had a chance to discuss Japan’s new-found fascination with India with the founders. Apparently the Japanese were taken aback that many multinational companies in Japan suddenly began to have Indians as the managing head. Japan has always had a historical fascination with India, the home of Buddhism, but the country was always considered an industrial backwater. With the success of its IT and especially automobile parts companies (Toyota Kirlowsker’s plant in Bangalore produces as reliable parts as Toyota’s Japanese plants, or more so), aging Japan appears to have discovered talented India. There are hordes of Koreans and Japanese on all the elite golf courses in Delhi and Bangalore!

[Editor's note: This is Part 5 of a travelogue by Xconomist Vinit Nijhawan, who is in India visiting venture capitalists and startups with an eye to bridging the Boston and Indian startup ecosystems. We published Part 1 on December 5, Part 2 on December 8, Part 3 on December 10, and Part 4 on December 16.]

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Bangalore, December 15—For 45 years after independence, Indian companies for all practical purposes operated without competition. Monopolies were granted by the government for extended periods. Many fortunes were made, both by industrialists and corrupt politicians. Consumers had to wait years for “luxury” goods such as cars and telephones. This began to change in 1992, when in the face of an economic collapse the Indian economy began to reform. Slowly, industrial sector after sector was opened up to multiple competitors, even foreign ones. The IT industry evolved slightly differently, as the government babus (bureaucrats) were so used to regulating physical goods that the industry was able to export its bits and bytes via satellite links without intervention.

Today India has hyper-competition in many industries and consumers are the net beneficiaries. There are five major wireless carriers with about equal market share (contrast this with the U.S., which is rapidly moving to a duopoly of Verizon and AT&T). As a result, cell phone voice calls in India are the cheapest in the world. My monthly cell phone bill in Boston averages $120 or about $4 per day. I am spending about 50 cents a day in India. (But cell phone conversations in India still tend to be quick and short, which I can only attribute to how costly phone calls used to be just a few years ago.)

There are a multitude of startup companies offering value-added services in this vibrant ecosystem. I met a young engineer who had bootstrapped a company to offer mobile Internet advertising services to brands. He was saying that the growth of mobile Internet usage in rural cities was exploding as small scale businessmen had no other way to access the Internet for relevant content such as local weather, crop prices, etc.

Similarly there is significant competition amongst domestic airlines. The customer service on these airlines reminds me of flying in the 1980s in the U.S. Call centers that respond within seconds, ground staff that is friendly and efficient and best of all, in-flight service that astounds (I just had a flight attendant service a bathroom after a particularly long-winded customer!). My sister-in-law just flew from Delhi to Toronto on a Jet Airways flight and said it was the best business class experience she had ever had, and she is a frequent and demanding flier. I was conversing with an executive at the biggest training school for airline staff and she said that they train about 2,000 customer service reps annually. Only the crème de ala crème make it on to planes as flight attendants, and yes, looks are an important criteria.

In contrast, almost any government-run service is horrendous. Delhi’s domestic airport was mobbed at 5:30 a.m. for early morning flights. Security was overwhelmed and chaotic. I witnessed a shouting match between a patiently queuing customer and someone jumping to the head of the line because they were late for a flight.

There are exceptions, of course. The entire city of Delhi appears to be under construction, with an extensive expansion to their 4-year old metro (subway) underway to be ready for the Commonwealth Games in 2010. Crews are literally working 24×7 with minor disruption to traffic. I contrast this to the Winter Street exit off Rte 95 in Waltham, MA, where the repairs on a single bridge have been going for over three years with no end in sight.

Interestingly, elections are hard fought in India because politicians end up in personally lucrative monopolies. Since they may be in power only for a single term, they try to extract as much graft as they can. Government-led corruption is the bane of emerging economies from democratic India to autocratic China. Fortunately, India has a highly competitive press corps that is valiantly trying to inform the public about government’s misdeeds. In the aftermath of the Mumbai terrorist attack, some politicians’ heads rolled as a result of press coverage of their ineptitude. In the U.S. no leader lost their job as a result of the security lapses in advance of 9/11.

Nevertheless, the Indian public would gladly trade the U.S. public sector for India’s. Perhaps our multitude of outsourced government contractors should set up in India and begin lobbying for outsourced services from the Indian government, a win-win situation for both countries!

[Editor’s note: This is Part 4 of a travelogue by Xconomist Vinit Nijhawan, who is in India visiting venture capitalists and startups with an eye to bridging the Boston and Indian startup ecosystems. We published Part 1 on December 5, Part 2 on December 8, and Part 3 on December 10.]

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New Delhi, December 10—The housing meltdown in the U.S. got me thinking about the property market in India. With the dramatic urbanization and growth of Indian cities property prices have skyrocketed. In good neighborhoods in Delhi prices have increased 100x in 30 years. I met a small dairy farmer who supplied a neighborhood with milk from a few cows by bicycle who had sold his property for $2 million (see picture below).

Property and property rights, or the lack thereof, is a central theme in free market India. India has national, state and municipal laws supporting intellectual and physical property but enforcement of those laws is weak. This is especially the case in housing. In India possession is more than 9/10 of the law—it is the law. In a situation similar to rent controlled properties in some U.S. cities (remember rent control in Cambridge?), there are millions of tenants who occupy properties, pay nominal rent and cannot be evicted.

Land is an emotional issue in India. Hundreds of millions of farmers still make a living off their land. The size of the average farm has decreased since independence as generation after generation has subdivided land among their children. In the cities single family homes have grown into multi-story apartment buildings with each floor given to a child as inheritance. Even the mighty Tata Motors was forced to move their Nano car plant from one state to another because small farmers protested against having their land taken by eminent domain. While India is a mobile society, people tend to retain their ancestral land. This creates a shortage of properties for sale, especially in old established neighborhoods in cities.

Most Indian families I know have a property dispute within the family, generally resulting from inheritance. The legal system is slow and corrupt and it can take upwards for 10 years to resolve disputes (it is very easy to delay the legal process by bribing clerks and even judges). As a result possession has become the instrument of choice in such disputes. When the second parent passes away the children start moving themselves or their relatives into parts of the property to stake a claim. Naturally this creates discord within families. Feudal India is never far from the surface of 21st century India.

In contrast, intellectual property is well protected in India. Partly as a result of joining the WTO and the fact that most ordinary people are not affected by IP, it is not politicized and the courts generally act quickly to resolve disputes. A colleague who returned from California to take care of an ailing mother with Alzheimer’s is running a product development outsourcing company. A couple of his employees naively showed software source code they were working on to a competitor in the process of a job interview. Subsequently a major U.K. competitor of their U.S. customer came out with an identical product. My colleague was able to sue in the Indian courts and put his employees in jail.

[Editor’s note: This is Part 3 of a travelogue by Xconomist Vinit Nijhawan, who is in India visiting venture capitalists and startups with an eye to bridging the Boston and Indian startup ecosystems. We published Part 1 on December 5 and Part 2 on December 8.]

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Chandigarh, Sunday, December 7—I drove straight north from Delhi to Chandigarh about 300 km, on a much improved four-lane highway. Chandigarh is a planned city that was designed by the French architect Le Corbusier in the late 1950s. It remains a delightfully livable city that the rest of India has failed to emulate. I am attending the wedding of my cousin’s daughter, a recent dental school graduate, to a young engineer who works with Tata. The local TiE chapter has also invited me to speak to their members tomorrow.

I have met several entrepreneurs who have returned from the U.S. to take care of aging parents and then set up businesses here. Chandigarh is considered to be a tier 2 city (tier 1 being Delhi, Mumbai, Bangalore, Kolkata, and Chennai), in the same league as Pune and Ahmedabad. In reality those cities are far more industrial, including technology-related industry, than Chandigarh. There is a nascent life sciences industry forming, especially around agricultural products: Chandigarh is the capital of Punjab, India’s bread basket. However, most of the entrepreneurs I met had small outsourced information technology businesses with customers primarily from the U.S..

There is an excellent engineering college in Chandigarh, and I had the chance to meet with the director of the college, Manoj Datta. He is busy setting up new degreed programs to respond to industry needs. For example, he was evaluating a graduate program in biomedical instrumentation in conjunction with a local biological institute. We had a vigorous debate about the viability of that degree, along with the head of Philips Labs from Delhi. Philips Labs are creating new products for emerging markets by launching them first in India; they support all Philips divisions, including the medical division in Andover, MA. For instance, they recently launched a UV water purifier that is more effective than charcoal filters. Tainted water is a big problem in India, as many tourists have found. The public water supply is invariably contaminated and almost everybody has a water purifier at home. Boston University has a world-renowned public health department that has projects in India; I need to connect them to Philips Labs and Punjab Engineering College.

I had an interesting conversation with the CEO of the Usha Group, which has been making ceiling fans and air conditioners for many years. He showed me a cell phone that they have launched in tier 3 and 4 cities in India. The cell phone is manufactured by an ODM (Original Design Manufacturer) in China to their specifications and distributed via thousands of cell phone retail distributors. Usha has been struggling to differentiate itself on grounds other than price. To illustrate how powerful this can be, the CEO told the story of an upstart competitor that had inferior products but had stumbled onto a need in the rural marketplace for phones that had long battery life. Electricity is not readily available in most India villages and is unreliable when it is.

I asked him if he had considered differentiating on the cell phone user interface, perhaps by using the Google Android operating system and then customizing the UI for rural India consumers. I will discuss this further with him when I return to Delhi.

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Editor’s note: Xconomist Vinit Nijhawan is in India visiting venture capitalists and startups with an eye to bridging Boston and Indian startup ecosystems. This is the first in a series of dispatches.

New Delhi, Thursday, December 4—I arrived in Delhi near midnight off a packed flight and to a crowded international airport, no sign of any slowdown in activity as a result of the recent terrorist incidents in Mumbai. The cool winter air is thick with construction dust, there is a new airport being completed and an extensive subway system, including a line running to the airport.

My first task was to get a local SIM for the Sony Ericsson phone I borrowed from my son. I went to a Bharti Airtel customer service center in a south Delhi market in Lajpat Nagar. It was packed with about a dozen customer service reps, a payment kiosk, and about 20 customers. The rep looked at my phone and said that it was locked to the Rogers network (my son goes to college in Canada), and I should go down the street to a shop to get it unlocked, and that it would take two hours.

I then went to get a passport photo taken at a nearby shop called ìKodak Expressî and paid $1 for 8 color photos. I went back to the Airtel shop and filled out an application for a prepaid account: my photo, passport information, and local address was attached to the application. I was told that my SIM would take a day to activate after my application information was verified. This was a new procedure as a result of foreign terrorists acquiring India cellphone accounts to escape being tracked. Seems like the recent terrorists were a step ahead: they bought satellite phones in Dubai to communicate with their handlers in Pakistan.

The entire experience with getting a local phone service was much more cumbersome than activating a phone in the US or Canada. Then again, I imagine if I was an Indian citizen visiting the U.S. and walking into an AT&T store, I might also have to wait a day to get activation. I was astonished by how many stores there were all over south Delhi offering mobile phones and services. With 300M subscribers, up from about 100M when I was last in India two years back, it is becoming a huge industry here.

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I have been part of the entrepreneurial ecosystem for over 25 years, mostly as an entrepreneur but also as a VC and angel investor. I firmly believe that the symbiotic relationship of entrepreneurs and smart capital is the key to economic development around the world.

I have spent the past six years either running VC-backed startup companies or as an investor at Key Venture Partners. Here are some of my observations from my time on the Dark Side:

* If one rates what it takes to be a successful VC partner, sourcing deals is usually the number one task. Therefore it is surprising how many VCs are slow to respond to phone calls and emails from entrepreneurs, even when referrals come from trusted sources.

* The VC business requires long term thinking but very few VC partners are willing to invest in relationships with entrepreneurs that may not bear fruit for years. I believe that those VCs that develop long term relationships, tend to outperform those that don’t.

* Being a VC is learning how to drink from a fire hose. In the two years I was a VC I sourced 220 deals and invested in one company. That doesn’t count all the other deals that we discussed in partners’ meetings. One has to develop judgment on a deal very quickly even if it means that you may decline what turns out to be a good deal.

* My philosophy in dealing with entrepreneurs was that I always gave something back to them for the time they spent with me. Even if I declined to invest I would give them a VC or customer lead, or some advice about their business. In my view, this created the foundation for a longer term relationship. Many VCs have lost sight that they are service providers to entrepreneurs not the other way round.

* As experienced entrepreneurs know, not all VC partners add value to their portfolio companies. Some can even add friction to the governance process and can be distracting for management. Usually this results from differences in opinion about exit timing but also sometimes from ego issues.

* I thought hard about how we as a firm might add value to our portfolio companies. One area that a CEO is responsible for but always seems to get relegated to lower priority, because day-to-day operations take precedence, is exit planning. At Key Ventures we developed an exit template for all our portfolio companies that included: investment banks with relevant focus, analysts, potential acquirers (and we built a relationship with their VP Business Development), public company valuations, etc.

* It is known that serial entrepreneurs matched with serial VC partners generally leads to successful companies. The problem, in my opinion, is a shortage of serially successful VC partners in the US and especially in Massachusetts. I have joined Boston University’s Institute for Technology Entrepreneurship and Commercialization and will endeavor to address this shortage by researching what makes the good ones so effective and then teach these best practices to aspiring VCs.

* The symbiotic relationship between entrepreneurs and VCs is recognized as the best way to develop an economy. It has been over 60 years since General Doriot and others founded American Research & Development Corp. (in June 1946), the first organised venture capital firm. In 2006 venture-backed companies’ revenue made up 17.6 percent of the GDP and 9.1 percent of private sector employment in the US according to the NVCA. Similarly China and India have accelerated their economic growth rates as a result of unleashed entrepreneurial energy in the past 20 years. The rest of the world is now adopting this model.

* I believe this model needs some tweaking in the US as it gets applied to new innovative industries such as life sciences, energy and nanomaterials.

(Editor’s note: This article also appears, with other interesting information and insights, on Vinit Nijhawan’s own blog.)

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The acquisition of BCGI (Nasdaq) by Megasoft (Bombay Stock Exchange) for $65M that was announced yesterday continues the trend of Indian telecom software companies acquiring European and North American companies. Driving the trend is the growth of telecom, particularly wireless telecom services in emerging markets, particularly China and India. China now has 400M+ subscribers and India 150M+. Indian telecom technology companies are benefiting as suppliers to Indian wireless service providers. India is a highly competitive wireless market with five equal players generating profits at subscriber monthly revenue of $8/month (as compared to $50/month in the U.S.). Suppliers to wireless carriers have to provide their products and services at a third of the price they would garner in the U.S. or Europe. As a result these suppliers are very competitive globally. Additionally the capital markets in India—both venture and public markets—are frothy, so Indian telecom companies can readily raise cheap capital for acquisitions. Indian telecom companies can reduce the operating costs of any U.S. or European acquisition and thereby make money-losing companies such as BCGI immediately profitable. Also the Indian rupee has been appreciating against the U.S. dollar so acquisitions are becoming cheaper for India companies.

BCGI is yet another story of a Boston company that was not able to diversify its product and customer base in boom times and as a result was not able to survive setbacks in tougher times. BCGI provides outsourced prepaid billing services to U.S. wireless companies, and their largest customer, Verizon, decided to bring prepaid billing in house. Additionally, BCGI lost a patent case, and the resulting payouts crippled them financially.

I predict we will see many more acquisitions of Boston-area technology companies by Indian and Chinese companies (especially if China strengthens its currency). Sadly, this continues the trend of local companies selling out, first to Silicon Valley, and now to Bangalore and Beijing.

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