India’s Innovation Front Lines, Part 4: Of Hyper-Competition and Corruption

12/16/08Follow @vinit44

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.

Students take a pedicab in New DelhiIn 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.]

Vinit Nijhawan, an entrepreneur, angel investor, and former venture capitalist, is Lecturer and Executive-in-Residence in the Boston University School of Management. Follow @vinit44

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