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Strengths and Weakness of Indian Enterpreneurship

An interesting discussion started off on my school alumni group.  While one guy felt that Westerners are more enterprising than Indians are.  Another countered really well by giving great example like that of Dhirubhai Ambani and Narayana Murthy, who started real late in their lives.

My contention is that there is some truth in both their assertions.  Some thoughts on the subject.

1. All you need to know about the Indian (Sub-continent’s) spirit of enterprise is the success of microfinance as an industry.  We have heard of Grameen Bank… but India has Spandana Sphoorty Financial Ltd. – which has a market cap of Rs 1800 crore and lends money to small poor families.  I was at the recent TieCon in Boston and its firebrand CEO was there.  Not the most articulate woman – every word was interspersed by “means.. like…” – but she shut off two fairly articulate people and made everyone her fan, including yours truly!  She spoke fiercely and directly.  On top of such a huge enterprise she has built, it is important to remember that the ROI for her business was 60%!!

Add to this the success of the Cooperatives from AMUL/NDDB stable – which I have seen very closely due to my education at IRMA – and you have an idea of how ordinary poor people, when given just a semblance of resources can take on giants within a matter of a few years.

2. In my eyes, there are two stories of Indian entrepreneurship that are truly amazing.. where the incumbents had all the advantage and Indian upstart had everything wrong going for him.  First is Mahindras and second, the Gujarati Jains in Antwerp’s Diamond trade.

Mahindra sells tractors in US through MahindraUSA.  They are #2 now in the Southern region – which is very tough to get into – only behind the old favorite John Deere.  It is not a usual success story… they have made almost personal relationships with the families and have a relationship that somehow supersedes the one that American companies have built. (Check out the community tab from the menu in the link above).

Antwerp, Belgium is the center of diamond trade which was ruled by Jews.  I think around 10 years back Gujarati Jains entered that area and started multiplying.  Within a matter of 5 years, almost 50% of the entire diamond trade was in their hands.  To date, Gujarati Jains in Antwerp are the ONLY example of someone defeating Jews on their hometurf in business related to money/jewels.

3. Personally, I have a very low opinion of Indian IT industry.  Their only success was to institutionalize and promote the cost arbitrage to the world outside.  Having worked in all the Big three of Indian IT now, I am convinced that their core competence is “abuse of employees”.  Their future seems bleak since “Cost” as a strategic advantage has never been a sustainable competence to bank upon unless it is backed by a strong process advantage – like Walmart’s Supply Chain or that of Netflix, Amazon etc.

4. Indian businesses rely on trust and word.  In fact Indian society in general works on that, and despite the fact that we got colonized by Islamic invaders and then the British has not taught us anything.  Before the Islamic invasion, wars were fought by rules in India.  A war may be fought – but if the farmers of the opposing side were tilling their fields or a family from the other kinddom wanted to go to pilgrimage to a temple in your kingdom, you wouldn’t harm them.  But when the Islamic invaders came they would kill everyone in sight and plunder everything that was of value.  Hundreds and thousands would be killed in matter of days… which included farmers, priests, religious people, warriors etc.  That was a paradigm shift.  The only two who understood the basic flaw of fighting by rules and adapting their strategies according to the times were Shivaji and Guru Gobind Singh.

Now, this has implications for Indian businesses as well, as Western enterprises do NOT work on word or trust and indeed try strategies that would not be taught anywhere.  It is not unknown how big enterprises have used colonial power and or the might of their native country to swing deals in their favor.  Specially the Aircraft companies like Boeing and Airbus do that regularly.

However successful Mittal and Ambani may have become, it is a fact that they employ their kith and kin at the top.  Mittal is famous at turning around lossmaking steel plants by sending his trusted lieutenants.

It is obvious that they both did well to build substantial scale.  But their success is based on individuals and NOT a system or a process.  These are not the kind of enterprises that will last – constantly decontruct and reconstruct – like IBM or say a Unilever did.  It was Dhirubhai’s luck that he got a son like Mukesh.  Otherwise, this second generation would have done him in.

5. Western way of working is NOT based on “Trust and Word” but rather it is assumed that the other will not keep his word.  Then what?  That is why all the business laws were written by them, which helps to scale enterprises.  Another advantage they have is the thoroughly ingrained understanding of one simple principle – “Principal-Agent”.  Until you can keep safeguards to manage that relationship, your business can run well.  That’s what creates scale and has also created business models like Franchises.  Indian Lala, on the other hand, has to be sitting himself (or his kith) on his “Galla” to succeed.

6. Tatas and Birlas are not business successes, but political successes.  For 60 years, every export and import flowed through them at a set commission of 2%.  Iron and Steel had “Cost Plus pricing” – and everything spent on building Jamshedpur was paid for by the Indian common man.. to which 15% was added as profit for the Tatas.  They usurped PRIME real estate in Bombay etc. to set up research institutes, which they did a good job of no doubt, but these buildings also served as Corporate offices.

So, there is some truth in what the friends said.  The main issue, however, is how to create a Shivaji or a Guru Gobind Singh in today’s world of business such that he/she is able to introduce a business model that is truly revolutionary.