With India’s engineering colleges now churning out around 1.5 million engineers every year, there is a huge deficit, by the world standards, of newer and better products coming out of India for use by India and the whole world. This paper studies the reasons for lack of successful product development and manufacturing enterprises coming out of India, and tries to make a broad proposal on steps needed to be taken by the incumbent and forthcoming governments to create a Technical Entrepreneurship Ecosystem.
Background
After the beginning of the industrial revolution in the Great Britain, the European nations prospered by creating finer products and services, and selling them to the world market. The Europe colonized the whole world in order to source resources, both natural and human, to fuel its industry and find huge markets for the fine products and services it produced. Post World War II, although colonialism was no longer feasible, the new world economic order and liberalized economies across the world allowed the nations producing finer products and services to prosper or stay prosperous.
Post first half of the 20th century, product innovation became the primary method to keep a nation prosperous. The United States of America, acting like the innovation powerhouse of the world, established itself as the undisputed economic leader of the world. The US could not achieve this without an entrepreneurial ecosystem which facilitated creation and growth of corporations which did product innovation and created pretty much everything we consider modern: integrated circuit, personal computer, the Internet, email, Facebook etc. This is not hard to realize that the developed world stays prosperous by always looking ahead for things the world is going to need or want in the forthcoming decades and produce innovating products to fulfill those needs. To understand this phenomenon, let us take a look at the economic activity in the world today. While an increasing number of nations are getting industrialized, they are also getting polluted at a faster rate. In other words, they are accumulating modern day problems. In such a scenario, startup and established companies in nations like the US are busy investing and working on products related to clean technology. When the so called developing countries like China and India start thinking of themselves as fully industrialized developed nations, they will be looking to import expensive products and services from the traditional west which has mastered the art of staying ahead through product innovation.
This discussion builds up a case for an urgent need to focus on creation of an ecosystem for technical entrepreneurship in India, in parallel to increasing focus on making India an industrialized nation. Forthcoming governments, while vowing to create an effective national manufacturing and industrialization policy, must also vow to create technical entrepreneurship ecosystem in India with same seriousness. We have high chances of failing as a nation in the increasingly globalised world economy if we industrialized heavily and only tried to replace china to become the manufacturing hub of the world. We must, therefore, additionally strive to replace US to become the innovation powerhouse of the world.
Current state of affairs in India
A successful attempt at product innovation involves successful investing, engineering, manufacturing, marketing and selling. Let us begin with discussing engineering as a necessary ingredient to successful product innovation. Concept of a sellable product could get conceived in the mind of an investor, engineer, marketer, seller or a potential customer, but it is an engineer who can take a product from a mere concept to a selling product in the market. With a rapid rise in number of engineering colleges and increased interest in taking up engineering as a career in India in last two decades, India now produces around 1.5 million engineering graduates annually. A vast majority of these engineers end up working in IT and software services sector companies. While a boom in last two decades in IT and ITeS sector in India has helped generate employment, increase the GDP and increase the size of the middle-class who is helping fuel the economy through increased consumer spending, it has resulted in a much of India’s technical talent getting wasted in doing outsourced IT work for multinational companies. A highly skilled talent base, which could help fuel rapid nation and capacity building efforts, is being highly underutilized due to lack of an existing ecosystem.
On a positive note, a good percentage of these engineers are enthusiastic about being an entrepreneur and trying to convert their ideas into a sellable product. Most of these enthusiasts, though, get nowhere in absence of an ecosystem which could facilitate them to take their ideas from being just ideas to tangible products selling in market. Let us study two cases: first case where absence of an ecosystem prohibits being able to produce simple products with huge markets, and another case where presence of an ecosystem facilitates converting ideas into selling products.
Case 1 : Enterprise in absence of eco-system
Two years back a Chinese solar toy Flip-Flap [1], a cheap replica of an old Japanese toy, was in news and was selling briskly in Indian market. One could find this toy on dashboards of most of the cars in Northern India.
This toy was sold in India for INR 50 to 100. This toy was manufactured in a small village of China by a very small company. They got it patented [2] and sold several million pieces of this toy in India.
Let’s assume if an Indian entrepreneur came up with this idea and wanted to manufacture this. In order to make this toy, he would have broadly needed to manufacture/procure following parts:
1. Plastic shapes
2. Small solar panel
3. Magnetic coil
4. Small PCB (Printed Circuit Board) with some circuit
5. Small gear system for to and fro motion.
A talented entrepreneur-to-be, who has the ideas and technical capability to productize such a toy, would not be able to produce such a toy in India for lack of an environment conducive for rapid prototyping and production of new items.
Case 2 : Enterprise where an eco-system exists
Let’s take example of another enterprise for which ecosystem does exists to some extent n India now, or ecosystems outside India can be leveraged through Internet. If one had to develop a web based product or service fifteen years back in India, one would have needed to set up following:
1. A dedicated web server with OS and all security related software.
2. A 24 hour fast speed internet connection
3. 24×7 power back-up.
4. A fixed IP address
5. Marketing instruments (TV ads, printed paper ads)
Setting up all such infrastructure is still very expensive and a small budget entrepreneur cannot afford this. But today, infrastructure for creating, owning and selling web based products and services exists in India, or can be purchased/maintained from outside of India. Here are some of the things easily accessible to entrepreneurs-to-be who wish to create a web based product or service:
1. Third party web hosting services are available through Indian and foreign vendors. An entrepreneur has a variety of non-expensive and customizable subscription plans available for use and purchase during a given phase of working on his product – from prototyping/experimentation stage to large scale commercial selling stage. Costs of such hosting services have come down due to development and adoption of technologies which allow sharing resources to multiple entrepreneurs and entrepreneurs-to-be.
2. One can start marketing campaign using social media and advertisements on services like Google and Facebook, with budgets as low as INR 100 per day.
Result of availability of such an ecosystem is that so many young entrepreneurs are working on developing web based innovative products and services. Recently, an Indian product startup, Little Eye Labs, was in news for getting acquired by Facebook in a multi-million dollar deal [3].
The product technology developed by Little Eye Labs was as complex as any other product coming out of the silicon valley of the world, the bay of San Francisco. These are the indicators telling us there is no reason why we cannot beat the Silicon Valley in creating enterprises like Facebook, Google, and Microsoft from our very own cities like Bangalore, Hyderabad and Noida. We only need to focus on strengthening the infrastructure/ecosystem available to entrepreneurs and entrepreneurs-to-be. As a proof of our capability, let us have a look at Indian technological product startup company acquisitions by global companies in 2013 in table 1 [4].
Table 1: Startup Acquisition in India
| Indian Startup | Acquiring Company | Space |
| CruxLight | Kno, Intel | Information Summarization |
| Bitzer | Oracle | IT Security |
| RedBus | Ibibo Group | Travel |
| Novel | Concert Care | Hospital Management Systems |
| BuythePrice | Tradus | Catalogue Management Systems |
| Converged Solutions | Comguard | IT Distribution |
| Jigsee | Vuclip | Mobile Video Streaming |
A noteworthy point here is that all of these Indian startups created purely software products. We need to analyze why there are no noteworthy product startups in India in the vast product space outside that of software-only products: smart toys, baby/infant products, education systems, furniture and fittings, home appliances, electronic components, mechanical components, to name a few.
Identification of steps needed to create the ecosystem
The Case studies and the review of acquisitions of Indian startups in the last section suggest that the Indian entrepreneurs can do very well if a proper infrastructure and ecosystem is available. In this section, we discuss some of the potential steps that can create an environment conducive for manufacturing and technological innovation in India.
Let us look at different phases an enterprise needs to go through to able to sell a new product in the market:
Fig.1: Product Development Phases
For a young and/or technical entrepreneur in India, prohibitive difficulties start appearing in phase 4, where he/she needs to be able to do rapid product prototyping and needs to source necessary components or equipment in small quantities for experimentation, refinement and perfection of the product under development before it could be considered to be ready to go for production and later, market. The ecosystem to enable an entrepreneur to do rapid prototyping of his product is completely missing. As far as manufacturing is concerned, manufacturing of simple, old fashioned or copied products is still possible, but:
- There is a huge entry barrier for young and technical entrepreneurs.
- The process is time consuming.
- Due to lack of modern manufacturing facilities, the manufactured finished product might not meet the targeted quality or price.
It is understandable that revamping the manufacturing ecosystem and policies might take a relatively longer time on ground by a determined government. Although the objectives to overhaul manufacturing policies and giving a big push to manufacturing sector might already be on the radar of incumbent or forthcoming governments, a focus on providing an ecosystem for rapid product prototyping is missing. Such an ecosystem, we believe, can relatively much easily be built on ground and in much lesser time than trying to build one for large scale manufacturing. If a budding entrepreneur could somehow quickly reach the phase where he is ready to enter the manufacturing phase, the most difficult part of his enterprise might already have been solved. An enterprise, ready to go to manufacturing with a promising product, might already be worth a lot and could have following possible progression/exit routes at its disposal:
- Find an established manufacturing partner.
- Get manufacturing done in manufacturing hubs like China. The product startups in USA do exactly that due to low costs of labor in China. Reasons for Indian startups could be different i.e. lack of an advanced manufacturing ecosystem.
- Sell or license the intellectual property (IP) developed to another company which has the capacity or muscle to take the product to market through manufacturing phase.
This paper proposes to invite forthcoming government to take urgent steps to provide an environment which provides budding entrepreneurs with following:
- Shared facilities for Rapid Product Prototyping for chosen product areas, say smart toys.
- Shared facilities for manufacturing of whatever components possible.
- Opportunities to procure seed funding.
- Facilities for assembling and packaging of products.
- Facilities for marketing and promotion.
For the difficult phases of product prototyping and manufacturing, the government can help technical entrepreneurs by setting up shared facilities. This is very much similar to software technology parks where government provides office spaces, with all IT infrastructures (e.g. Cubicles, Internet, Phone, Servers etc.). In proposed prototyping/manufacturing facility an enterprise would be able to submit their component/product designs and place the order even for a small number of units for prototyping, by paying a nominal amount.
Fig. 2: Possibilities of shared facilities by different product development
There was a time when big companies used to do everything from the idea to the end product. Companies like IBM, SUN, and Motorola were doing Semiconductor manufacturing, Chip Designing, Hardware manufacturing, Operating System, Database and several other pieces to make a computer. With the increasing competitiveness, it was not possible for these organizations to continue to do that. Today, each of these companies focuses on the part that is their strength and which they can do better than others. This is where shared manufacturing facilities and an ecosystem is useful.
The Fig. 2 identifies the needed shared facilities in three different product spaces: toys, home security systems and GPS navigation. A government policy could choose to identify a handful of product spaces to promote and begin with working on providing shared facilities and ecosystem needed by product companies in those spaces.
Shared Manufacturing Facilities
The cost efficiency of manufacturing depends on,
- Factories idle time (i.e. capacity is more than demand). A manufacturing facility is designed for a peak load, and during low seasons, idle time is very high.
- Increasing the volume, so fixed cost becomes minimal per product.
For a small company it is not possible to run its factory all the time as output has to be in proportion of demand in market, which keeps on fluctuating and cannot be predicted accurately. On the other hand, with a shared facility, different products or components catering to different domains can be manufactured. As the peak time for demand of manufacturing different products are different, statistically the idle time of facilities can be reduced significantly. Since these manufacturing facilities will have large volume due to orders from different enterprises, they can bring down the operating costs significantly and pass on the benefit to their clients.
Shared Computing resources with expensive IPs and software licenses
If an enterprise plans to come up with an innovative software product (not just a simple website), it might require a whole lot of software building blocks and expensive software licenses. For example, MATLAB – required for advanced mathematical computations, costs USD 20,000 per license for a year. Now for a small enterprise which needs to work on a prototype and use MATLAB just for a couple of weeks, paying for whole year subscription could be too expensive and prohibitive.
This is where setting up shared computing servers/services, IPs and software could be helpful, which could enable enterprises to use expensive IPs, software and computing resources by paining a much smaller usage fee.
Funding
Any serious technical enterprise needs a lot of money to be able to bring its products to market. Hiring highly skilled and talented employees is a necessary ingredient for success and the costs could be prohibitive for a self funded startup enterprise. A budding entrepreneur could think of bootstrapping his enterprise with his paycheck or savings, but this puts a lot of burden on the entrepreneur and dramatically reduces chances of success. Talented and motivated entrepreneurs-to-be are scared of leaving their comfortably well paying jobs to try their hands at entrepreneurship due to lack of a funding ecosystem. The government could do a minimum of following things to provide a basing funding ecosystem to entrepreneurs:
- Setup a startup seed fund and startup seed policy which is transparent and is available to budding entrepreneurs with equal opportunity, limited perhaps only through the measured goodness of the founding team and measured goodness of their product ideas.
- Private equity and seed funding organizations are beginning to take shape in India, but access to them is scattered and not centralized. The government could provide an interface between entrepreneurs and investors – a single window for all entrepreneurs to raise funds.
Marketing and Promotion
Most of the start-ups fail in customer acquisition. Entrepreneurs focus a lot on developing the technology behind the product and miss the most important and challenging part, that is, marketing. Most of the big B2C organizations allocate significantly more budget for marketing as compared to product development. This is hard to do for a young and seed stage technical enterprise.
Thanks to social media, even a common businessman can do some kind of marketing using these platforms, but as of now, the reach of these platforms is very less. The government can help young entrepreneurs by providing several platforms for promotion of their products and services.
- E-conferences
Currently conferences are held in five star hotels or expo-centers where an enterprise needs to pay a large amount of money to showcase their product(s). The government could organize E-conferences using collaborative platforms (like Google hangout), where one can showcase/present their product without spending too much of money.
- Magazines
Publishing an advertisement or article in a mainstream magazine or newspapers is very expensive for a young entrepreneur. These instruments are expensive since sole purpose of these newspapers and magazines are to make money and they don’t have any social responsibilities.
Just the way the government prints the newspaper magazine “Employment News”, government could start a weekly/monthly magazine for businesses in India. These magazines could talk about start-ups in different areas and offer services to advertise them at no-profit/no-loss for young entrepreneurs.
Conclusions
The current eco-system in India is not very conducive for young entrepreneurs for entering into manufacturing and technology product development. Some case studies were presented which demonstrate that if a proper ecosystem is provided, India can do much better in these areas. A proposal was made for the steps that the Government could take to encourage potential young entrepreneurs to become successful entrepreneurs.
References
[1] http://en.wikipedia.org/wiki/Flip_Flap
[2] http://worldwide.espacenet.com/publicationDetails/biblio?FT=D&DB=EPODOC&CC=CN&NR=101352268A
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