Why India should scare Silicon Valley

Vivek Wadhwa
Contributor, Innovations November 23, 2011

India’s information technology sector may have started by running call centers and maintaining old computer code for American companies. But, today, instead of starting more I.T. services companies, a new breed of Indian entrepreneurs are developing high-value technology products based on intellectual property.

India’s I.T. industry is entering a new stage. The transition of India’s I.T. industry has been nothing less than remarkable. After helping American companies fix the Y2K bug in the late 90’s, Indian outsourcers started taking on the task of performing sophisticated research and development. Today, Indian engineers design aircraft engines, automotive components and manufacturing plants, next-generation microprocessors, telecom products, and medical devices. Indian I.T. has grown from almost nothing in 1980 to an estimated $88 billion in revenue in 2011 according to Indian I.T. trade group, NASSCOM. The engineering R&D services component of this has increased from $1.4 billion in 2004 to $11.3 billion. It is these R&D workers who are now innovating.

Vivek Wadhwa is a fellow at Rock Center for Corporate Governance at Stanford University, director of research at Center for Entrepreneurship and Research Commercialization at Duke, and distinguished fellow at Singularity University. His past appointments include Harvard Law School, University of California Berkeley, and Emory University. View Archive

Look carefully, and you’ll see that dynamics at play in the U.S. are the same ones at play in India, where entrepreneurs start their tech companies when they are, on average, 39 years old. American entrepreneurs typically have 10 to 15 years of work experience combined with ideas for products that solve real customer problems. They get tired of working for others and want to build wealth before they retire, so they make the plunge into entrepreneurship. India now has hundreds-of-thousands of R&D workers who have the experience and knowledge to found their own companies, and, like their U.S. counterparts, many are taking the risk and starting companies.

I have been traveling to India for the past 6 years to study the evolution of India’s I.T. industry. The first generations of start-ups I came across in Delhi and Bangalore were mostly feeble copies of Silicon Valley companies. They lacked experience, market intelligence, and the depth of management to create sustainable businesses. A few of these start-ups—like Makemytrip and Indiagames struggled through these difficulties and achieved success, but nearly all others failed. Makemytrip now trades on the NASDAQ at slightly less than a billion dollar market cap. India Games was recently sold to Disney for a reported $80-100 million.

The Nov. 9 NASSCOM Product Conclave provided a first-hand look at how the ecosystem has evolved. The event was filled to capacity—1,400 people. The entrepreneurs in attendance were as confident, assertive, and ambitious as those I meet in Silicon Valley. But there were far fewer me-too social media companies and inexperienced founders making pie-in-the-sky projections of revenue growth. Most of the entrepreneurs in Bangalore were seasoned, mature executives focused on solving the problems of India’s infrastructure or taking advantage of its rapidly growing e-commerce marketplace.

Several companies I have been tracking had evolved and proven their products and business models. For example, one company I wrote about in 2010, EnNatura was trying to develop an offset printer ink made from vegetable oil that is entirely bio-degradable and emits no volatile compounds. This would provide an eco-friendly alternative to the offset printing industry which today, according to EnNatura, consumes 1 million tons of petroleum products and emits 500,000 tons of volatile organic compounds every year. EnNatura is now shipping its product to dozens of Indian printers at a competitive price. It is readying its products for Western markets.

Another company that I met last year, Forus Health, just started shipping its pre-screening tool for the early detection of cataract, glaucoma, diabetic retina, refraction and cornea problems that are common in the developing world. Their device, which can be operated by minimally trained technicians in rural India, is portable and sells for a small fraction of the cost of Western alternatives. It promises to save the sight of tens of millions of people.

Several Indian companies have also reached the mainstream. Zoho offers an alternative to Microsoft Office and Google Docs. Its enterprise products boast 15,000 global customers and its Web products have 5 million users, according to the company. It generates more than $100 million in revenue every year. Three-year old Tringme provides a VoIP telephony platform that is used by 11 million users worldwide and the Web sites of corporations like IBM and AOL. One of the most popular charting tools on the Web is Fusion Charts. It has 375,000 developers in 110 countries using its tools to build their graphics.

NASSCOM Product Forum chair, Sharad Sharma, forecasts that India will have at least a $1 billion tech IPO per year for the next 3 years and many more over the next decade. On the top of his list are India’s Amazon.com Flipkart, global ad network InMobi, Zoho, and India’s Groupon-equivalent SnapDeal.

Indeed, on my trip, I saw a number of companies that had great potential. The most exciting of these was an infectious-disease diagnostic tool by a company called Bigtec. It is building a “lab on a chip” that can precisely diagnose diseases like H1N1, typhoid, dengue, and Tuberculosis in less than 30 minutes. Their device is portable (less than 1 kilogram), battery operated, and requires minimal training—so it can be used in rural settings. The point-of-care device Bigtec is developing will cost $2,000 vs. about $30,000 for alternative products, and tests will cost $4-to-$10 rather than the $100 or more that we pay in the U.S.

But something is missing in India: The angel investors, venture capitalists, and, most critically, experienced mentors. This problem will fix itself as more companies achieve success and seasoned entrepreneurs decide to give back to the next generation. When that happens, Silicon Valley better watch out. It is in for some very real competition.

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