The great squeeze: small companies in India

This morning I figured that Rahul Yadav of Housing.com is trending again. This time not for another round of nasty and outright cocky comments but for donating his equity in Housing (worth INR 200 Crores) to the company’s employees. It still is money on paper if seen by the way of traditional business sense in India – that money realized is only when it shows up on your books. Housing.com still is a valuations game with no revenue stream. In our company, the conversation was not so much about Housing.com as much as it was about Yadav’s outburst against Sequoia and other big VC firms in general. My partner and I felt that it was a genuine frustration with these VCs who are no less than glorified gamblers betting on horses. The kinds for whom nothing has mattered ever, besides money and numbers projecting growth of the company. The animosity is genuine, we think.

In our company, we have had a couple of extremely disgusting experiences of getting exploited by some very big companies in India which has caused us to re-calibrate our perception of the value and existence of ethics among Indian companies. While VCs are one camp which has a fair number of reported unfair practices in India, the other is the large Indian companies who contract out work to smaller companies and often hand out an outright raw deal to them. And that is why Yadav’s outburst seems well found to us.

Our company Weaver Technologies LLP is into business of providing technology solutions and data analytics to businesses and non-profits in lifesciences, healthcare, environment and legal sectors. We offer turnkey lab setups, instrument as well as data analysis across these sectors. A recent instance is of a big Indian company which asked for our firm’s consultancy services to set up a water quality testing lab for them. The General Manager of the company was handling this work directly. As the usual practice in the sector goes, lab designs and detailing is a charge service. Smaller companies can’t afford to not charge for this service. From site visits to sending final designs it was over a month long process or slightly more. Our mistake – a) we didn’t insist on a written agreement/ToR; and b) we were tempted by a substantial lab commissioning contract.

As soon as the designs were sent in which also included a list of instruments to be procured for the lab, the company’s senior executive ceases all communication! We have not heard it till this day from him. The water quality testing lab however, was a sure thing to be commissioned. This experience left us feeling vulnerable and frustrated. The trust we had in this big company’s name stands shaken. Our experience suggests that Indian business environment is one of least amount of ethics or respect or dignity of labour. And it especially is true of the behaviour of large Indian companies. Incidentally, another group company of the same group had earlier refused to pay one of our partner the consultancy fee for his services in spite of agreeing to pay for it in the beginning. Our mistake – the same! No ToR signed. We went by faith. 

The great squeeze I am talking about here is – the tough operative business environment in India where working capital loans are hard to come by (for smaller companies) and very little supporting policy landscape in businesses like ours where the entire instruments market is serviced by non-Indian companies. This reliance on instruments (like gel documentation systems, thermocyclers, spectrophotometers of all types, laboratory infrastructure, testing instruments etc) from foreign companies is at an absurd and ridiculous level in India today. The fact that there are no homegrown companies manufacturing these instruments is not because Indian companies do not have the know-how or tech expertise, it is mainly because doing products in India is not easy. Manufacturing is a capital intensive business as well as it requires policy support so that Indian manufactures can be promoted and preferred at least for procurement by Indian establishments. Such a large market demand as of India is totally serviced by foreign companies. Plus, the taste for all things “foreign” among Indians. That’s another killer. This is not to overlook the quality standards and precision that instruments made by companies in Europe or North America have. They are very well made. But, given a chance Indian companies too can match it! Given a chance ! One would argue that why ask for a chance and why not prove yourself… but lets face it. The modern world, of the time in which our company exists and plies its business is not so straighforward and simple. Trade is complex and so are many business areas. International trade more so is not about fairness by any measure. There are commissions to be made, kickbacks to be had and alliances to be favoured. That is what makes a large Indian laboratory procure products of one company over its competitor’s. It is not always about quality or performance.

While small companies reel under this largely unsupportive business environment and get stone walled often, the other wall closing in is that of the bigger companies fleecing smaller ones off, cheating them or shortchanging them. This looks like a rant, but if there were to be a show of hands, I think in Bangalore alone we could fill a 250 seater auditorium with aggrieved small companies. This is the squeeze we feel ourselves into, this year in particular.

This is not to cry about it. We have stuck out and had a good run for over six years now and we sure will continue to grown. That markets are tough, only the fittest survive and that companies must prove themselves in this space … is known and acknowledged. All this is acceptable if its a fair fight. Not when the rules are applied differently for players. And moreover, when rules are dispensed with by the powerful! That’s unfair. The point of this post is to highlight this adverse business environment and the squeeze felt by smaller companies in an unfair, needless manner. Rahul Yadav’s burst is a good thing in that sense, even thought some see it as a career suicide by a promising young entrepreneur. Rough and straight is necessary sometimes!

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The Beautiful Fabric – Govt & Businesses

Anil Agarwal of Vedanta Resources Plc (Image: The Hindu Businessline)

Anil Agarwal of Vedanta Resources Plc (Image: The Hindu Businessline)

With waters getting polluted, small and big fishes are affected equally. Perhaps in proportion to their size. It appears quite similar in business as well, where a stifling, unsupportive and corrupt operating environment of a country affects its own potential as well the businesses operating in that country. Last week I wrote of how we could improve our chances as a small Indian company in Sri Lanka if we can also find a supportive Indian government. I spent the entire morning reading this interesting and refreshingly candid interview with Vedanta’s Anil Agarwal. He notes that “the structure of our public sector is a beautiful fabric. We must have 250 to 300 huge private sectors.” What follows next is in my opinion a very progressive view which is also not so common among Indian business leaders. He says,

Government may divest, but why divest to the industrialists? It can divest 51% in the market and let the shareholder drive the company. We have intellectual CEOs. They will come in as CEO, take quarter or 1% in stock options, and will make it a world-class company and these 250 companies have the potential.

During our undergraduate years, a bunch of us frequently discussed his audacious business moves, his company’s acquisitions (and 13 of them in 10 years!) and his rise from a scrap merchant to a formidable natural resources mining and processing giant. Ambition at this scale is our generation’s weak point. In this generation we see safer dreams. These dreams are laden with dotcom gentleness and a certainty that they can always manage a good ‘valuation’ at the end of 2-3 years even when the company would not even produce an ounce worth of real value. The targets are always about getting ‘covered’ by the magazines and leading websites. Without scorn, I find that this has moved the new breed of entrepreneurs in India away from raising some hardcore, value creating businesses which have the potential of reinforcing core sectors of the economy without which the service led growth can do practically nothing. Several of these well performing managers, engineers and professionals occupying the Indian and global boardrooms were kids of parents who worked in several public sector enterprises in the numerous nondescript towns of the country – Bhilai, Raipur, Rourkela, Durgapur, Ranchi, Vizag, Salem… the list is endless. Yet what we now see is that right from the parents to the working kids themselves loathing public sector as a career option. They have their reasons in place. And this is not unidirectional. The problem is on both the fronts.

Anil Agarwal to us at the company has made a lot of sense. This is of course to those who have cared to listen to him beyond the usual allegation of Vendanta’s apparently exploitative business moves which many dub as criminal neglect of indigenous people’s rights in states like Odisha. The other side of the coin are these views, which should be noticed with equal keenness as those reports which vilify mining and natural resources extraction. On this he adds,

I am against illegal mining but the legitimate businesses have to go on. As far as iron ore is concerned, I really felt bad when Goa mining was banned and with what happened in Karnataka. The Supreme Court gave the order six months back but we are still going from table to table. The entire economy of the area and 7,000-8,000 people are just sitting idle and waiting for the mine to open.

The collapse of mining towns like Bellary are well documented by several magazines and activists groups, but with an intention of it being a trophy article for the respective magazine. What is ignored is that the situation is as observed because mining is a legitimate enterprise and that businesses must be extended proactive support in terms of clearances and licenses from the government. Agarwal’s thoughts on working with the government are pretty much the same that have driven us at our company in the past five years i.e. align oneself according to what the government wants and keep giving suggestions as you go along doing your business. In our work we have followed it. We have picked up contracts with state governments, followed them through and tried improving their processes wherever we got an opportunity. This we find is a constructive approach than going out in a direction which refuses to acknowledge the reality of the presence and role of governments. That is naivete.

The larger observation that is being driven here is about seeing government not as those sitting across the table with sanctioning powers to bring upon. As Agarwal says and we reasoned earlier, “we have to sit on the same side of the table.” What follows is also the reason I have often cited for why there isn’t any difference between a “business” and a “social enterprise” and that businesses are social anyway. Agarwal puts it assertively,

It is very important because we (business) create the value, we crate the revenue, we pay huge taxes, and we create employment on a large scale. It is important that we all sit together.

So, just as it is for the big fish, so it is for the smaller, that, we are in the same waters. What affects us, is also echoed by one of the largest Indian corporation. That for us is an affirmation.

 

Sri Lanka, India & Small Businesses

skyline_galleface

This has been a busy week with fieldwork, travel and working on our business. Last evening I caught up an aidworker friend, who is taking a break from the regular string of assignments by doing something different – consulting on projects which are easy in their pace and aren’t quite critical as the ones he has been working on in troubled geographies like horn of Africa and South Asia. The conversation led to some insights into the civil situation in countries that he has worked in and incidentally they are those in which we plan to expand our scientific instruments business. Businesses and aidwork have a lot in common we find. With this, Sri Lanka was back in our discussion, which made me realize that it has been over two months since I traveled to this country and over a year for my friend @praveenasridhar. So, we had three different points back in time to talk about this country, with the aidworker amongst us having seen some serious action as we worked in Jaffna during and at the end of the war against LTTE. The three of us seemed to agree on the fact that it is essentially a military rule in the country and could get more stifling as the country goes ahead. The military pervades all the sectors of their economy.

Colombo appears busy late in the evening which is unlike pre-war days

Colombo appears busy late in the evening which is unlike pre-war days

A new found assertiveness (perhaps military regimes are always so) and a trend of being vocal about its position on larger issues which have implications in the international arena can be seen. The Chief of UNHCR’s visit and the British Prime Minister’s visit during the recently concluded CHOGM are two instances. India’s Subramaniam Swamy, a senior BJP leader was in Colombo participating in a defense seminar organized by the Sri Lankan army apart from UNHCR’s visit during the time I hung around on the streets of Colombo and counting the number of heavy duty cranes dotting the city’s skyline from the Galle Face road to the port. Both these visits made headlines in the daily newspapers and for reasons which the Sri Lankan government is sure very edgy about. The country has apparently moved on except those whose family members have disappeared, killed and who turned refugees in those years of the war. The senior politician from India spoke of India’s stand on the Sri Lankan tamils – that they should expect no support from India and that the expression of concern in Tamil Nadu for their cause was a ‘knee jerk’ reaction by the local political parties. This was interesting because it came just a day ahead of India’s offer of building two submarines for Sri Lanka in its Goa shipyard. These are in addition to the two warships given to Sri Lanka in 2007.

bigaudi_militaryguard

Eight weeks later, we hear the Indian PM announcing that he will not attend the CHOGM. This speaks volumes about the messed up situation back home in India when bilateral relations with Sri Lanka are concerned. The ruling UPA government chooses not to attend CHOGM in Sri Lanka (no reasons given, as far as I know) and a prominent leader of opposition party on a visit to the country says India has moved on and supports the Sri Lankan government. This is quite frustrating as this flip-flop has affected business between the two countries.

After the war, the country is booming with economic activity especially large infrastructure projects. Almost all of them have gone to the other big neighbour of India. In addition to this the perception of Indian businessmen in Sri Lanka is that of opportunistic men with little business ethics to show. In the post-war Sri Lanka there are good chances that rule of law and economic growth will pick up and the country might even race ahead in measures like FDI, exports and revenues earned through the major port project in Colombo. Elsewhere, the Indian automobiles company Mahindra and Mahindra launched several of its models in the Sri Lankan market today. They are bullish on the market here. Observing the general business environment and markets here has been a very interesting experience. Colombo’s skyline is a busy sight. Construction cranes working in all directions, Chinese workers, a massive theatre still being given finishing touches, a busy management and finance faculty at the University of Colombo and with the massive port cranes shadowing from the western end, the economy seems to be picking up traction.

All of these could generate tremendous business opportunities for small companies like ours. Indian diplomacy as well as the government is to be blamed for not making good use of this opportunity. The strong and forceful voice of the regional parties from Tamil Nadu is a major impediment to the process. This is not to argue that we must turn blind to the human rights abuses that have happened in the war. But hasn’t India dealt (and traded) with nations proven to have engaged in human rights abuses earlier? What of the business with Myanmar? India has perhaps the strangest ways in its diplomacy. And as we try venturing into newer geographies this ambiguity and strange behaviour on the international front is being felt stronger.

So, going ahead small companies like ours would benefit immensely if the diplomacy and bilateral relations between the two countries are not arbitrary. The game is different for large companies as they have the resources and size to get in without much requirement of facilitation from their home governmnents. Bilateral relations should definitely have a long term view than looking at smaller and politically inconsequential events like CHOGM. This wasn’t so crucial politically for India but nevertheless could have sent a very positive message (of India being a responsible, valuable partner in the group and available as a support for smaller countries) had the PM attended it. The other aspect is that of using its size and power responsibly. A similar arbitrariness is prevalent in India – Bangladesh relationship as well. It is about time that Indian diplomacy starts working for its small and medium enterprises than printing those blue catalogs and organizing boring expos on business opportunities in the subcontinent.

On a sharper note just one way that Indian missions abroad could have helped (no, those FICCIs and CIIs are not for the smaller fishes like us. They are too busy abroad for their patrons than helping smaller companies in a proactive manner) is – when we got into the country looking for opportunities to do business, a small information booklet on business in Sri Lanka and current trade including a directory of companies in the country could have been very helpful. Next, they could back us up with introductions and meeting facilitation with Sri Lankan businesses. Whereas, the fact is that one needs to make a great effort in getting in touch with Indian officials in that country for whatever reason that one might want to.

“Transformative” Use: Authors Guild vs Google

googlebooks

For those who have followed theAuthors Guild vs Google Inc case (which has been on for over 8 years now) would know that the court has ruled in favour of Google’s book-scanning venture, ruling against the charge that this will deprive authors of their income from their books.

The District Court judge used a rather interesting term to define the reason for this verdict. He says, Google’s move in scanning the books (over 20 million of them is Google’s target) amounts to a “transformative” use of the knowledge generated by authors in the form of these books. This I find is a progressive interpretation of a company’s venture with no direct commercial use specified. Google’s lawyers have been categorical in specifying that scanning of books and making them available on the internet (not complete books but snippets) does not “directly” add to their revenue. Besides this curious use, it is worthwhile to know about the emergent understanding in the judiciary that technological advances can create situations in which the choices to be made may not be clear and no simpler answers to them exist. In cases such as this, then what matters is the perception and understanding of implications of ventures and how it would also set a precedent for similar cases to follow.

I had a slightly different point to make about Authors Guild. First, which age are you guys living in? Second, did it even make sense to spend all those millions on litigation, preserving your imagined status quo? If not google books, the pirates on those zillion p2p sites are anyway uploading a world of books and making it available for readers across the world. So either way this is bound to happen – that books will get digitized, they will be available for a larger set of users across the world and technology will always prove disruptive for older order. But not all is bad about it. Authors Guild finds it problematic to acknowledge that increasing availability of snippets of books online is turning favourable for its authors, by providing visibility. And a genuinely interested reader is sure converted into a customer if the book is worth his interest. Isn’t this the way it happens in bookstores across the world. And why do the authors then undertake a book tour (frenetic and breathless) if they aren’t interested in reaching out to newer readers? This is being done and in a much economical way by making the books available online.

Besides the fact that the general perception of this book-scanning company is that of being evil in their intent, not everything that they do is evil. And as far as this venture is concerned, I am a satisfied user who has discovered new books, accessed old out of print, hard to access books as well as gone ahead and bought some by using Google Books.

Bottomline is that technology has been disruptive for a wide range of businesses. Some emerge in the face of newer technologies and some become obsolete immediately. Such an environment calls for a renewed ability to see that fighting the pace of invention and development of technologies will be wasteful. Instead, thinking about how to stay relevant in the new technology environment and to prepare for it, appears a more workable strategy.

In our company, we have risen through and established our development sector consulting practice by locating ourselves in the direction of the change that technology is effecting in functioning of organizations and their processes. And hawking old ideas in the changing business and technology environments ain’t a wise thing to do.

HBR’s pricing and access to knowledge

(Image: clker)

(Image: clker)

An interesting discussion is brewing on FT with a Rotman School academic – Prof Joshua Gans suggesting that FT should knock-off Harvard Business Review (HBR) from its research component in FT45 ranking of global MBA and EMBA programs. While he acknowledges the quality of papers from the journal, he is clear that the publication is restricting access to knowledge which should be free in the interest of learning. It is okay to charge for research papers but the use of other content in the journal for instructional use should not be charged. I like the clarity of Prof Gans’ argument

A mere mention of an HBR article that some students may want to delve deeper into would cost the same as a case assigned as the basis for a three-hour class. Thus, the knowledge created by that journal will be less accessible for the students than knowledge elsewhere. How can it be, therefore, that the FT can consider HBR as a journal that connects students to knowledge creators? HBSP has relegated HBR to second-tier status and so should the FT.

To this, HBR’s Das Narayandas responds that –

Many believe that information should be free, but ideas that achieve maximum impact come at a cost.

This paradox is familiar to us at our small company. We offer data analysis and advisory services to non-profits. And many of the potential clients negotiate our pricing by assuming that information services for a ‘good cause’ should be given for a lower price or in some interesting cases as a pro-Bono service. We have always felt strongly against this practice and of course, gravitate towards Naraynadas’ comment that ‘ideas that achieve maximum impact come at a cost’.

The cost in this case appear to be monetary, but could as well be in other forms. If the information desired is potential enough in improving the processes or outcome in an organization then such an information is a product of substantial investment in terms of time, effort and professional expertise. How does one expect it to be free or cheaper in the interest of whatever!

The idea is not to be insensitive to requirements of those who cannot afford it, but to see that people know and appreciate what it costs to generate such knowledge. After this recognition one can sure explore ways of how can access be facilitated without undercutting the costs of producing it.

And until such time, it could be difficult for businesses to help such situations but rest assured that they have also faced such situations and empathize with others in need.