Vol 2 / Issue 03 / Dec 08
a
publication
/Rs 30
HOW STARTUPS CAN TAKE ON ESTABLISHED PLAYERS
PROMOTING YOUR BRAND WITHOUT ADVERTISING IT WHAT IS A RECESSION? ELECTRIC CARS COME OF AGE IS RECESSION A GOOD TIME TO START A BUSINESS? WHAT IS COMMON IN CHOCOLATES, PERFUMES, CHEESE AND FERTILIZERS? GREG CHAPPELL PLANS TENNIS-BALL CRICKET WORLD CUP; PITCHES FOR INVESTMENTS Flexi-timing and startups Ropeways: Waiting to be tapped Elections will delay an economic rebound Is it better to lease your cars? Doing business in France Harnessing the tides for power
entrepreneur of the month/
D S Narang, Ayur Herbals innovation of the month/
Selling artiďŹ cial grass investor of the month/
Vivek Subramanian, Avigo Managing your noble intent Sanjeev Aggarwal and the growth of Daksh Building a high-performance entrepreneurial culture 100 pages including cover
Vol 2 / Issue 03 / DEC 08
BOARD OF ADVISORS C K Prahalad
University of Michigan
N R Narayanamurthy
Chief Mentor, Infosys
Kanwal Rekhi
Chairman, TiE
Romesh Wadhwani Chairman & President, Wadhwani Foundation Gururaj ‘Desh’ Deshpande
Chairman, Sycamore Networks
Saurabh Srivastava Chairman, Indian Venture Capital Association Kiran Mazumdar Shaw
Chairman & MD, Biocon
R Gopalakrishnan
Executive Director, Tata Sons
Philip Anderson
Professor of Entrepreneurship, INSEAD
Shyam Malhotra Editor-in-Chief Krishna Kumar Group Editor ANALYSTS Ambrish Jha Aswathi Muralidharan Binesh Kutty Mohita Nagpal Vimarsh Bajpai OPERATIONS Ajay Dhoundiyal Product Manager VIjay Rana Design Anil John Photography SALES & MA Jaideep Mario Gabriel Imran Ali Dayanath Levaj Jagadeesh Kingshuk Sircar
MARKETING Associate VP West West South South South-East Asia
PRINT & CIRCULATION SERVICES NC George Associate VP T Srirengan GM, Print Services Sudhir Arora Circulation Services Manager Pooja Bharadwaj Assistant Manager, Subscriptions Sarita Shridhar Assistant Manager, Reader Service Printed and published by Pradeep Gupta. Owner, CyberMedia (India) Ltd. Printed at International Print-O-Pack Limited, B-204-206, Okhla Industrial Area, Phase 1, New Delhi-20 Published from D-74, Panchsheel Enclave, New Delhi-17. Editor: Krishna Kumar. Distributors in India: Living Media India Limited, Mumbai. All rights reserved. No part of this publication may be reproduced by any means without prior written permission.
/cover story
How startups can take on established players?
38
While the first customer could help break the ice, innovation, networking, competitive pricing, and good service quality can help you beat competition
BANGALORE 205, 2nd Floor, # 73, Shree Complex, St.Johns Road, Tel: 41238238 CHENNAI 5B, 6th Floor, Gemini Parsn Apts, 599 Mount Road, Tel: 28221712 KOLKATA 307, 3rd Floor, Ballygunj A.C. Market, 46/31/1 Gariahat Road Tel: 65250117 MUMBAI Road No 16, D 7/1 MIDC, Andheri (East) Tel: 28387241 DELHI D-74 Panchsheel Enclave Tel: 41751234 PUNE D/4 Sukhwani Park North Main Road, Koregaon Tel: 64004065 SECUNDERABAD #5,6 1st Floor, Srinath Commercial Complex, SD Road. Tel: 27841970 SINGAPORE 1, North Bridge Road, # 14-03 High Street Center Tel: +65-63369142 CORPORATE OFFICE Cyber House, B-35, Sec 32, Gurgaon, NCR Delhi-122001. Tel: 0124-4031234, Fax: 2380694.
100 pages including cover
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DECEMBER 2008
Electric cars come of age
72
Things have begun to change in the electric car segment, thanks to concerns about global warming, and also due to advancement in technologies. The first electric sports car, the Tesla Roadster, matching conventional cars bit by bit, has hit the market in the US and the UK, creating plenty of excitement even in these hours of distress
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/contents
34
opportunities/ Ropeways: Waiting to be tapped .............. 40 Harnessing the tides for power ................ 84 strategy/ Flexi-timing and startups......................... 51
entrepreneur of the month
Dilvinder Singh Narang Ayur Herbals What started with meager Rs 5,000 in 1982 is now a Rs 150 crore company, and propelling fast towards the Rs 200 crore mark by the end of this year.
blogs/columns Philip Anderson ........ 16 Rupin Jayal ............. 44 Anurag Batra ........... 71 Paranjoy Guha Thakurta ... 79
audio book
Is it better to lease your cars? .................. 52
customers delhi entrepreneurs fleet good goods hand
house india industry
just like make manufacturing market number passion people
Doing Business in France
Fresh labor reforms, tax incentives for R&D, and world-class infrastructure offers lucrative opportunities for Indian entrepreneurs in the world’s fifth largest economy.
Hotels and Tourism in India: Dealing with the global meltdown ............ 77 Is recession a good time to start a business? .............................................. 77 Indian banking model better than the Western ones? ............................ 78 Around the World in a Solar Plane!........... 78 investor of the month/ Vivek Subramanian
48
Avigo Capital Avigo Capital is an independent private equity manager formed in 2003 with a focus on private equity investments in the SME sector in India.
business cabs company cost crore customer
56
DARE blogs/ Elections in India will delay an economic rebound ............................... 46
books brand
chauffeurs come companies
global opportunities/
innovation/ Selling artificial grass
20
Artificial grass is a low-maintenance, hassle-free replacement to its natural counterpart. It provides for an effective alternative in sports grounds, lawns and rooftops
stats/
Literacy rate growth is slowing down ........... 32 What percentage are small businesses? ......... 68 Countries by per capita income ................... 83
INSEAD/ Sanjeev Aggarwal and the growth of Daksh ..... 24
publishing radio resort says search
Managing your noble intent ........................ 60
second services share start time traffic
others /
tree used value want world year years
Exchange ............................................... 08 Feedback ............................................... 13 DECEMBER 2008 5
www.dare.co.in
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blogs/edit
Large content organizations have frozen recruitment and are outsourcing any new work to smaller operations. They in turn use a mix of full time employees and a network of work-from-home freelancers to keep costs and overheads down. Result - more work in tough times.
How some small businesses are having a good time during the slowdown
I
have many friends running small businesses - mostly under 25 employees. And most of them have never had it so good. In fact some of them confess that they have more business now than before. What is happening ? Consider the outsourced content development - writing and editing- business: Large content organizations have frozen recruitment and are outsourcing any new work to smaller operations like this one, who in turn uses a mix of full time employees and a network of work-from-home freelancers to keep costs and overheads down. Result - more work in tough times. Even some larger outsourcing setups are sub-outsourcing to operations like these! Or consider the small advertising agency owners: Their client lists today includes some of the blue chips in the industry and they too have their plate full. How? The big spenders are moving out a lot of work from costlier full service advertising agencies to smaller creative-only shops like these which charge only a fraction of what the biggies do. (and there is no agency commission on media releases either). Then there is the small market research company: There too the story is similar. They had taken to the Internet in a big way right from the beginning, both as a differentiation and also to keep ďŹ eld costs down. Like with the advertising agencies, they are also getting morel work from big ticket clients who are moving business away from larger agencies. Obviously, there has to be the pain point - the problem area. What is their biggest problem area? Payments that get delayed.
/Krishna Kumar
DECEMBER 2008 7
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Published: November, 2008
I am an MBA student and want to start a mar-
Arjun Rajkumar wanted help to form a base team for
keting solutions business for life sciences, health-
his next Internet-education venture.
care, and pharmaceutical industries. I am looking forward to ideas and guidance.
Response: November, 2008
Piyush
There is one request for online education by Arjun from Bangalore in the November issue. I request you to please send me his details. I
I'm looking for a partner to develop www.Mr-
am currently pursuing MBA in marketing from IMT
Jacket.com, which is a portal on outerwear. Affiliate
Ghaziabad. I have two years of work experience in
program revenue primes the business model. Blog-
a European MNC. I am also planning to launch an
ging and surgical advertising in college campus me-
online education service by next year. So both of us
dia, nationwide, are sources of additional revenues.
might hit a base and could be helpful to each other.
Mr-Jacket.com is also involved in fashion, apparel
Ankur Jain I read about Arjun's interest in forming a team with people from MBA background in the November 2008 issue.
reviews and lifestyle issues. I've been setting Mr-Jacket.com since ten years. I have some small business and start-up experience, and need help.
I am interested in joining his team. I am based in
If nothing about Mr-Jacket.com suits your interest,
Bangalore and would like to meet him. I want to concould you recommend someone else I could contact? tact him so that I can understand his plans better. Arvind
Richard Giardini
Congratulations on bringing out such a resourcePublished: November, 2008 ful magazine, which I think is filling a lot of gaps curVasanth G. Yaji was introducing some new concepts on his portal,www.indiamybrand.com, and was look-
rently hampering India's entrepreneur crowd. I am a 'wannabe' entrepreneur stuck in the rat race,
ing for feedback and angel funding.
so thought would get some inputs and build network Response: November 2008
to work on my 'many' ideas. I have a few ideas which
I'm based in Bangalore and interested in understanding more about Vasanth G. Yaji's business plan. Do let me know the contact details or I can
I think have good potential in India and a couple of them in foreign land as well. So, I am looking forward to people coming forward to hear my ideas and work
be reached on this email. Looking forward to hearing with me in getting them implemented. from you. Arvind
8
DECEMBER 2008
Krishna
ENTREPRENEURS IN MICRO & SMALL ENTERPRISE SECTOR
A great business idea A sound business plan A prudent business model
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A DEVELOPMENT INITIATIVE OF MINISTRY OF MSME, GOVERNMENT OF INDIA & SIDBI
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I'm planning to start a unique telephone directory
We are a small but promising and growing IT com-
website. For this, I am looking for angel funding and a
pany in Vadodara, Gujarat with 100% export in the
mentor who can guide me through this project.
area of software solutions.
M. Rajesh
We have a fundamentally strong technical team which is highly dependable, and flexible and with
I am running a software company in Kolkata and have an insurance management software. I have great ideas and need a VC to implement them. Via SMS
extremely low rate of attrition even during difficult times. On our advisory panel we have renowned mentors who provide guidance on the latest trends in solutions development. We work very closely with academicians, and so are in touch with good researchers and professors.
I became a fan of your magazine from the very day I picked your first issue in Oct 2007. I congratulate Team
Our current activities include:
DARE on celebrating their first anniversary.
1. We have a flagship product that has been success-
I served in the Indian Air Force for 15 years till Jan 2005 and am presently employed with a logistics company. My ex-colleague and I are interested in starting
fully implemented at nine customer locations in the US 2. We are currently working on business intelligence
an apiary. Besides producing honey, we also plan to products for a large jewelry chain in the US produce royal jelly and manufacture beeswax candles. We have land available in the outskirts of Bangalore. Could you please advice us about the potential of this business, how to set up an apiary, and climatic conditions suitable for breeding honey bees. Would anyone be interested in guiding us?
As of now we are looking to diversify in the following areas: 1. ERP implementation for a web-based ERP product 2. High-end training (in the areas of OOAD and
R. Ganesh automated testing) 3. Deployment services Published: November, 2008 Vijay Rangani wants to start a briquette fuel manu-
4. Interactive architecture We are looking for angel investors who can in-
facturing plant.
vest up to a sum of Rs 1 to 2 crore for a period of Response: November 2008
three years and a return of 10 percent annually for a
My name is Mangesh Wanode and I want to contact you. Via SMS
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DECEMBER 2008
period of another three years. Saurin Mehta
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Published: November, 2008
I run three ice-cream parlors, the product being
Shanti had a service center for two-wheelers in Navi
traditional variety of ice-creams. I have adopted the
Mumbai, which failed due to lack of technicalities.
kiosk model for my parlors. Currently, I have an an-
She wanted assistance for running it.
nual turnover of Rs 20 lakh, on a capital investment of Rs 5 lakh.
Response: November, 2008
I want to expand my business and increase the
I am a final year student of mechanical engi-
number of outlets to twenty by next year, and the
neering at Manipal Institute of Technology,
annual turnover to Rs 1-1.5 crore per annum.
Manipal, Karnataka. I aspire to own a consultancy/ manufacturing company three to four years down the
For this, I need angel funding of Rs 20-25 lakh. Interested persons please contact. Binod Kumar, CBC Foods
line. So, I am taking all the necessary steps towards the same, this being one of them. I went through the post by Shanti and want to
I am an MBA student looking forward to becoming
contact her. Out of my reading and interaction with
an entrepreneur. I read your magazine (Vol. 2, issue
people, entrepreneurs, businessmen, etc., I dare to
2, November 2008) for the very first time and found
say that I have certain amount of knowledge on
it very interesting. The Exchange part is especially
managing businesses, which I want to share with
interesting and I liked two to three business options
Shanti, without any fee or charges. Also, being in a family that has owned and run service centers
in that, but I really don't know how to approach the people concerned. I also tried to find some links on your site, but couldn't. I will be very pleased if you
for automobiles and electronics for the last 40 and
could help me approach those people.
25 years respectively, I believe that I have a fair understanding of the customer expectations and employee satisfaction.
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I think this approach (dealership) would benefit
touch with anyone whose request is published in
both Shanti and me, will save on the heavy
the Exchange section, please drop us a mail at
consultation charges and I will get a platform to
dare@cybermedia. co.in. Alternatively, you can visit
implement whatever little knowledge I have gained through my academics, general reading, and
our website http://www.dare.co.in/ and drop us a message through the contact page. The details that we would need from your end are: the issue of ex-
personal interactions.
change request (e.g., October 2008), name of the per-
I hope DARE helps me in gaining the platform I aspire to.
Global Company Ltd), and a short description of the Amith Pai P.
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DECEMBER 2008
son whose request is published (e.g., Ramesh Kumar,
exchange request (e.g., looking for investment).
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In love with the magazine MAG One of my acquaintances gave me an issue of DARE two months back. I immediately fell in love with it. The theme of the magazine is in tune with the changing times. The format is informative and imaginative. I am also an avid reader of PCQuest, (a pathbreaking computer magazine) for last ten years. Being an entrepreneur for the last 15 years, I hope you continue to provide us information through this medium. Ashish Kolarkar, Bhopal (MP) Chandrayaan-1: India’s moon mission: What does it mean for businesses? BLOG Little wonder Indians will be on the moon too. Even otherwise, whatever the rest of the world has achieved scientifically or technically, there is a direct or indirect Indian contribution as there are many Indians in the team of world scientists in this field. It is a fact that the Indians are at the top in almost all fields. The world has already recognized the strength of India. Soon it will emerge as a super power. Mahesh Kapasi Information on subscription MAG I think what you produce is fantastic! I want to subscribe to your magazine for the next two years. Please tell me how. Atul Seth, Head Development, NDTV Lifestyle DARE reply: Thank you for your compliment. You can head to http://www.dare.co.in/ subscribe/ to subscribe to the print magazine via a credit card payment. Alternatively, you can find a subscription
form with any issue of DARE and make a payment through check/ demand draft. Additionally, the content of our previous issues can be found online at http://www.dare.co.in Thanks again for showing an interest in DARE. A foot operated cheap water pump ARTICLE There is an article in your November edition under the section Innovation by Vimarsh Bajpai titled “A Foot Operated Cheap Water Pump”. Kindly let me know the address and contact details of the manufacturer. I am interested in commercial distribution of this. I will be highly obliged. Satya Prakash Business from waste paper ARTICLE I am regular subscriber of DARE for the past one year and have spoken to you over the phone few times. In the October issue there was a wonderful article about waste paper management. I am very impressed with how your people are able to provide giving such useful information. I congratulate your entire team for their dedication. Ramesh, Chennai Suggestions and Feedback MAG First of all, I want to congratulate you on the successful launch of your magazine a year back. With every passing month it is getting better and better. I am a regular reader of DARE. I have kept all the 14 issues because this magazine is not ‘read and throw’ like others. You never know what article, what contact, what advice will help you out. But I fear one thing. My obsession with DARE magazine will not allow
me to keep copies; let us say after two years. Otherwise my family will throw me out. I have a suggestion to make; I don't know how feasible this is for you. Why not have a e-print edition of magazine, so that whenever we need any article we just search and we get everything, not only specific articles, as it is being done now. I understand you might fear losing revenue on the print edition, but my experience says that physical books, magazines, and newspapers will never take place of e-version as of now. If still this is a reason to worry, there is one more idea: why not give one code with every printed copy and one unique username can use that code only once after which it will be deactivated. With that code, the user can save the e-print in his/her profile for eternity. I think this extra service will increase your brand value. Ankur Jain OS Vinod, CGTMSE ARTICLE Thanks for posting this valuable information from the CGTMSE. It is really helpful for all first-generation entrepreneurs who do not have proper source to raise money. After reading the information provided, we approached an Indian Overseas Bank manager, but he claimed not being aware of such scheme by CGTMSE. Is there any specific bank, that we should approach? Syed, 1RupeeMatrimony.com DARE reply: Please refer to the CGTMSE advertisement in this issue for information on member lending institutions.
DECEMBER 2008 13
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ABCs of Entrepreneurship Education ARTICLE The problem with entrepreneurship education all over the world is making it learnable. That is a pedagogy problem. Entrepreneurship is also tried to be learnt like botany or chemistry. We @ NITIE Mumbai came out with an innovative pedagogy called Hamara Dhandha where practicing entrepreneurship is mandatory for every student of MBA for two years. The purpose here is to make the student learn business through doing. This concurrently develops entrepreneurial orientations among the students. At NITIE, we have instituted Entrepreneurship Education Awards so as to encourage teachers, students and colleges promoting entrepreneurship. DR T Prasad Faculty adviser, NITIE Center for Student Enterprises, Mumbai Home Loans EMI BLOG There’s a joke where one man asks another what the greatest human invention is. The reply came: COMPOUND INTEREST. How true! The power of compound interest can work miracles and catastrophes alike. Your own experience is intimidating and I’m glad you shared it with the readers to illustrate how to use it to your advantage as also your rough formula. I’d also like to share a rough formula which I devised myself after a lot of trial and error. To calculate the EMI of a loan, multiply the loan amount with 0.575 (anywhere between 0.575 to 0.675, depending upon the term of the loan, a shorter term, say, 20 years, would hang around 0.6, whereas those around five years would be 0.67). Now, using the resultant number, calculate simple interest by multiplying with the present 14
DECEMBER 2008
interest rate and loan term, and divide by 100. This is the interest you’ll be paying over the period of the loan. Now add this to your loan amount. Divide by the number of months.
Mumbai and am quite a shopaholic, I had no idea where to buy kids furnishings/furniture. I was designing and getting them made myself. Your article really helped. Rashmi
Take your own example of Rs. 50 lakh, 20 years @7.5% 50000*0.575 = 2875000 2875000*7.5*20/100 = 4312500 5000000+4312500 = 9312500 9312500/240 = 38802 which should be a close estimate of your earlier EMI.
Hair-raising business ideas! ARTICLE I would like to applaud the idea included by you in the article. If followed, it not only provides a newer aspect to the business area, but also adds credibility to it because of the element of social responsibility added to the concept. Sumedha Sachdeva 20 things that improve your chances
It works like a charm and I often have sales representatives from insurance companies and loan officers gaping at me in wonder as they struggle with long tables. Trust me, the results are generally ± 5%! Try it yourself. Rtvik Sethia
for loan or equity funding ARTICLE This article clearly highlights the key success factors for finding funding, from bankers or PE investors. Though quite informative on the macro perspective, a little more in-depth description would have been good. A few examples or case studies would have been highly appreciated.
How to set up your NGO ARTICLE We are an NGO focusing on work, education, health, and helping people who are addicted to drugs. We are working in Balochistan, Pakistan. We have some financial problems we are looking for an NGO or any organization who can fund us. We want to give free education and medical supplies to those who cannot afford it, so anyone who wants to help us, please come forward. Abdul Samad, CEO, Neheng
Gopal Shivapuja
Kids’ Furniture and furnishings ARTICLE Your article was not only informative, but also inspiring. I am the mother of an 18-month-old daughter. We have recently bought a new apartment and I was looking for options for my daughter’s room. Although I live in
Director, Global Delivery Alternative therapy products based on cow urine ARTICLE It’s really interesting to know that how innovation in one’s life can change the sufferings of so many people. It’s really a remarkable achievement. Thanks for publishing this insightful article. Sajam The market of second hand goods ARTICLE A very good article on second-hand goods. In a country like India, where there are a varied class of people, moving the items from the rich to the poor is through these secondhand markets. Nice article there. Keep writing Krishna Blogger at keepwrite
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blogs/INSEAD
Building a high-performance entrepreneurial culture A
/Philip Anderson
16
DECEMBER 2008
lthough my business card says “Professor of Entrepreneurship,” I spend a good deal of time talking with senior executives of multinational companies throughout the world, because among business schools, INSEAD is one of the most active providers of executive development programs. “You study entrepreneurship,” they say, “so tell me what I can do to make my company’s culture more entrepreneurial?” What do they mean by that? Of course they wish their large enterprises were more nimble and agile, but these words express a deeper longing. At first, they say, “I wish middle managers behaved as if they were owners.” Why shouldn’t a person running an IT operation behave as if he led a small IT company providing outsourced services to the firm? Wouldn’t he or she then naturally provide excellent service and strive for continuous improvement? If you probe a little more deeply, however, you find that they really don’t want managers to behave as if they were owners; if they did, they would have outsourced more functions to real owners. The problem with owners is that they act in their own self-interest. The reason a function is kept inhouse instead of being outsourced is to ensure responsiveness and predictable behavior when incentives aren’t necessarily aligned, when a function has conflicting priorities, and/or when time or cost pressures demand that management issue directives instead of negotiating agreements. What senior managers really mean by “a more entrepreneurial culture” is
that they wish senior managers were more proactive. Why don’t the spot and solve problems before their superiors notice? Why don’t they identify and seize opportunities without needing direction or approval? Why don’t they find ways to make their operations leaner, faster, and more efficient without anyone telling them to do so? So why do companies become less entrepreneurial as they get bigger and older? Many explanations have been suggested, and the most popular seem to rest on complacency in some fashion. One way or another, middle managers in established firms become fat, dumb and happy, such thinking suggests. Yet my own experience with multinationals suggests that the managers I meet work hard, genuinely care about their employers, and wish they were permitted to be more entrepreneurial. To say these managers lack hunger and drive seems simplistic and wrong to me. Entrepreneurial firms start off with a huge number of disadvantages. Usually, they lack capital, brand equity, established processes, credibility, connections, channels of distribution, and so on. So why do they survive and thrive? Their core advantage is that they can adapt to today’s environment without having to manage change. They don’t have to shake free of legacy obligations and mindsets. I once saw a bumper sticker on the back of a car that expressed this thought neatly: “God created the world in seven days because he had no installed base.” Entrepreneurial firms start off as very simple organizations, and that is a
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blogs/INSEAD huge advantage. Middle managers are not as entrepreneurial or proactive as their bosses might wish because they have to proceed carefully in order to coordinate complexity. Big organizations have a lot of moving parts. To ensure they fit together, you have to go slow; you need lots of approvals; and you have to move forward one step at a time, checking that a move that looks logical locally doesn’t have unforeseen consequences outside your range of vision. Consider an analogy. In every country that has paved roads, a convention has emerged: either everyone drives on the right or everyone drives on the left. It doesn’t matter which convention a country adopts, as long as everyone conforms. Otherwise, you end up in the situation of the elderly woman who calls her husband’s cell phone and says, “Anil, I’m watching the television and it says that on the road you always take, there is a car driving the wrong direction!” “One car?” the husband replies. “Good heavens--I see hundreds of them!” A convention such as “drive on the right” is simple to institute because everyone has to do the same thing. In contrast, consider the problem of driving in the Etoile, the round-about in Paris that has the Arc de Triomphe at its center. Twelve roads feed into the Etoile, and at any moment, cars are entering from or exiting into all of them. Simple rules make that possible—a car driving into the Etoile has right of way over any that is already in the loop and traffic flows counterclockwise—but driving is slow, stop-and-go, because coordinating twelve streams of traffic is very difficult. There is just no way to get through the Etoile without paying close attention to every move and anticipating what dozens of other drivers will do. Because entrepreneurial firms start off simple, they can be nimble and agile because it is easy for everyone to adapt to one another’s expectations. If you only have to coordinate with one or two people, it is easy to adopt an agreed-on way of doing things and move forward swiftly. People behave
proactively in a venture because they can; young organizations have enough elbow room for a person to take up a problem, opportunity, or chance to improve and execute without needing coordination or approvals. Ventures inside established organizations can be just as proactive and supple as independent startups, as long as they keep things simple. This insight is the key to developing a high-performance entrepreneurial culture. But first, it’s important to understand what the essence of a culture is, from a commercial perspective. Consider why people behave as they do. The most important cause of behavior is habit: people do what they are used to doing, often without much thought. The second most important cause of behavior is a person’s wants. Either through preference or incentives, people tend to do what they think will benefit them. However, the third most important cause of behavior is the expectations of others. Many times, people do things that are not habitual and that they don’t particularly want to do, because they believe others expect them to do it. What people think others expect them to do is the essence of culture in a business setting. If you want to understand Japanese business behavior, for example, it is less important to understand someone’s personal preferences than it is to understand what he or she thinks others expect of someone in his role, given the context. [This is a theme discussed at length in my book Inside the Kaisha co-authored with Noboru Yoshimura.] The culture of your entrepreneurial venture is not a set of symbols or rituals. It is not a logo, nor is it a statement of “what are our core values.” If I were to visit your organization to diagnose its culture, I would observe how people behave and would study which behaviors stem from beliefs about what others in the organization expect. Culture matters most when it affects behavior and choices. Whatever you say is “our way of doing things” has meaning only if it drives actual behavior. What you say your values are has meaning only if
the choices and tradeoffs people make when it is not clear what is the best thing to do. If you say, for example, “We put the customer first,” that only has meaning if the way people make difficult decisions is to ask “Which of these alternatives is best for the customer?” A high-performance entrepreneurial culture is one in which people proactively get extraordinary things done because they expect the best from their colleagues and want to deliver the best for their colleagues in order to gain their social approval instead of disappointing them. No one set of values and expectations characterizes such a culture. What matters is that a few, simple expectations are shared by all. You and your team must decide what you have a right to expect from one another; that is the essence of your shared culture. Although no two cultures are identical, the three shared expectations I see most often in successful ventures are: • Keep your promises or tell me right away if you can’t. If you tell me you’ll have something accomplished by Tuesday, deliver it fully on time. • If something needs doing, send out an email warning everyone what you will do, then do it. Notification matters, but approvals are automatic unless someone objects. • Help when you possibly can, regardless of job descriptions. Ask for help if you need it, and have confidence that if others don’t help, it is because they can’t right now, not because they won’t. As your team grows, you will evolve a shared set of expectations. If these expectations drive behavior and choices, then they are the essence of who you are: your culture. Entrepreneurs have so many disadvantages that they must exploit one of their few edges against incumbent firms. A simple set of expectations that everyone shares and cares about can lead to a level of responsiveness and agility that senior managers at your larger competitors can only envy. DAR E INSEAD Alumni Fund Professor of Entrepreneurship, Director, Rudolf and Valeria Maag International Center for Entrepreneurship and Director, 3i Venturelab DECEMBER 2008 17
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/sector
What is common in chocolates, perfumes, cheese and fertilizers? The answer is petroleum. All of them use byproducts of petroleum. And as petroleum reserves deplete, the hunt is on for replacements. /Ambrish Jha
T
hink petroleum and what comes to mind is petrol, kerosene, and diesel. Maybe some of us are reminded of bitumen, the dark substance that comes in ugly drums and is used to tar roads. But no one is likely to think of cheese, chocolate, fertilizers, lipstick, perfumes, or other beauty products. Truth is, all of them use some byproduct of petroleum. And as available petroleum stocks get used up and global oil prices swing to the extremes, it is time to start the search for alternatives not just to fuel, but also for all of these industries. This piece is an overview of the various industries that use petroleum byproducts. In a later piece we will look at the opportunities in the alternatives.
The process Crude oil, as extracted from oil fields, is separated into various products through fractional distillation in refineries. The lighter products — gases, naphtha, and gasoline (petrol) — are recovered at the lowest temperatures (20 to 200 °C). Middle distillates — jet fuel, kerosene, home heating oil and diesel fuel — come next (200 to 370 °C). Finally, the heaviest products (residuum or residual fuel oil) are recovered, normally at temperatures above 400 °C. Heavy products include waxes, lubricants, and asphalt. These are processed further and modified with certain additives to manufacture lubricating oil, petroleum coke, petrochemicals of various types, and also to obtain elemental sulphur.
Lubricants Lubricant industry is quite big and independent in itself. According to a lubricant industry book Lubricants and Lubrication, the segment is dominated by verti18
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Temperature (°C)
Products
20-200
Gas, petrol, naphtha
200-370
Jet fuel, kerosene, diesel, heating oil
enous fertilizer, ammonium nitrate, and mixed with phosphate to produce ammonium phosphate. Government has demarcated fertilizer as a top priority sector when it comes to allocating this feedstock. Government subsidy on fertilizers has reached a whopping Rs1,00,000 crore.
>400
Lubricants, paraffin waxes, asphalt
Pesticides
Products after refining
cally integrated companies whose main business is the discovery, exploration, and refining of crude oil. Even in India the oil PSUs – Indian Oil, Bharat Petroleum, and Hindustan Petroleum – used to dominate lubricant industry till 1991, when India embraced liberalization, and private players made an entry. The Indian lubricant industry, the sixth largest in the world, is worth over Rs. 80 billion, and is growing at a rate of 4 to 5 percent annually.
Petrochemicals – a huge sector The enormousness of the sector can be gauged merely by knowing there are over 4,000 petrochemicals that can be synthesized from petroleum. Petrochemicals can be traced in varying quantities in items like credit cards, balloons, sunglasses, curtains, food stuff, and even in fertilizers, pesticides, plastics, and perfumes.
Fertilizers Fertilizers form a major petrochemical industry, with some 57 public sector and 65 private sector units actively involved in manufacturing fertilizers in India alone - IFFCO being the largest player. Natural gas or naphtha has been used as main feedstock for nitrogenous fertilizer units. Ammonia is produced by burning natural gas or naphtha. It is used as a fertilizer, and is also converted into rich nitrog-
Petroleum is an important ingredient in pesticides also. Pesticides, which include insecticides, fungicides, herbicides, nematocides, and rodenticides, consist of an active ingredient coupled with inert ingredients. The active ingredient kills the pests, while the inert ingredients facilitate spraying and coating the target plant. Active ingredients, which are hydrocarbons derived from petroleum, are largely synthesized in a laboratory through complex chemical processes. Inert ingredients can be many substances depending on the type of pesticide. Liquid pesticides have traditionally used kerosene as a carrier, though water has recently begun to replace it. Most large pesticide manufacturers have highly developed quality control laboratories that test each pesticide for potency, emulsification, density, color, pH, particle size (if a dust), and suspension (if a liquid). There are over 400 manufacturers of pesticides in India, a number of which are in the small-scale sector selling their products essentially on regional basis. India produces 16 percent of the world’s food grain, but uses less than 2 percent pesticides globally.
Plastics Plastics are actually the polymers of compounds like vinyl chloride, vinyl acetate, butadiene, and styrene, which are
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/sector all obtained from naphtha feedstock. There are over 30,000 units in the plastic industry, manufacturing items of various kinds - pipes, polyethylene bags, buckets, and canopies. Production of plastics include conversion of crude oil (or natural gas) components into monomers like ethylene, propylene, butene, and styrene through cracking process, whereby larger molecules of hydrocarbons are broken down into smaller ones. These monomers are then chemically bonded into chains called polymers. Different combinations of monomers yield plastic resins with different properties and characteristics. Combinations of monomers produce co-polymers with further property variations.
Synthetic Fibers Synthetic fibers are manufactured usually from oil. They are derived from polymers produced by polymerization. Production of synthetic fibers – nylon, polyester, acrylic etc - is highly capital intensive. There are only a few manufacturers in India. Major players include Reliance, JCT, Raymond, and Indo Rama. The products made using these fibers include airbags, stuffed toys, sanitary napkins, sports footwear, velcro, surgical dressings, and soft luggage material.
Pharmaceuticals and Perfumes Petroleum is a vital element even in pharmaceuticals and perfumes. Many vitamins are obtained from petrochemicals. Acetylsalicylic acid (ASA), one of most the active ingredients in many pain relievers, is manufactured using petrochemicals. The plastic of a band aid is made from chemicals obtained from petroleum, and the non-stick pad that covers the wound is man-made cloth that is manufactured from petrochemicals. Soft contact lenses are made of a soft polymer-plastic material combined with a percentage of water. Perfume industry, estimated to be worth over Rs 300 crore, relies heavily on petrochemicals. Synthetic chemicals, often used to duplicate natural smells, are produced from petroleum using chemical processes. The sector has a number of unorganized players doing pretty good business. Organized ones include Hin-
Production of Major Petrochemical Products in India (2002-2003 to 2007-2008) Group/Products I. Synthetic Fibres Acrylic Fibre Polyester Staple Fibrefil Nylon Filament Yarn Nylon Industrial Yarn/Tyre Cord Polyester Filament Yarn Polyester Staple Fibre Polypropylene Filament Yarn Polypropylene Staple Fibre
Production (Figure in ‘000 MT) Installed Capacity 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 142.0 47.0 28.0 64.0 1445.0 665.0 18.0 7.0
105.1 29.5 29.8 51.4 946.4 574.7 15.1 2.5
117.1 38.8 31.0 55.9 1003.1 603.7 15.3 2.8
127.6 39.8 36.8 48.0 970.3 638.7 11.3 3.0
113.8 47.4 39.6 55.4 1015.0 623.1 8.8 3.1
107.3 47.1 32.4 71.6 1193.6 784.6 9.7 3.6
83.6 47.4 26.2 83.7 1334.4 891.6 10.2 3.5
2416.0
1745.6
1867.7
1875.4
1906.2
2249.9
2480.6
II. Polymers Low Density Polyethylene 200.0 High Density Polyethylene 1630.0 Polyestyrene 462.0 Polypropylene (Inc. Co-Polymer) 1560.0 Expandable Polyestyrene 42.0 Poly Vinyl Chloride 834.0 Linear Low Density Polythylene $
197.7 977.8 224.4 1430.2 29.3 821.6 500.1
183.8 958.1 274.0 1567.2 31.4 878.4 606.2
204.8 1035.1 275.2 1690.2 35.7 884.8 650.0
200.6 1034.7 310.5 1540.9 39.2 953.4 688.7
194.9 958.4 284.9 2000.9 45.8 926.4 771.5
200.3 981.6 280.6 1913.3 48.2 945.4 804.4
4175.1
4499.2
4775.7
4768.1
5182.9
5173.6
Total
Total
4728.0
Source – www.indiastat.com
dustan Lever, Cavin Kare, JK Helen Curtis, and the Kelkar Group.
Paraffin in Candles, Chocolates and Cosmetics Paraffin waxes, as obtained from petroleum refiners, are classified into type-I, II, and III depending on the oil content. A number of industries use waxes in some form or other, with candle making being a major one.Candle making has evolved over the years into a vibrant cottage industry, producing candles not only for the domestic market, but also for exports. Chocolate industry is a consumer of food-grade paraffin wax. Candies are given their shining coat using paraffin wax. Paraffin is used as an additive even in chewing gums. It is used as a coating for many kinds of hard cheeses. Food-grade paraffin wax passes through the body without undergoing metabolism. Paraffin wax is also used in beauty therapy, with wax baths being quite popular in the West. In forensic tests paraffin wax is used to detect nitrates and nitrites on the hands of shooting suspects. A petroleum distillate, called white spirit, is used extensively in making metal polish.
Indian cosmetic industry, worth over Rs 2500 crore, relies heavily on petroleum products for its sustenance. Lipsticks, for instance, has nearly 60 percent (by weight) of the ingredients coming in the form of waxes and mineral oils.
Sulphur Maximum demand for sulphur comes from fertilizer industry. Organic and inorganic chemicals have traces of sulphur in them. It is also used in the metal mining and the refining industries. Petroleum prices did shoot up to $147 in July 2008 creating a sort of crisis in the world. This affected not only the aviation and automobile sectors, but also had direct bearings on all petroleum byproducts based industries. Prices of lubricants, fertilizers, pesticides, perfumes, and other petroleum dependent products have shot up. One should not read too much in the recent weakening seen in crude prices, as experts expect this to stabilize around $80 to $100 a barrel in the medium term (read once the current recession worldwide is over). It may be right time industries based on petroleum byproducts start mulling over suitable alternatives seriously. D A R E DECEMBER 2008 19
INNOVATION
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Overview al grass Product: Artifici , noaintenance-free Advantages: M endly watering, eco-fri ice, acceptance Challenges: Pr tural grass Competition: Na d time Lack of water an Market drivers:
Artificial grass is a low-maintenance, hassle-free replacement to its natural counterpart. It provides for an effective alternative in sports grounds, lawns, and rooftops. /Mohita Nagpal
F
our years back, FieldTurf, a company manufacturing artificial grass, had become popular in the US. Artificial grass was increasingly being used in school playgrounds, sports grounds, and even in homes. At that time, a 35-year-old man left a lucrative job in the US to take up the entrepreneurial route in India. Sensing the opportunity, Anil Kumar bought the exclusive license of FieldTurf in India and started FieldTurf Tarkett India. Artificial or synthetic turf came into being in the 1960s with a product called Astroturf. It was manufactured from synthetic material that looked like grass and was used on sports grounds. One may recall that not too long ago there were long debates about laying Astroturf for India’s hockey team. Artificial grass is today used on rooftops, residential lawns, children’s playing areas, golf courses, and just
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about anywhere that natural grass is used. In the last four years FieldTurf India has come a long way. The firm now boasts an impressive list of clients with more than 1,000 installations and 5.5 lakh square feet installed in the country. The company has done the first FIFA standard football ground in Pune, a 90,000 square feet stadium. In fact,
Popular uses of artificial grass • Football fields • Hockey fields • Golf courses • Cricket grounds • Lawns • Indoors or outdoors: rooftops and balconies • Hotels and resorts • Children’s play areas
FIFA has approved dozens of artificial grass fields, to the extent that various international matches are played on artificial grass.
Marketing the grass It has been difficult for Kumar to convince people to buy artificial grass, thanks to the misconception that it is not as soft as natural grass. “We make sure that 80 percent of our marketing is focused on trade shows, where people can touch the grass themselves and walk on it. We also supplement it with a lot of advertising in interior decoration magazines,” says Kumar. As part of its marketing strategy, he reached out to architects who were quick to lap up the product. This in turn made it easier to tap customers. The marketing strategy seemed to have worked. So far, FieldTurf India has done installations in 80 cities and towns. It has distributors in 12 states.
INNOVATION
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Business (FieldTurf India) Average project: 400 square feet Number of square feet done: 5.5 lakh Number of clients: 1,000 Price per square feet: Rs 195 to 395 (depending upon quality) World demand for artificial turf: 20 percent (Association of Artificial and Synthetic Grass Installers) However, with a product like this, setting up the distribution channel has not been an easy task.
Quality and Warranty FieldTurf India has a professionally trained team of workers for installations. After installation, it is by and large maintenance-free. Light brushing is needed in heavy foot traffic areas. “We give seven years warranty and have a 0 percent warranty claim so far. The only instances we had to go back to the customer were when someone had to do small renovations and so we had to take out the turf. We are very strict in terms of how we install the turf and that by itself takes care of the quality. On a large ground, there is a fairly elaborate preparation that is done.”
Steps to install artificial grass Sub-base preparation To provide a firm and flat surface for the installation of turf. The porous nature of the subbase allows for rainwater to drain into the ground. Turf Preparation The loose fibers are bunched together. They are brushed (fibrillation) to split them and also make them stand up. Joints Joints are made underneath the turf, using cloth-paper/seaming tape and industrial strength glue. Infill An infill of silica sand and rubber granules is brushed between the fibers. This provides support to the fibers and gives a cushioning effect similar to soft earth. rooftop are huge,” says Kumar. This is where artificial grass comes in handy. “The cost of laying grass on 100 square feet is less than Rs 20,000. If one maintains a lawn using natural grass over a period of 20 years, it will certainly cost far more,” he adds.
Pros and Cons The maintenance-free, hassle-free, no-watering characteristics of artificial grass are its biggest strengths. One of its characteristics is that it is environment-friendly (made from recycled plastic or old tyres, eliminating the use of water and fertilizers). So much so, that FieldTurf claims to have saved 23 billion gallons of water since 1996. On the flip side, the biggest issue with artificial grass is its high price. It ranges from Rs 195 to 395 per square feet, depending on quality. But experts believe that it is cost-effective in the long run, especially when it comes to growing natural grass on rooftops and cold areas. No wonder rooftops and balconies make up 95 percent of FieldTurf’s installations. “A lot of apartment owners who have 100 to 200 square feet balconies wish to have a lawn. The hassles of growing grass on
Opportunities
We give seven years warranty and have a 0 percent warranty claim so far. — Anil Kumar FieldTurf Tarkett India
Opportunities in distribution and manufacturing of artificial grass beckon entrepreneurs, given the demand for the product is on the rise. This is due to a host of reasons, the biggest being water scarcity. As artificial grass requires zero maintenance, it is preferred at commercial complexes such as hotels and offices. Quality and price can sway business in one’s favor. Providing warranty for a product that one is not sure of could damage one’s reputation in the market. One has to price the product DAR E competitively to get an edge. DECEMBER 2008 21
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case/INSEAD
Sanjeev Aggarwal and the growth of Daksh /Philip Anderson
Daksh is one of India’s bestknown names in business process outsourcing. In this case, founder Sanjeev Aggarwal takes you behind the scenes to understand the genesis and development of this enterprise. How do you organize and lead people to manage extremely rapid growth? Let one of India’s most successful entrepreneurs of recent times (Ernst & Young Entrepreneneur of the Year for 2002) show you how. Sanjeev Aggarwal served as Daksh CEO until June, 2006. He then co-founded Helion Venture Partners, a $350 million India-based venture investment fund, and he is presently a Managing Director and Investment Advisor. 24
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Sanjeev Aggarwal’s journey to entrepreneurship Sanjeev Aggarwal grew up in the state of Haryana, where his father was a judge and the family moved from place to place during his various postings. He attended secondary school in the city of Chandigarh, and did his engineering and MBA degrees there at Punjab University. After graduating he joined DCM, a large, diversified In-
“
At DCM, I worked across functional areas and got very diverse experience driving new projects. It was a little of everything—I was able to cross sectors doing commercial work, sales and marketing, business development, and shop-floor level management.
”
dian firm. “I worked across functional areas and got very diverse experience driving new projects,” he recalls. “It was a little of everything—I was able to cross sectors doing commercial work, sales and marketing, business development, and shop-floor level management.” Aggarwal eventually moved to Pune, joining another diversified firm, named Thermax. Here, he worked with the computer systems division on two projects, one manufacturing and
marketing computer modems, and the other developing parallel computing programs for the research and education sectors, working in cooperation with an Indian center that was designing a supercomputer. After six years working for large Indian firms, Aggarwal entered what he now views as the second phase of his career, working for American multinational corporations. He explains: India was liberalizing, and more American corporations came into the country. In the Indian psyche, it often seems favorable to work for an American multinational. That kind of job has a lot of appeal. Aggarwal joined Digital Equipment Corporation, then one of the world leaders in computing. He first worked out of Kolkota, building sales in the steel industry vertical market, then moved to Delhi to run North India for DEC. North India was a profit center focused on selling and delivering technical solutions to vertical markets such as financial services, telecommunications, and selected manufacturing industries; customers included such well-known Indian companies as Maruti and Bharti. “Technology came from the parent, so we emphasized business development, customer acquisition, and customer service,” Aggarwal recalls. After seven years with DEC, he moved to Motorola, where he evangelized new business opportunities in India outside the firms’ core business of mobile telephones and infrastructure, including smart cards and cable modems. After ten years working for US multinational firms, Aggarwal felt he had learned a great deal, but was not growing as much as he would like. He explains:
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case/INSEAD I was executing within a defined framework; I was not in charge of defining what that framework would be. The environment I was in limited my freedom, and I began to feel I was doing more and more of the same things. I have always wanted to be my own boss, so I began to think about starting a third phase of my career, becoming an entrepreneur.
The founding and growth of Daksh By 1999, India was seized by entrepreneurial ferment. Venture capital was available in quantity for the first time, and General Electric had proven that
Aggarwal and Vaish formally launched Daksh on January 4, 2000 in Gurgaon, intending to focus on providing emailbased customer service to Internet companies. Within two weeks, Aggarwal was in the United States calling on potential clients in the Bay Area. one could outsource certain business processes to India with great success. Aggarwal and an old friend and former classmate, Pavan Vaish, began exploring different options, including a Web portal for children and a standard information technology services company. Aggarwal recalls: IT services seemed too crowded, but India seemed more ready for revenue-driven services than for models based on attracting eyeballs. You couldn’t build an Amazon in India then, for example. In every journey, someone else is instrumental in your success, and for
Daksh grew out of a number of influences— the availability of venture capital, a proven business model, the influence of a high-quality advisor/ mentor, and perhaps most importantly my very gutsy wife, who was willing to risk starving if things didn’t work out. DECEMBER 2008 25
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Gupta seed-funded the enterprise as an angel investor, and the co-founders secured Edelweiss Securities as its investment banker to help secure a formal round of financing. After talking with several venture capital firms, the partners accepted its first round of professional investment from Commonwealth Development Corporation (now Actis).
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case/INSEAD us it was my wife’s brother, Ashish Gupta, an entrepreneur to whom I was closely connected. He had built Junglee and sold it to Amazon in a very successful exit, so he helped us think through a business model. Ashish was intimately involved with the Internet, and he helped us zero in on the idea of providing customer services over the Internet to Internet companies in the US. So Daksh grew out of a number of influences—the availability of venture capital, a proven business model, the influence of a high-quality advisor/mentor, and
perhaps most importantly my very gutsy wife, who was willing to risk starving if things didn’t work out. Gupta seed-funded the enterprise as an angel investor, and the co-founders secured Edelweiss Securities as its investment banker to help secure a formal round of financing. After talking with several venture capital firms, the partners accepted its first round of professional investment from Commonwealth Development Corporation (now Actis). Says Aggarwal: Venture capital wasn’t a very mature industry, but they seemed like a very mature set of people who had
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case/INSEAD a track record of helping to build companies. They had experience in the UK and India; they weren’t folks who had just started investing in ventures. They also were very quick in going from first meeting to a term sheet; they offered us a simple diligence process and a reasonably good valuation. Aggarwal and Vaish formally launched Daksh on January 4, 2000 in Gurgaon, intending to focus on providing email-based customer service to Internet companies. Within two weeks, Aggarwal was in the United States calling on potential clients in the Bay Area. Vaish’s father owned a company that lent the entrepreneurs space, so they bought a few computers and an email server. Within three months, Daksh had secured its first customer, Bigstep.com, a startup that specialized in helping businesses simplify the set-up and operation of e-commerce sites that could accept credit card payments. Daksh achieved a major breakthrough in June by securing one of the most prestigious reference customers in e-commerce: Amazon.com. Aggarwal elaborates: We got a good dialog going early thanks to introductions from Ashish, and once they began to engage us, we found that they had a large customer service component that was amenable to relocating to India. We showed them the value of India in terms of the quality of people and the cost structure, but it was tough for them initially, because the CEO was reluctant to move a core asset such as customer service outside the firm, much less outside the US. We were fortunate to find a true entrepreneur in Bill Price, the vice president of customer service, who could see what outsourcing could do for him. Once they figured out what they wanted to do, they put out a request for proposal and we secured them as a customer in June, 2000. That was a big inflection point, and in December during the holiday rush, we managed much larger throughput than they had anticipated with higher quality
and lower cost than they had imagined. We ended our first year with revenues of about $2 million and margins of about 5%. Unlike most BPO companies, Daksh was profitable in its first year. Daksh’s decision to focus on Fortune 500 companies in key verticals started bearing fruit in 2001. Aggarwal relates: We were able to land a very big project from a large wireless carrier, and we secured a round of financing from Citigroup. With capital from a good brand and a customer from the Fortune 500 world, we entered a growth phase. Most Fortune 500 companies offered customer service via telephone, not email, and
Unlike most BPO companies, Daksh was profitable in its first year. Daksh’s decision to focus on Fortune 500 companies in key verticals started bearing fruit in 2001. our first large customer asked us to provide both. They said they were confident we could build a capability to provide customer support by voice, because we would bring the right talent, team and understanding to the challenge. We totally under-estimated what it would take to build a strong telephony-based contact center, but we had good managers who could solve a problem from first principles. Learning the telephony business was a complex process, but we think that if you get people who can think about first principles, consultants and vendors can educate you about a sector. At the end of its second year, Daksh
had grown its annual revenues from $2 million to $18 million, and its work force from 500 to 1500 people. Such growth forced the company to reorganize. Aggarwal split the firm into three relatively independent business units, one handling e-commerce customers (E-commerce and Travel Business Unit), one providing customer service via voice for its large Telecom clients (Telecom Business Unit), and a third providing customer service via email for its large clients (eCare Business Unit). Daksh started focusing a great deal on strengthening the people platform, hiring the right people so that the leaders could direct their time and energy into more strategic matters. In its third year, Daksh added customers in financial services and banking, and created a new business unit to service them. It won a large contract from a computer hardware company, and created a technology business unit to manage this new client. It expanded geographically to Mumbai, because its customers wanted it to have more than one office, and it diversified into back-office work for insurance clients, such as claims adjudication. Aggarwal explains: All these things seem logical now with hindsight, but we were just engaging the marketplace and learning as we went along. These weren’t things we knew at the start we were going to do. None of us had any business process outsourcing (BPO) experience; we learned by doing. We engaged customers, and when they started discussing their needs, you realize they have an insurance back office. Once customers saw we were doing a good job, they gave us other things to do for them. Reaching $29.2 million in revenues by the end of their third year, the Daksh team began thinking of adding more markets to its portfolio. To reassure customers that it could provide global support, they opened a European office and built a support center in the Philippines. They also began to invest more in the firm’s infrastructure. Aggarwal elaborates: DECEMBER 2008 27
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case/INSEAD
In its third year, Daksh added customers in ďŹ nancial services and banking, and created a new business unit to service them. It won a large contract from a computer hardware company, and created a technology business unit to manage this new client.
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case/INSEAD We hadn’t paid enough attention to investing in our internal processes and support functions, so we decided to implement a Peoplesoft ERP system to make our growth more manageable. We also built a good governance model, which is something that growth ventures often ignore. Because things can fall apart in a rapid growth phase, we instituted the rigor of monthly meetings to examine solid data and ensure that all our moving parts were well-synchronized. We needed leaders to scale the business, so we invested more in leadership development. We secured money from an investor with a global perspective (General Atlantic Partners1) to help us expand geographically and think big. We also invited high-quality people like Anupam Puri, a McKinsey director with 30 years of experience in consulting, onto our board. With over $60 million in revenues and 6000 employees after four years, Daksh was one of India’s best-known and fastest-growing BPO companies. Starting in 2002, IBM was building out its business transformation capability, and approached Daksh to see if its shareholders would be interested in joining the larger entity. Says Aggarwal, “We saw deals becoming larger and since processing is performed on a technology platform, we thought we could scale materially by putting our business under their platform.” IBM acquired Daksh for an undisclosed sum in April, 2004. Aggarwal felt his entrepreneurial ambitions would continue to be fulfilled as CEO of IBM Daksh Business Process Services Pvt. Ltd., explaining (in 2005): There was no major discontinuity with my previous life. You do have a boss in anything responsible you do. I can’t be micromanaged but I don’t have a problem being accountable. When you raise money from someone, you must be accountable and you need a governance process. I was accountable to the board while managing Daksh. IBM is very mature in the way they manage acquisitions, and they left
us to drive our P&L without managing us tactically. We’re like an independent business entity that is driven to fulfill shareholder objectives. Since our business represents a lot of new value to IBM, we have not had to do too much integration with older elements of our parent. They have a long heritage in technology, but not in this business. I am having a lot of fun taking it to the next level. IBM is teaching me how a complex global services business is run.
With over $60 million in revenues and 6000 employees after four years, Daksh was one of India’s best-known and fastestgrowing BPO companies. Starting in 2002, IBM was building out its business transformation capability, and approached Daksh to see if its shareholders would be interested in joining the larger entity. Managing explosive growth In April 2005, Daksh became 10,000 people strong . How has it managed such rapid growth? Aggarwal says: We have a lot of decentralization and empowerment. Our growth is based on decentralization, pushing decisions as close to the customers as possible. For example, when we went to the Philippines, we created a self-sufficient subsidiary with its own compensation and market access to build that business. That let us hire high-quality people. Only 25 of our 2000 employees there are from India, and they fill in key skills
the team in Philippines initially lacked, such as six-sigma quality assurance and training capability. The same philosophy permeates each of Daksh’s business units. Aggarwal notes: Companies won’t let go, but decentralization is what it takes to grow. We have multiple growth engines since each of our six companies manages its own destiny. Every business unit has what it needs-from HR to training to quality, it controls what it needs to service its customers. We lay out a growth framework, and then how a business unit prices and who it hires is up to its leaders—we won’t micromanage it. You also need deep value alignment; your value system lets you scale. Customer integrity and distribution of wealth are brought together in our culture. This is a people business—we depend on how people feel, and it’s not necessary to manage them transactionally. If you create enablers, decentralize and empower, people rise to the occasion. We don’t teach leaders or entrepreneurs—we let their innate potential come out. What kind of people fit into a decentralized, empowered firm such as Daksh? Aggarwal comments: We have not emphasized domain expertise. We look for competences and values. Competencies include creating profit, delivering to customers, and managing people. After we hired people with these competences, we left them alone and they rose to the occasion. People learn new skills if they have the pedigree. Technology is an exception—technical executives need domain expertise, but you can import that one layer below the top management team. We hire people who are good at thinking from first principles, and having good-quality minds has served us well. Our challenge when we were young was that if we hired a leader from the BPO industry, we would not have gotten the best one. We got around that by looking for good thinkers from DECEMBER 2008 29
DARE.CO.IN
Aggarwal cites three other elements that are vital for rapidly growing enterprises. One is a strong platform for engaging and communicating with employees, including open houses, answering emails, taking calls, and walking the floor where work is getting done. A second is branding, both among customers and prospective employees, since the firm needs to attract people who will compare it to other employers. A third is raising money at the right time. 30
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case/INSEAD
other industries who came to build a startup and learn a new industry they didn’t yet know. Explosive growth creates unforeseen stresses that are difficult to manage without bringing in new management teams to focus on new challenges. Aggarwal explains: The biggest problem posed by rapid growth is that
when you size the quality of leadership teams, you size them for the growth you can envision. When growth gets ahead of that, you may find that you have under-hired the quality of management required. That problem can only be solved in two ways. First, you must build a strong leadership engagement and development system so the people you have hired can rapidly step up to challenges. Second, you have to
DARE.CO.IN
case/INSEAD
“
The biggest problem posed by rapid growth is that when you size the quality of leadership teams, you size them for the growth you can envision. When growth gets ahead of that, you may find that you have under-hired the quality of management required.
”
grow by adding units, bringing in a new leadership structure instead of stretching the existing leaders to manage an expanded entity. For example, the executives who ran our Amazon.com focused on that business and we brought in new leaders as we added a Fortune 500 client in other verticals. The only way to get around leaders running out of steam is building independent units whose leaders can focus
on new customers and business lines. Our top team has had to grow with the number of units; we have gone to about 15 people today, from four in 2002. Pavan and I focused on growth and gave our current book of business to others. However, decentralization must be accompanied by excellent governance mechanisms. Aggarwal notes, “We went wrong for a while by overly decentralizing, so we had no synergy and no movement of people across business units. We strengthened our shared services and set up frameworks for people to move across the enterprise.” Ultimately, the challenge of mastering rapid growth requires balance among three objectives. Aggarwal
summarizes: I think there are three rhythms when you build a growth business. You have to balance growth, efficiency, and foundations. A young company needs requisite resources in all three concurrently. I have learned that you can be overly focused on profitability, even though we were highly profitable every year; you also have to invest in forward growth, especially your customer acquisition engine. You can reverse growth if you drive revenues but not efficiency; it is harder to cure bad habits. You also risk revenues if you neglect the right way to pay employees, for example. You also have to add assets to a service business or you can only scale linearly by adding people. You have to integrate technology and processes. You need intellectual property, components and tools, and you have to capture learning so that you can do the second engagement with fewer people than you had available to assign to the first one. Aggarwal cites three other elements that are vital for rapidly growing enterprises. One is a strong platform for engaging and communicating with employees, including open houses, answering emails, taking calls, and walking the floor where work is getting done. A second is branding, both among customers and prospective employees, since the firm needs to attract people who will compare it to other employers. A third is raising money at the right time. He comments, “You can’t be under-capitalized or overcapitalized; you need the right capitalization for every successive phase of growth so you can invest without over-diluting yourselves.” Underpinning these imperatives is execution. Aggarwal summarizes: Execution must be world class to get any growth. If you create growth on a shaky business, you won’t sustain it. You need operational excellence driven by strong governance that captures the right metrics and detects failure points well before DAR E they occur. DECEMBER 2008 31
DARE.CO.IN
/graphs & stats
Literacy rate growth is slowing down Growth in Indian literacy levels is slowing down: Time for innovative solutions: Opportunity for social entrepreneurs and NGO's /Krishna Kumar
O
n one hand, India has made rapid strides in improving literacy levels all around, but on the other, there remain concerns. More about that in a minute. Lets ďŹ rst see what the data tells us. Adult male
Adult female
Young male
Young female
% change from 1991 to 2001
11.8%
14.1%
10.7%
18.4%
% change from 2001 to 2007
3.5%
6.7%
2.5%
9.4%
datasource - unesco.org deďŹ nitions: Youth - 15 to 24 years, adults - 15 years +
There was a sharp improvement in literacy levels between 1991 and 2001. The sharpest improvement was in young females with literacy growing 18.4 % over the previous decade, and today, literacy levels in this group are at par with adult males, but lag behind young males by almost 10 %. Now to the worrying parts. Eight yers into the current decade, we are seing a noticeable slowdown in growth of literacy rates. In Young males, growth in literacy rates is a quarter of what it was and adult males it has slowed down to a third of the previous decade. Amongst females, growth in literacy rates have halved. Given that a few states have done exceptionally well when it comes to literacy, the actual slowing down is more acute than what the average shows. It is not as if this slowdown is because we have achieved internationally acceptable levels. Even amongst young males, we are still about 10 % below the best.
The opportunity It is not as if there is no investment being made into improving literacy levels. SigniďŹ cant investmenst continue to be made both by the goverment and the development sectors. What we need are solutions that are easily scalable and can reach out to dispersed audiences at their convenience and in consonance with their culture. The opportunity space continues to be huge, and so do the challenges.
Visit http://www.dare.co.in/graphs-statistics for more such informative data. 32
DECEMBER 2008
DAR E
DARE.CO.IN
/markets
5. Does recession mean that all companies are badly affected? No. A recession is an overall measure of an economy – a country. Within it, different sectors and companies could be impacted differently. Some could actually do well during this period. 6. What is a depression? A depression is a long and sustained period of recession.
Photo: iStockphoto
7. Is India in recession? No. The Indian economy is facing a slow down and not recession.
What is a recession? A quick FAQ /Krishna Kumar
G
ermany is technically in recession. There has been a lot of talk and confusion about recession. What exactly is it? How long does it last? Here is a quick primer. 1. What exactly is recession? There are many technical definitions, but a generally accepted rule of thumb is that two consecutive quarters of negative GDP growth signals that an economy is in recession. 2. Is it the same as a slowdown? Absolutely not. A slowdown means that growth is still happening, but at a slower pace than before. For example, if say India was growing at 9 percent per annum for the past few quarters, then a growth rate of 5 percent for the current quarter is a slowdown, but not a recession.
3. Is recession a normal occurrence? According to the traditional theory of business cycles, a recession is part of a business cycle. Clement Juglar's eight- to eleven-year cycles had periods of expansion, crisis, recession, and recovery. But these theories have been disputed. Even the concept of business cycles has been questioned. 4. Can we know in advance about recession? Unfortunately, no. While predictions can be made, we do not know when a recession starts, because, by definition, we need two quarters at least of negative GDP growth. Given that these figures are corrected after they are announced, it is quite possible that an economy is in recession even before it is formally stated.
8. What causes recession? Many different things can lead to recession. The events of 9/11 led to one in many countries. The series of recessions in Japan from 1989 was a result of the asset price bubble when high stock prices and high land prices collapsed. 9. What are the after effects of recession? That again depends on a number of factors, including cultural ones. Japan, for example, never fully recovered. Its manufacturing advantage was lost to Korea and China, amongst others. In the US, the great depression of the 1960s, saw a following period of reconstruction and innovation that redoubled its position as a super power. 10. Which countries are currently in recession? Germany is. OECD's latest economic projections for US, Japan and Euro area starts off ominously enough. "The OECD area economy appears to have entered recession, and unemployment is now rising in many OECD countries. OECD projections point to a protracted downturn, with GDP likely to decline by a 1/3 of a percent in 2009, but the uncertainties are large." 11. How can I best ride through a slowdown? Read the cover story of our November 2008 issue for tips. DAR E DECEMBER 2008 33
DARE.CO.IN
DILVINDER SINGH NARANG AYUR HERBALS
What started with meager Rs 5,000 in 1982 is now a Rs 150 crore company, and propelling fast towards the Rs 200 crore mark by the end of this year. Today, Ayur Herbals boasts of over 55 variants of hair, face, and skin care products, coupled with 2,000 distributors nationwide in the Rs 3,000 crore herbal cosmetic industry. Dilvinder Singh Narang, the entrepreneur behind Ayur Herbals, spoke to DARE about his entrepreneurial journey so far... 34
DECEMBER 2008
/bio
DARE.CO.IN
/bio an you share with our readers the genesis of Ayur Herbals?
C
Ayur Herbals came into being with one main motto — to make Indian women beautiful! Looking back, I think the journey has been very pleasant. Of course, there were a lot of hurdles en route. However, I have always faced all these hurdles with confidence, and ensured that we will always give the best to our customers. As for the genesis, I used to be a salesman in a company, back in 1982-83. It was during that job that I felt that there was tremendous scope in the business of cosmetics. I saw an opportunity lying vastly untapped. I believed I could do well in this industry so I took the leap and started Ayur Herbals, which is now a Rs 150 crore company.
Did you always want to be in the field of cosmetics? I came from the field of electronics. I did give a shot to become a doctor as well. However, in those days getting into
players already in the market. This led to a lot of questioning by the customers on the lines of: “Why pick your product over the others?” This problem was all the more aggravated as we did not have the kind of funds required for massive advertising and promotions. At this point we decided to route our products through beauty parlors, small cosmetic shops, etc. Eventually, the sales picked up a decent number and we started doing good business.
Where did you get your early support from? My early support came from my parents and my siblings who gave me the confidence to start up. As for funding, my father gave me Rs 5,000 to start this business in 1982. Besides this, my parents also gave me our old house, where I started manufacturing products on a very small scale and then tried to sell them daily. Like mentioned earlier, we had to route our sales through beauty parlors and small cosmetic shops.
entrepreneur of the month medical schools was extremely difficult. So I went ahead and studied cosmetology instead. This is where, you could say, my interest in cosmetics started.
Besides this, I would also say that I got a lot of support from the ladies using my products — many beauty contest winners, Mrs Chawla, and more who helped me enter into the field of cosmetics.
What was the biggest challenge that you faced in starting up?
What was your first big success as an entrepreneur?
I would say it is something like this — the day a child is born, challenges start in the form of ensuring healthy growth, to provide good food, to educate, etc. Similarly, when I started up this company, there was no dearth of challenges that came my way. The thing with me is that I decided to take one step at a time. The biggest challenge though was entry into the field of cosmetics. There were many established
My first success came after three years in 1985, when I introduced a nail polish remover, which at that time was an innovative product. The sheer simplicity of this product was that ladies just had to dip their fingers in a bowl full of this product to get rid of nail paint. This product helped me gain a lot of acceptance in the cosmetics market. After this, I introduced sugar-based hair removal wax, which again was a new concept and garnered huge success. Then I came out with an amla-shikhakai shampoo, which was basically a homemade product that we used ourselves — this product too was loved by customers. It is then that we came up with the brand name Ayur for our products.
DECEMBER 2008 35
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/bio
SUCCESS MANTRA/
BE SINCERE AND TRUE IN WHATEVER YOU CHOOSE TO DO AS A BUSINESS. BELIEVE IN GOD. What would you say was a failure that you learned a lot from? There were many failures — which I would say was mostly bad luck. However, there was one failure that I learned a lot from. I had got this huge export order. We manufactured the whole order, which they canceled on the day of shipment. We had to sell the whole batch of products in India slowly.
What was the biggest act of faith that you received in your early days? There was a Mrs Chawla who motivated me in preparing a variety of new products. Also, there was a Blossom Madam, who again showed a lot of faith in me. It was these two whose faith led me into coming out with innovative products and make a big business out of it.
preneurs it is crucial to keep a watch on the current market trends, and they must start slowly. I cannot really say how to find success in this fiercely competitive market. But I would suggest that slow and steady wins the race.
Can you tell our readers about market trends that you have seen for so long? Every day one sees new products coming into the market. And why shouldn’t they? Every day is a good business day in this field of business. If you are wondering when it is a right time to introduce any product into the market, I would say, whenever you have the resources and product ready — just roll it out.
Who were your biggest critics? Everybody! By everybody I mean the shopkeepers and dealers, not the customers. When we started off, our products were looked upon skeptically and rejected more often than not. I had to hear rude statements such as “Kahan se utha ke laaya hai?” (Where have you picked this up from?). As our products were conceptually new in the market, rejections were flying in from all directions. Back then, nobody had used a black shampoo, or a sugar-based wax hair removal cream, and so on. However, we kept going on and some dealers in the market gave us a chance. Once this happened, they realized that the customers were liking our products — the quality, the price, etc. From a state of inertia to a small move, we had to be ever so persistent.
With so many corporate giants in the field, how should an aspiring entrepreneur find success? One needs to come up with innovative concepts, good quality products at reasonable pricing to click with consumers. Of course, the big companies spend loads of money on advertising and promotions; also they have five- to ten-year plans figured out, etc. So for them it is not so difficult to maintain their market share. However, for aspiring entre36
DECEMBER 2008
As for gender break-ups, my products are used by both the genders, even though one would like to think of it as a mainly woman’s brand. The fact of the matter is that the break-up is equally distributed. However, most of my customers come from a middle-class background. Things were different back in the old days. Twenty years back, women hesitated to go out of home. Nowadays, all of them are coming out — for work, for socializing, etc. When going out they all want to look good, feel good about themselves. Quite simply, they need cosmetics.
Looking back, how much was luck and how much was hard work? I believe all this success is God’s blessing. Hard work has always been 100%, but then without Almighty’s blessing, all DAR E this would not have materialized.
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strategy/competition
How startups can take on established players? While the first customer could help break the ice, innovation, networking, competitive pricing, and good service quality can help you beat competition /Vimarsh Bajpai
W
hen Yedu Balehosur and Naresh Sadasivan founded Robust Designs, a software solutions company, in 1999, they found it paid to understand the need of their customers beforehand. The duo strongly believed that it was only through innovative use of technology that they would be able to help their customers and make a mark for themselves in the competitive IT business. A CEO of a mid-sized hospital in Malaysia told Balehosur that she was unable to keep track of her business and that hindered in her strategic decision making. “The idea of a CEO dashboard (with key metrics, updated daily) was then born, that would continuously aggregate data from multiple systems and update key metrics on her dashboard every day,” says Balehosur. This was the beginning of Robust Designs’ product portfolio and the acquisition of their first customer. It is a challenge for any entrepreneur to take on big and established players in the market but a multi-pronged strategy can help swim against the tide. Here are a few pointers that can help you tackle the competition: Know your competition: It pays richly to research the competition. Sometimes you are taken unawares of what hits you when you enter the market unprepared. Make a list of big players that rule the market, their products and services that are doing well, and also those that are not so 38
DECEMBER 2008
good. Tracking companies on a regular basis through the media can give you an insight into their strategies and plans for the future. Competition can also come from other startups vying for a piece of the pie and wooing customers in their own way. “Competition comes from two ends for us – the big established players and the two-bit startups. We are always at the risk of getting sandwiched,” says Shouvik Roy, founder-director at Brand Planet Consultants, a brand consulting firm. How does Roy deal with this? “We approach any new business with great zeal. We go back with real solutions for real problems – not contrived. Therefore, we have to constantly struggle to outthink the competition (small or big) on any given day. Now, that’s a challenge that we’re up to,” he says. Getting your first customer: A good rapport with your previous employer or the people you have been in touch with in the past can get you your first customer. If you are starting in a totally new domain, you may have to work hard in the beginning to make sales pitches to bag your first order. “Our first two customers signed up with us on the strength of the relationships we shared with them in our previous engagements,” says Roy. Mrutyunjay Mishra of JuxtConsult, an online research solutions consultancy, says he did not bother to poach into the customer base of his competitors. Instead, he focused on new customers who were entering India, looking to get their research work done. “Our first customers were those who were coming to India for the first time and did not know about India
DARE.CO.IN
strategy/competition and Indian research companies,” he says. “If you react to the market then you become better. If you react to your competition then you are dead,” he adds. Offering niche products and services: This has to be any startup’s best bet. It is also its biggest challenge. Offering those products and services that either already exist or those in which the big players are in good position will not work. As an entrepreneur, you have to keep thinking of how you can get noticed by what you offer. Take, for instance, the market research segment. There were many such firms when JuxtConsult entered the market. The entrepreneurs behind the company thus had to carve a niche for themselves. They found that using the Internet as the medium for market research was one such area. Thus, it made a mark for itself in the already crowded segment. Competitive pricing: It may sound clichéd, but as a startup you may have to put a competitive price tag to be able to take on the big players who can offer rebates at the drop of the hat. “Startups must price themselves competitively, not necessarily lower than competition/existing players,” says Roy. “An ‘entry pricing’ with an upward revision clause may work in certain cases,” he says. But it may get difficult to raise prices quickly, so it becomes important to think through the starting price tag. Balehosur of Robust Designs also believes that he does not want to lose a customer because of price constraints. “We, therefore, offer a variety of pricing and deployment models to make pricing a non-issue during the evaluation process,” he adds. Service Quality: No matter how good your product or service, if it annoys the customer, you have lost the game. Thus, as a startup, you can set new benchmarks for quality. It can make the big players jittery and also take note of you. This could be a great differentiating factor when it comes to competing against them. Here you can look into the shortcomings of the big companies and in turn fill in with your service.
Mishra believes that service quality and service satisfaction is always the function of expectations. So you create expectations and accordingly you make somebody satisfied. “If I know I can do something in two days, I commit five days to keep a buffer with me and then deliver in three or four days. You should set the expectations right at the beginning, keeping in mind your capabilities to deliver in the given time frame,” he says. Advertising and PR: When bootstrapping is the order of the day, it may
“
One satisfied customer can rope in many more. Outsourcing work to smaller PR agencies that are themselves startups could also help. They will understand the need for publicity from a startup’s point of view. Similarly, networking can also do wonders. Social networking websites have made it easier to spread the word.
”
be unthinkable to take on the big names on the advertising turf. But that does not mean that startups cannot reach out to new customers swiftly. Word of the mouth is the best strategy. One satisfied customer can rope in many more. Outsourcing work to smaller PR agencies that are themselves startups could also help. They will understand the need for publicity from a startup’s point of view. Similarly, networking can also do wonders. This can be done either through participation in conferences and events, meeting people through channels such as TiE, or even social networking on the web. Linke-
dIn, Orkut, and Facebook have made it easier to spread the word. Employee motivation: Startups can harp on the productivity of their employees by creating values such as hard work, punctuality, and customer service. While they may not be able to offer hefty pay packets, an inspiring work environment can make them get the most out of their employees. In big organizations most employees become a cog in a big wheel, while in the case of startups they can experiment with and come up with fresh ideas. Values such as integrity, hard work, and motivation should percolate from the level of the entrepreneur. This ought to go a long way in improving the productivity of employees. Constant innovation: It is through constant innovation that a startup can retain customers and add more to its kitty. As an entrepreneur, it becomes part and parcel of your role to think out of the box and work upon improving your products and services. Applying for patents is another way of ensuring that your ideas do not get stolen. An innovative streak can also help attract good investors who are on the lookout for such startups. It is only through innovation that companies like Microsoft, Apple, and Google have reached the top of the technology ladder. “Innovative products and services are great things to have in the portfolio. But given the time and effort any new product/service takes to sell, it is better to bring them onto the forefront once the basic cash flows needs are taken care of,” says Roy. Grab a pie in big projects: It helps to keep an eye on the work that large corporations get done from outside agencies, and grab a part of that business. You may be surprised at how big the money is. It can also lead to big-ticket deals and a steady flow of projects. Take the case of advertising. Large organizations that are consumer-focused have huge advertising needs and thus hefty advertisement budgets. Instead of giving the whole of it to a big advertising agency, they prefer to opt for a number of smaller agencies. It makes good DAR E sense to grab such business. DECEMBER 2008 39
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opportunity/transport
Ropeways: Opportunities waiting to be tapped Ropeways offer business opportunities not only as tourist attractions in hill stations, but also as cheaper means of urban transportation, capable of decongesting over-choked cities. /Ambrish Jha
S
ome call it the cable car, some aerial lift, and yet some others prefer to call it aerial tramway. Nomenclature aside, it has really caught the fancy of tourists, as evidenced by the hordes who don’t mind shelling out Rs 100 to 300 for a round trip of merely a few minutes in Mussoorie, Manali, or Raigad amongst others. Leading Austrian ropeway manufacturers have opened new vistas in the business by commissioning ropeways for public transport in three Algerian cities and one in Caracas, Venezuela. 40
DECEMBER 2008
The ropeway in the Algerian town of Constantine was opened to public in June 2008. It carries 24,000 persons everyday, even though it is operating from 9 am to 7 pm only. Its carrying capacity will increase further after the proposed increase in operating hours from 6 am to 11 pm. The other two cities in Algeria where this is being employed as means of public transport are Skikda and Tlemcen. Doppelmayr Garaventa, a leading manufacturer of ropeways, is in the process of commissioning a first time peak-to-peak
gondola lift at Whistler BlackComb resort in Canada, where the gondola will connect the two peaks-Whistler and BlackComb. “Ropeways are a reasonable means of... public transport,” says Ekkehard Assmann, head of marketing, Doppelmayr Garaventa. “We have already proved this a number of times, though a lot of people think [only] mountains and even skiing when thinking about ropeways.” Ropeways, which can reach speeds of 36 km/hr, can definitely be consid-
DARE.CO.IN Photo: Doppelmayr Garaventa
opportunity opportunity /transport /transport Ropeway specifications Type of ropeways
Capacity
Carrying capacity/hour
Top line speed
Surface lifts
1 to 2
1500
3.5 m/s
Gondolas
4 to 15
3600
6 m/s
Chairlifts
2 to 8
4000
5 m/s
Funitel
24
3200-4000
7.5 m/s
Funicular
400
8000
12 m/s
Bicable and tricable ropeways
Up to 15-17 (for 2S) Up to 40 (for 3S)
5000
6.5 m/s
tachable grips for safe and easy loading and unloading. The carriers, whose capacity vary from four to fifteen people, travel through the terminals at creep speed before accelerating to a line
ered an alternative to skyways, metro trains, monorails, and low-floor buses as a means of public transport in congested areas of cities like Mumbai, Bangalore, and Delhi. Apart from that, there are unexplored opportunities for regular mountain ropeways and skilifts.
Types of ropeways There are various types of ropeways, but the most sought-after these days are detachable gondola ropeways and chairlifts, with gondolas being India’s favorite. Gondola ropeways are one of the most economical and reliable ropeway types to operate, providing comfort and safety at the same time. They are attached to a haul rope with de-
reasonable Ropeways are a nsport. tra means of public proved this a We have already ugh a lot of tho number of times mountains ly] people think [on when thinking and even skiing about ropeways. mann, – Ekkehard Ass eting,
Head of Mark nta rave Doppelmayr Ga
speed of up to 6 m/s. Gondolas can be used to carry as many as 3,600 persons per hour. Detachable chairlifts, on the other hand, can carry two to eight passengers, though they can be customized for high transport capacities — up to 4,000 persons per hour — with a top line speed of 5 m/s. Chairlifts are preferred by winter sports resorts as passengers can ride the lifts without having to remove their skis or boards.
Surface lifts, which account for more than half of the total number of ropeways worldwide, are cost-effective solutions for transporting skiers and snowboarders. They are always designed for local requirements and can be engineered to cater to special needs like glacier footings, parallel lines, and angled tracks. These can hit a speed of 3.5 m/s and can be customized to carry 1,500 persons per hour. Top ropeway manufacturers, including Doppelmayr and Leitner (together they control 90 percent of the manufacturing business), have their own technologies as well that provide unique lateral stability and can carry far more people. Funitel, for instance, is perfected by Doppelmayr. This involves two haul ropes placed 3.2 m apart. Long spans can easily be covered on funitels and they can withstand winds up to 100 km/hr. It can gather speed of 7.5 m/s and ferry up to 4,000 persons every hour. Another technology, is funifor, where haul ropes are connected to carriers via four horizontal bull wheels. Leitner has funiculars that run on tracks at a speed of around 12 m/s. They can have cabin capacities of up to 400 persons, carrying up to 8,000 persons every hour.
Traditional ropeways Ropeways are traditionally operated in connection with tourism or pilgrimages, particularly in mountain areas. According to the estimates of International Organization for Transportation by Rope (OITAF), there are more DECEMBER 2008 41
DARE.CO.IN Photo: Kropivnik
opportunity/transport
than 30,000 ropeways functioning at the moment in the world. Of these, 58 percent are operational in the European Union countries, and are surface lifts that transport skiers and snowboarders uphill. As the business of ropeways is in its infancy in India, there is no concrete data available on the exact number of ropeways in the country. They have also been perceived more as a romantic rendezvous or were constructed for facilitating pilgrims’ visits to the deities in the hills. The Naina Devi Ropeway project was executed way back in 1990 by Ganpati Ropeways in collaboration with Damodar Ropeways, and is claimed to be the first major ropeway project in India. Usha Breco (UBL) presently operates five passenger ropeways in the country. These are Maa Mansadevi Udan Khatola, Maa Chandidevi Udan Khatola in Hardwar (Uttarakhand), Maa Mahakalika Udan Khatola and Maa Ambaji Udan Khatola in Pawagadh and Gujarat respectively, and Malampuzha Udan Khatola in Palghat, Kerala. Kropivinik Cableways has based itself in Chandigarh to cater to the demands from the hills in Punjab, Himachal Pradesh and Haryana. There are also projects in Mussoorie, Shimla, Manali, Parwanu, and other hill stations. Some hotel owners have started installing ropeways as value addition to their existing properties. Various ropeway projects are under different 42
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Leading ropeway manufacturers India 1. 2. 3. 4. 5.
Usha Breco RITES Kropivnik Cableways Damodar Ropeways Ganpati Ropeways
World 1. 2. 3. 4. 5.
Doppelmayr Garaventa (Austria) Leitner (Italy) Poma (France) Nippon Cable (Japan) Ansaku (Japan)
DISCLAIMER: This data and analysis are indicative and Cybermedia makes no warranties about its accuracy. You are advised to do your own analysis if you are evaluating a similar venture.
phases of development at various places, from Bihar and Jharkhand to Andhra Pradesh, and from Kerala to Maharashtra and Gujarat.
The business There are two main components of the ropeway business — manufacture and supply of the ropeway systems, and the operation of it. India does not have any major manufacturer of ropeway systems, though there are a few suppliers. These include Usha Breco (UBL), Kropivnik Cableways, RITES, and Damodar Ropeways. There are some other suppliers claiming to manufacture ropeways on their own, but they work either in collaboration with these Indian companies or some European company.
Even the original manufacturers have European partnerships or connections. Kropivnik Cableways, for instance, is promoted by Austrian-born Florian Kropivnik. UBL is a collaboration of Usha Martin with a specialized ropeway manufacturer of Britain, British Ropeway Engineering. Starting out on the manufacturing side may prove to be quite capital intensive and tedious, as it requires huge investments and efforts in research to ensure strong safety requirements and to tame unfriendly environments. Realistically speaking, India remains an operator country, thanks to tourism and the possibility of the use of ropeways to decongest over-choked cities. “There is nothing like a price per meter ropeway. There are so many variables that have to be taken into consideration while calculating the cost of a project. We have to have a very close look at a given project to do a sound calculation,” says Ekkehard Assmann. “Factors affecting cost requirements include topography of a place, carrier capacity, needs of the client operators, span of the ropeway, and ropeway technology chosen. Costs also depend on what you mean by ropeway business. If you want to build one surface lift you probably can get it even for EUR 200,000, but for a new resort, it will be much more.” Setting up a ropeway business can, thus, take anywhere from a few to hundreds of crores. RITES is working on a project in Rajgir, Bihar, that is pegged at Rs 8.5 crore. Contrast this to the Rs 300 crore project of installing a ropeway between Tirupati and Tirumala. The Visakhapatnam Urban Development Authority launched a ropeway project in August this year from the seashore to the summit of the Kailasgiri hill at an estimated cost of Rs 3.5 crore. There are many obstacles to planning and implementing ropeway projects. They come from several quarters — developers, civic bodies, landowners, tourism departments, environment activists, forest department, courts, villagers, and town planners — and one needs to be prepared to DAR E manage these along the way.
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Promoting Your Brand Without Advertising It stands out, then people will be interested in checking you out, generating invaluable footfalls.
/Rupin Jayal
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es, these are tough times. Yes, there is now a growing tribe of pundits who are dispensing advice on how to deal with the downturn. Many are predicting worse times ahead, and an equal number are expecting things to get better. Whatever the future is going to hold, one thing is really true: the future isn’t what it used to be. So if you are starting out or have a fledgling brand, how do you keep it in the minds of the people you are seeking to attract without compromising your rapidly shrinking budget? The key is to try to infiltrate rather than seek to invade people’s minds. This means going beyond the conventional – the so-called ‘unconventional’ brand communication methods. Events, promotions, and in-store activities are all great channels of communication, but are also getting overcrowded. The challenge is to reach out to people in a highly cost-effective way beyond these channels. However, to be really costeffective, one also has to create new languages of communication which maximize the impact of each channel. I am sure many DARE readers have received emails that show interesting ways to use shopping/carry bags. In a crowded market, if your retail outlet is fighting for mind space amongst a plethora of competing brands and other attractions and if your carry bag
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For a client who wanted to dissuade people from illegally entering their country, we created a street play that was performed 120 times. Critical to the success of the play was creating characters that audiences could easily identify with and hence connect with. Even details like names of characters, the language, and the visual identity for all the printed material had to be carefully thought through, ensuring a balance between the seriousness of the message and the degree of informality required to make sure that the message was not seen to be overly authoritarian.
However, infiltrating does not mean covering every available space with your brand. It means finding opportunities to reach out to the people you are seeking to address at a time when they may be receptive, and then to attract them with a message that provokes a response relevant to your brand. Like a disposable nappy brand that sets up nappy changing places in malls, where you don’t just change nappies but you can order them for home delivery; you can sit in a cool place with soothing music, and you could even have all your packages delivered there. The essence lies in understanding what role you can play for people. You might discover that by finding a lateral way to play that role you could actually create a very memorable moment in the day of the lives of your key customers. This means understanding what people expect from the product or service you are providing, and then finding a way to use this to reach out to them. For example, a service station that wants to score a point over its competitors could offer to regularly have their key clients’ cars cleaned on weekends for free. There are retail brands that offer (through a tieup) free bridal make-up services for clients during the marriage season. And then there is the well-known case of a bookstore brand that encourages you to sit awhile, read a book with a steaming cup of coffee, without any pressure to buy. But it isn’t just about providing a role that translates into some kind of free service. Creating controversy that focuses on your brand and sometimes forces a revaluation of it by people who have taken it for granted for a long time, can create a tsunami of interest. How you deal with a crisis can actually strengthen the bonds between you and the people you seek to attract. An
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/blog automobile brand in India, faced with a car that was less than perfect, created a strong customer relationship program and just stayed in touch with all those who had bought the car and kept them updated when improvements were made (apart from incorporating the improvements for free). Having a clearly articulated brand point of view helps because, particularly in troubled times, people do seek reference points with even greater intensity than during good times. By taking on social issues and championing a cause, brands can begin to play a larger role than just a commercial one (as Tata Tea seems to be seeking to do with its current TV commercial). However, the critical thing is not to treat this as purely a marketing strategy. Picking up a major social cause does place a far higher onus on the brand to truly be sincere about it rather than merely appearing to be so. If pursued with genuine fervor the brand’s actions alone generate interest – as Anita Roddick did when she created Body Shop. The brand got talked about and thus created a far larger and more differentiated space for itself than could have been achieved by just conventional advertising or promotions alone. Google is another great example of a brand built without expending vast sums of money even when it went up against what was a fairly well-entrenched competitor (Yahoo!). Another way to generate attention for your brand is to create landmarks. In a smaller town, bereft of greenery, owning the best-tended green space could be one simple way of ensuring your brand is well known as well as giving back to the people you wish to attract to it. Contributing to civic maintenance while creating a landmark would be a simple way to attract eyes to your brand. For example, taking up a stretch of road and ensuring that it is always well lit, well surfaced, with help on standby, could very quickly ensure that the stretch is referred to by the name of your brand. Naturally the services and experience you provide would need to have something to do with your brand’s category. This is not about ‘noble cause’, but ways to bring
attention to your brand without paying inordinate amounts for it; hence, the need to always have a clear link between the activity and your brand. Apple, by having enthusiasts rather than just sales assistants to man its stores, leverages the store experience to speak volumes for the brand. The retail experience (as many of us have experienced firsthand) is less than overwhelming a lot of times. This is an area where possibly having fewer outlets but manned by enthusiastic staff could create many positive ‘moments of truth’ that could translate into invaluable word of mouth. While many appreciate the importance of where the actual purchase transaction takes place, not enough effort is made to actually differentiate the experience. The actual point of purchase is a very important medium of communication. It is also
“
Understanding what people expect from the product or service you are providing, and then finding a way to use this to reach out to them
”
a place where investments are already made towards distribution and display. Often the communication solutions at this point tend to follow category rules that result in weak differentiation. The key is to cause abruption and thus create interest, for example, placing communication next to complimentary categories suggesting simple combinations for the housewife in a food store. This does not necessarily mean getting into cross-category tie-ups, but merely placing communication for your brand in categories that are complimentary. Another opportunity is the ‘temporary’ store, particularly in these times when the downturn is freeing up retail space. Think of it as a mobile exhibition, but acting as an actual retail space. This could give your brand presence and open up temporary channels without
having to invest in fixed brand spaces. In fact, it could be an interesting idea for a new business. A space that could generate word of mouth and increase the visibility of your brand is providing skill upgrades or acquiring new skills in using your brand for enhanced results. Preferably at the place of purchase the aim would be to help people use your brand in a more effective way. The object would also be to create brand advocates through this process; thus, actively pushing word of mouth. Depending on the category, it could also build attitudinal loyalty rather than mere behavioral or ‘expediency loyalty’. This would be both because the brand has delivered value by upgrading the ability of people to use it, thereby increasing the strength of the benefits delivered by it, thus increasing its differentiation in their minds. In addition, it would convert mere users into skilled proselytizers. Beyond this, communities could be built and the current trend towards social networking leveraged. In sum, there are significant opportunities to use various means to powerfully promote your brand without spending large sums of money in oneway mass media advertising. The areas outlined in this article are: 1. Provide a micro-service to customers that acts as a lateral and vivid means to create brand space in people’s minds. 2. Create a provocative point of view that generates conviction, espouses a cause, or generates controversy. 3. Create landmarks. 4. Leverage points of distribution, for example, the case of Apple. 5. Upgrade brand usage skills. The point is to extract moments of meaningful communication that would actually enrich your brand’s relationship with people without necessarily expending large sums of money to do it. So the current downturn might actually enable brands to create an upturn in the quality and depth of their relationship with people and build greater mind space that will ensure that ‘when the going gets tough, DAR E the tough build brands’. The Author is Director-Strategic Planning at M&C Saatchi. DECEMBER 2008 45
/http://www.dare.co.in/blogs.htm from the
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Elections in India will delay an economic rebound because the middle class does not bother to vote Posted by: Krishna Kumar in slowdown, Indian economy, government, financial crisis, country on Nov 14, 2008 ndia is in election mode. Voting starts today in Chhattisgarh and the elections will continue intermittently into 2009, culminating with Parliament elections.
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States and Polling Dates
Madhya Pradesh – Nov. 27 Mizoram – Dec. 2 Delhi – Nov. 29 Rajasthan – Dec. 4 Jammu & Kashmir – Nov. 17 / Nov. 23 / Nov. 30 / Dec. 7 / Dec. 13/Dec. 17 / Dec. 24 Lok Sabha poll dates are yet to be announced, and one hears of dates all the way from February 2009 to November. Even though it is nothing like before when TN Seshan was the Chief Election Commissioner, when the world's 12th largest economy and the largest democracy goes to the polls, it is quite an event. There are three reasons why this cycle of elections will delay an economic rebound. 1. Soft money will be pulled out In spite of what Seshan did, quite a bit of money, particularly of the softer kind, still flows into an election. This money is pulled out by politicians from where it is invested, to be spent on elections. In other words the ‘redemption pressure’ on the' businesses where these funds are invested is quite high, putting further pressure on an already beleaguered system. For sectors that are already under tremendous liquidity and pricing pressure, the outflow of funds to elections can only delay a rebound. 2. Because you will not bother to vote This election could well have been about the state of the economy, but will not be. Why? The current economic slowdown in India is mostly limited to the urban, and the middle and upper middle classes. And unlike the rural population, and particularly the poor, the urban middle class does not vote! In election after election, even in constituencies where it outnumbers others, even when there are compelling circumstances, the great Indian middle class cannot bring itself to the polling booths in sufficient numbers. 46
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So the political discourse and activity during the elections will pay lip service to the economic situation. Much will be said, there will be lots of breast-beating and even more hot air, but do not expect concrete action by politicians who want (or fear) your vote. 3. Government cannot make populist moves once elections are announced As per the code of conduct for the elections, once the schedule for elections is announced, the government cannot undertake any populist (read interventional) measures. So, for the roughly two to two and a half months from the announcement of polling schedule to the constitution of the new parliament and the swearing in of the new prime minister the government is a lame duck, virtually unable to intervene if an urgent crisis were to manifest. Now, this premise, on whether the government can make a populist intervention during a crisis once an election has been announced, has been untested and hopefully will remain so. But if it happens, the government will have to think really really hard before doing – or not doing – anything. So, in short, the elections will, for all practical purposes, delay an economic rebound rather than speed it up.
Has the government lost the ability for short-term intervention in the economic crisis? Or is it the will? Posted by: Krishna Kumar in recession, Indian economy, government, financial crisis, Business during Recession, Airline companies on Nov 13, 2008 as the Indian government lost the ability for short-term intervention in the economic crisis? Circumstantial evidence seems to point in that direction. Or are the attempts at intervention being directed at the wrong beneficiaries?
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Let me take some examples to illustrate my point: 1. Home Loan Interest Rates Home loan interest rates have become sort of a bellwether of the financial mood of the great Indian middle class, along with the Sensex. When the Reserve Bank of India reduced bank rates, the public statements were all about interest rates on home loans going down. But what happened? While the public sector banks reduced their home loan rates, most private players, including the two big ones – ICICI Bank and HDFC Bank refused to budge. And as a result, whatever push the Reserve Bank's action could have given to public sentiment and to the real estate sector was lost.
/http://www.dare.co.in/blogs.htm from the So, unless the real objective was to shore up the bottom lines of the private lenders by reducing their cost of funds, the reduction of bank rates as an intervention just did not work. 2. Airline Ticket Prices The airline industry has been in the news for all sorts of things in recent months and much angst has been in the air about the rising fuel prices and the consequent increase in ticket prices through fuel surcharges. The industry is still knocking on the doors of the government for financial aid packages. But what about the fact that fuel prices have come down to more than half their peak values? Did any airline bring ticket prices down? Not only did they not do so, but also the clamor for government rescue has not gone down either. Even statements emanating from the corridors of the government indicate that the fuel surcharges will not be removed anytime soon. 3. Finance Minister's Statements and Stock Prices Every time the stock market came under pressure, the finance minister would come to the rescue, basically stating that the Indian economy was sound and that there was no reason to panic. And the statement, combining the position with the charisma of the minister, used to work, at least in arresting the slide for some time. But soon enough, that too stopped impacting the downward spiral of the markets. Beyond these statements, there has been no other move to reinvigorate public sentiments. Is the Indian government going the way America went? Starting with Ronald Regan, the Republican Party in America practiced a minimalist governmental intervention model. They went a step further and also practiced a trickledown economic philosophy. The argument was that if the rich (and the large corporations) were to get richer, the benefits would percolate down the income levels and everyone would generally become richer. Three Republican presidents (Regan, Bush, and Bush) later, the results of this extreme shift are there for all to see and America has just voted for a decisive change. Is the Indian government following the Reagan model of benefiting big business and hoping that the benefits will be passed on? If it is, early evidence points to the fact that benefits are not passing down or are taking time to be passed on. And the longterm lessons from America should be sobering enough to warrant a second thought about a full play in that direction.
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The airline industry is in trouble not because of cheap tickets, but because it refuses to accept that times have changed Posted by: Krishna Kumar in strategy, hotels, government, financial crisis, consumer on Nov 09, 2008 have written before the Kingfisher–Jet airways alliance was announced about the need for the airline industry to revisit their business models. I have been thinking more about it, and the more I do so, the more I believe that the key problem with the industry is that it is slow in changing with the times. And I am not talking just about the airline companies. I am talking about the entire ecosystem – airports, airport restaurants, the air hostess training academies, pilot training academies, government, all of them. In another earlier post, I had discussed the classic case of the buggy whip company. Similarly, times are changing for the airline ecosystem as well, and they are not adapting fast enough. That is the root cause of their troubles. In short, the whole ecosystem, including much of the industry itself, continues to think of airlines as a luxury service meant for the ultra-rich. But the profile and tastes of the average flier has changed dramatically. Among many others, Capt. Gopinath ensured that. The entire airline ecosystem has to accept and adapt to this change. In its early days, air travel was meant only for the rich, (most of whom were afraid to fly anyway!). So they had to be enticed with untold luxury, and wined and dined like the kings, queens, and princes they were in real life. For the rest of us, it was to be the trains, the buses, and the boats. In keeping with its user profile, the industry invested a lot into luxury, high-class service, and in creating an image of exclusiveness. And they charged exorbitantly for everything, from tickets to airport snacks, and in turn could afford to spend heavily on costumes for hostess and accommodation for their crew. The government in turn could afford to tax the industry at luxury rates for everything from fuel to landing facilities, and every one else in between joined the bandwagon to have a merry time. But then, flying became middle class, and more people started doing it. The low-cost airline revolution was all about cutting costs wherever possible. But, while the airlines cut their costs, the rest of the ecosystem continued on their merry ways. Not only that, they built more luxury hotels and more luxury into airport restaurants; upped the costs of building new airports; and clad their crew in even finer PG 77 livery to cater to these low-cost fliers!
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funding/strategy Avigo Capital is an independent private equity manager formed in 2003 with a focus on private equity investments in the SME sector in India. At Avigo, Vivekâ&#x20AC;&#x2122;s key roles include deal evaluation and structuring, business performance improvement, corporate strategy and fund raising. Prior to this, he worked with Accenture in a management consulting role. He holds a degree in mechanical engineering and an MBA from INSEAD.
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ow has been the performance of your portfolio companies so far? Our portfolio, on aggregated basis across the 10 companies that we have now invested (as part of the $125 million SME II fund) grew at around 60% from last year to this year, and even better on profits-after-tax (PAT). Companies tend to grow faster on profits than on revenue. We incentivize them to do so. As for performance on a valuation parameter, I donâ&#x20AC;&#x2122;t have an immediate benchmark for these. We look at performance from a growth aspect, and more so on PAT perspective. We are an SME focused investor. We are looking at investing in private companies that have over $30 million in sales (Rs 100-150 crore in terms of its range), and then scale them up
Vivek Subramanian Partner, Avigo Capital Partners 48
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funding/strategy towards $100 million in terms of sales. So, we are targeting companies that have a proven profitable track record. And then we put in growth capital to scale up from where they are to a significantly higher level. In terms of profits, from entry to exit, we almost see an increase of around 10 fold in our portfolio. We are dealing with smaller size companies in relative context, but they are still quite established companies and business models. We are more old economy focused, that means more of engineering, infrastructure, power, refrigeration, chemicals etc. Given the current slowdown, has there been a change in your investment mix? The slowdown will impact our strategy. However, we continue to remain bullish about our focus on the industrial segment. We continue to believe that it is where the long-term opportunity lies in India. For a 5-10 year horizon, we see no reason to change our long-term strategy. SMEs, by definition, don’t have a very strong balance sheet. So in an event of a downturn, you would expect them to be impacted. In these difficult times, we are look-
vestee companies’ response to the crisis has been fantastic. We have examples of companies that have rehashed their travel policies, all air travels now seek approval of the CEO, all hotel stays have been cut down, people are taking trains to travel etc. This is not because they are running out of cash. This is more of a philosophy. Everyone is talking about a slowdown, everyone is saying that the future is uncertain. Our companies are keeping a close watch on their expenses. They have reacted pro-actively. We are spending a lot of time with our investee companies telling them what the crisis is all about and what potential impact it can have. At the same time, we are falling back on them as well to tell us what they are seeing on the ground. One of our entrepreneurs told us that he wasn’t seeing any slowdown on the ground. The reactions are varied. They are seeing the challenges on the financing side as it is the key aspect of their growth. You can’t grow very fast if you do not have the active support of your bankers. On the demand side, they haven’t seen a significant slowdown as yet, but they are keeping a close watch on that too.
investor of the month ing at slightly larger size companies than we did before. This means that while I would have invested in a Rs 50-70 crore sized company before, now I would have to look at a larger sized company. I am not excluding small size companies but as a preference, I would like to do a little more of Rs 100-150 crore company than I would to a Rs 70-100 crore company. These are difficult times and therefore businesses that are more asset intensive would find it a bit of a challenge now to make sure that they get their capex expansions financed by banks. We have made a conscious attempt to look at those companies that have a lot more rigor or would be more favorable towards investments with a little less asset intensive focus. But there could be exceptions. How are your portfolio companies reacting to the financial crisis? Cash is king, more so for SMEs than ever before. Our in-
What kind of back-end team you have at Avigo? How does it work with your investee companies? SME investing is more about what you do after you have made the investment. We have a team of 16 people. If you look at some of the larger funds in India, they tend to outsource a lot of their work that is done internally by fund managers. Outsourcing can even be at the investment side, which means that some of the due diligence could be pushed out, even the business due diligence can be outsourced. And the other is post- investment outsourcing as part of which you can hire consultants etc. We are not comfortable with that. We have a vice-president or a principal and an investment manager dedicated to a company. Typically, a VP and an IM manage three-four companies. So the VP sits on the board. He manages the relationship, speaks to entrepreneurs on an everyday basis. The IM also interacts extensively with the promoter, the CFO and the operating personnel.
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DARE.CO.IN For us, the important aspect is getting the sense not only of how our investee companies performed in the quarter in terms of financial results, but also the challenges they face. Today, this kind of communication is more important than it ever was. It is also a risk mitigation mechanism because once we are on the ground, we can see the challenges coming very early, and that is useful. Nine out of ten companies that we have invested in are owned by first-generation entrepreneurs. They are very receptive to this kind of partnership. We appreciate that involvement. There is no avenue of work at the company that we do not involve ourselves in. Be it corporate strategy, recruitment, business development, new markets etc, all avenues are touched upon. Most entrepreneurs have the perception that when investors come in, they try to call the shots. How do you allay such fears? Part of the due diligence that we do is about how the partnership is going to work. There are some promoters who felt that at operational level, they didn’t want to involve us when it comes to knowing the individual margins of every job. We respected that. Sometimes you have to give them that space. We don’t want to curb entrepreneurship at our investee companies. The important aspect is to get a full sense of what are those key avenues where they need strengthening. The first thing that one should do as an investor is to demonstrate one’s ability to add value to the company. Once you have done that, then automatically the pull starts to come. There are times when we had immense debates with our entrepreneurs about what is the right thing to do, and we may disagree. We have reviewed the decisions from time to time and course corrected the cases. But if I were to sit down and impose my decision there, I think I would have taken the wrong path. Of course, legal documents are meant to enforce when things don’t go right. We have very stringent mechanisms. In a couple of cases we have enforced that. But I think one should get the structure right – getting the free flow of thoughts, building the concept of partnership, and letting the entrepreneur run his business by showing our ability to supplement his growth. What kind of exits do you look at, given the fact that lot many SMEs are not very keen on IPOs? The Indian stock market is very broadbased and you can do an IPO very early. There are many companies that have gone for an IPO quite early. So, IPO is not out of the SME wing. If anything, as an SME investor, I have few more exit avenues than other private equity funds. I can sell it to larger private equity funds or look at strategic sale option. Strategic sale options are more prevelant in SMEs than they are in larger caps. The avenue of exit to larger private equity funds is also an option, and in India there is so much money raised on large cap size that sometimes you get great valuations. However, the IPO continues to be our favored exit route. This is a combination of two reasons. One is 50
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funding/strategy that valuations there are fantastic and the other is that it is what the companies want from us. So when we go in, it is not just about raising money, it is also about corporatizing it. Our way of corporatizing is to help them think, report and behave like a public company well in advance. For example, the necessary clause of our investment is that one of the Big Four auditors takes over as the statutory auditor immediately. And then they have a track record of having one of those Big Four auditors well in advance of an exit event. We call it an exit event because we may not necessarily exit, we may continue to be there for a year-and-a-half to show the continuity to the market. What kind of investment period do you look at? We want to create an exit event in 3-4 years. So that there is enough time after the exit event to take a call on wanting to stay invested or not. Sometimes for example, our investee company is going through an IPO, and as part of that the mandate given to us most often is to make sure that we should go and bring in sophisticated international investors, who understand the story in the long term. So, we are helping build the IPO book as well. When we show the inside story to a lot of investors outside about why is it that we found this as an exciting story as early as we did, then saying that we are exiting as part of an IPO doesn’t quite add up together. Therefore, we say we feel committed about the company and we want to stay invested in the company. So, the exit event materializes in 3-4 years of our investment. And then by 5 years or so, we should have an exit. What is the minimum ticket size of the investment that you make? We do anything from $5 million to $15-20 million. Our first ticket size for a company will be sub-$10 million. Then when we begin working with them and notice that the relationship is going fine, then within a year we make follow-on investment. Thus, follow-on investment is a very important part of our strategy. There is a company in south India, where we have done three follow-ons. 25% of the money of this fund (SME II) keeps going back into follow-on investments into our companies. In more than half of our companies, we have made followon investments. What’s the most challenging part of your job as an investor? It is the tight rope walk between two entities. On one side I have investors. These are large international institutions. They are seeing global slowdown and they are asking me what is happening in India. On the other side, I have my investee companies. The expectations that both have are very different. If you ask the investors, they would want to see extremely conservative decisions right now. If you ask my companies, they would say there are few fringe players that are falling away, so it is time to press on the accelator DAR E and grab a position.
DARE.CO.IN
strategy/startup
Flexi-timings and startups Given tight budgets and low headcounts, flexi-timings are not a great idea for startups
T
he debate over the pros and cons of a nine-to-five job vis-à-vis flexible timings is an old one. Several large organizations in India, including IT majors, consumer goods behemoths, and consultancy firms, have been offering flexible working hours to their employees as part of their retention policies and with the belief that it increases productivity. Large corporations have the wherewithal to implement such policies. Can startups do that too? If it works well for big companies, can it deliver same results for small businesses? Chetna Manglik, Regional Head (North) of PlugHR, an HR consultancy firm, shares the experience of a client who had to withdraw flexi-timings from its system as it created a lot of ‘confusion and contradiction’. She says that flexi-timings are usually helpful in a company where an employee is given individual targets to achieve. However, in the case of a group, it doesn’t work that well because somebody might come in early, while others late. “So in that case there is a communication gap, and as a team, they might get only three or four hours together. Hence, the whole idea of teamwork is defeated,” she adds. And since teamwork is vital for a startup trying to create a foothold in the market, the idea of flexible work hours may actually backfire.
have additional resources such as an HR person, an admin person, security, etc. to manage employees. Manglik says some companies provide commuting facilities to their employees. When it is a big firm, even if 50 people opt for flexi-timing, it may be just 1 percent of the workforce. So for 50 people buses could be arranged. But in a startup there might be 50 people in total, and even if five opt for flexi-timing, it does not work as one might need to arrange separate cabs. Hence, the costs keep rising. She adds, “And if you do not provide this facility, it becomes a contradictory situation since the number of hours they are putting in is the same as other employees.”
The cost factor
Employee management
Another reason why the company in the foregoing example chose to do away with the system was the resultant increase in costs. At a time when companies are adopting Darwinian tactics to dodge the effects of recession, this system may burn a hole in their pocket. Giving the benefit of flexi-timing to employees means the office has to remain open beyond the normal working hours. This translates into increased costs in terms of electricity used for lighting, air-conditioners, and servers. Also, one needs to
Besides these, you might need to hire an additional resource just to manage and monitor these employees, and also to track their in and out time. If you are a company that deals with providing services, this practice may not be beneficial. For example, if a restaurant or hotel employees are allowed flexi-timings, it is quite possible that without proper supervision, there may be times when there are no employees working during some hours. This might give the business a bad image.
What is Flexi-timing? It is the option to allow employees to work for a specified number of hours per day between office hours that are decided by the employer. This means that the in time and out time depend on the employee. What are the disadvantages for startups? •
Is not applicable in all industries/jobs
•
Costs escalate
•
Affects teamwork
•
Monitoring employee output is difficult
/Aswathi Muralidharan Tracking employee output Opting for flexi-timings requires a robust tracking system to monitor employee output, which means additional costs yet again. According to Animesh Dasgupta, Practice Head, Executive Access, flexitimings work best for higher level employees. He says, “It requires maturity on the part of employees and understanding of the assignments from end to end. It can be built in organizations where the employees understand the significance of their outputs, which is very important.”
No for all Industries/job roles In India it is mostly IT and consulting firms that have opted for flexi-timings. Explains Manglik, “It does not work well for companies that deal with machinedriven work; It only works for companies that are into mind-driven work.” Dasgupta agrees:“Flexi-timings prevail in sales jobs, especially field sales, which depend on the customer’s timings.” Another area where this is being practiced is in project-based work. Here, the employee timings are decided according to the project consultants’ timings.
Size of the firm Flexi-timings work better for bigger firms, as they can afford to cough up the extra money required for additional resources. Says Dasgupta, “Big companies have the infrastructure to monitor employees. Flexi-timing is good only where the output is measurable, and big companies have the leisure of doing so.” Not only this, a startup has to have a higher employee utilization rate compared to bigger organizations. In companies that opt for flexi-timings, employee utilization is around 60 to 70 percent, while a smaller company has to have the maximum utilization of the skills of its employees. Therefore, this may actually prove to be disastrous in the long run for startups DAR E and smaller companies. DECEMBER 2008 51
DARE.CO.IN
strategy/transport
Is it better to lease your cars? Cost benefits and hassle-free maintenance make leasing a better option vis-à-vis buying, but some conditions apply /Aswathi Muralidharan
I
t is a dilemma that every entrepreneur is likely to face sooner or later. Every business, however big or small, has to keep aside a significant sum for the transport needs of its employees. But what should one do to keep this cost down? If you think buying the fleet is an option, then think again because leasing could have its advantages too. Having said that, whether to buy or to lease is the question that
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remains; to which the answer is: it depends on your priorities. For many people, purchasing vehicle is a kind of an investment. For others, saving is the need of the hour, and they prefer to tie up with such service providers. Whatever the reason, one should not just look at financial comparisons before making this decision. Here is a guide to what one should consider before making the choice.
Lease, buy, rent. What is the difference? Typically, when one buys a vehicle on cash payment, one pays the entire amount of the vehicle. Similarly, when one opts for an auto loan, one pays the cost of the vehicle plus the interest. Besides these, maintenance and the fuel costs also have to be taken care of. Now picture this. What happens after a few years or after the loan period is over? The vehicle you purchased has depreci-
DARE.CO.IN
strategy/transport Indicative (approximate values) Lease Rentals Vs EMI: Segment
Ex Showroom Price
Lease Rental/ Month*
Monthly EMI (RoI: 14%)
Segment A
Rs. 3.5 lakh
Rs. 9,600
Rs.9,453
Segment B
Rs. 5.1 lakh
Rs. 13,760
Rs.13,775
Segment C+
Rs. 9.4 lakh
Rs. 24,500
Rs. 25,390
*SOURCE: LeasePlan India; lease tenure: 4 years; interest rate (fluctuating from 17% upwards at the moment); includes repair and maintenance (including tyre maintenance); includes taxes (VAT, service tax); discounts from the dealers (if any); value-added services: breakdown assistance, pick-up and drop, replacement car.
“Vehicle leasing today has become a preferred choice of the corporates and its employees. While organizations benefit from releasing its capital from its non-core assets (cars) and making it available for core business, employees can make substantial savings by paying for the lease rentals pre-tax and also avail value added mobility services.” – Sanjeev Prasad MD, LeasePlan India
ated in cost, and, obviously, keeping the other costs in mind, you have ended up paying more for the vehicle. On the other hand, when a vehicle is leased for a certain number of years, you pay only a part of that cost. When leasing, a monthly rental is calculated based on the cost of the car, insurance, maintenance costs, and depreciation over a period of time. At the end of the lease period the leasing company takes care of the disposal of the vehicle. According to Sanjeev Prasad, Managing Director of LeasePlan India, the monthly lease rental is lower considering that it includes other costs, compared to a monthly installment when purchasing a car. This means, the extra money that you would have otherwise spent on purchasing a car can be invested better in core business. But is leasing different from renting? Explains, Prasad, “In rental, the car is a physical stock of the renting company. The customer uses it for some time – day, two days, or a week – and returns it. In this case, the car and its maintenance is of the rental company’s choice. In contrast, while leasing, the car is never in the physical possession of the leasing company. It is always with the customer and the choice of car is also that of the customer’s.”
What are the benefits of leasing for corporate organizations? Cost benefits: First, a company opting for lease does not have to make a capital purchase of the vehicle. They just have to pay for the use of the car. According to Karunesh Arya, Chief Operating Officer of Lease Business of Carzonrent (India), “Let us consider any vehicle and evaluate its value after
a period of time. If we say, this vehicle will fetch us 40 percent of its initial amount after the lease period, then, 60 percent of the vehicle cost is what is taken into account to be charged to the customer.” Hence, the cost factor becomes significantly less. The effect of this is that there is no use of the company’s precious equity in buying the vehicle. If a company has taken a debt, their debt raising capacity gets affected in case of buying. But in the case of leasing, there is no equity allocation required, which can be used for their core business. Another benefit is that company vehicles are generally not used to generate revenue for the business. It is used by the employees for official needs. In this case, leasing helps as the leased vehicle becomes a completely off-balance-sheet item. There are other benefits as well. Explains Arya, “There are three things: first, when a leasing company buys a vehicle, they are able to get better deals from the automobile manufacturers; second, in terms of operating costs, it becomes a pre-budgeted expense, that is, you know you are going to shell a particular amount to maintain the vehicle, and are not going to pay anything more than the lease rent; third, we as a leasing company get a good garage benefit, which can be passed on to the consumers.” This might mean that while going for the lease, to get a better deal, you can negotiate with the dealer on price. This can be especially beneficial for smaller players because say if they buy, say, five cars, out of which two encounter some problem, then a major part of its fleet is affected. Now, if DECEMBER 2008 53
DARE.CO.IN these vehicles had been leased out from a company that had 1,000 vehicles, the probability of getting affected becomes much lesser. Thus, becoming a part of a larger fleet reduces costs. Tax benefits: There are also advantages to be had when it comes to tax considerations. According to Arya, “If companies buy a vehicle, they get depreciation benefit at 15 percent. If they take debt, on the interest part they get a tax break. Let us say a company leases out a car for a period of three years, on about 40 percent of the asset value. Then they they get a tax break benefit. Whatever the lease rent paid, including maintenance cost, there is an expense off the complete piece. So you get a far higher tax break than when the vehicle is in your books.” Focus on core competency: Buying is just one part of acquiring, but another major part is managing it, which might not be the core competency of the company. According to Arya, “Leasing provides a complete outsourcing of fleet management activity, which takes care of all aspects, from buying the fleet to complete management like repairs and maintenance of the vehicle, managing insurance, breakdown services, and annual renewal of insurance. Mobility: Another question that might have popped up is what if an entrepreneur has offices in several cities, or, on a larger note, across several nations. Can car leasing be a solution to that too? Well, yes. Let us say you have 20 offices across the country. There is a corporate office that houses the administration department, and the other departments are located elsewhere and have just a few employees. You want that all employees should get equal transportation benefits. In this case, says Arya, “Leasing can help as most leasing companies have a good network, and we can provide leasing services in those cities at no extra cost.” Hertz provides services in 78 cities through its tie-ups. Similarly, if you have an international fleet, then global car leasing companies can help. Says Prasad, “Besides having a presence in 150 Indian 54
DECEMBER 2008
strategy/transport What are the benefits of leasing for employees?
“A three-year lease period is beneficial. The value the vehicle gives after three years is the most optimum used car sale value. Another thing is that the maintenance cost on the car is quite optimal for a period of three years.” – Karunesh Arya COO, Carzonrent India (Lease Division) cities, we also provide services abroad through LeasePlan International.” No minimum order size: There is no minimum order size; no matter how big or small your company is, you can opt for car leasing. According to Prasad, “We do have clients whose requirement in just one car.” Wondering how they manage it? “The point is simple,” adds Arya, “a company may have a two-car requirement in a particular city, say, Jaipur. But we may have 100 to 200 cars in Jaipur. And since we have garage and insurance tie-ups, we are able to provide services at no extra charges.”
Benefits of opting for leasing • No capital outflow • Tax benefits • Reduces problems away from core area • Access to services across country and cross country (depends on lease partner)
“As for the employee,” explains Arya, “the benefits form the lower cost of the car — he gets a benefit of lower cost of maintenance, expert advice, and a priority benefit at the garage.” Besides these, the money for the car goes from the pre-tax salary, which means the employee gets a slab benefit on the income tax. Another advantage is that if a car breaks down and if the company has opted for uninterrupted mobility, the employee gets a replacement immediately. Therefore, he is mobile at all times. He does not have to follow it up with the garages, among other things.
What all to take care of? Consider this. What happens if the vehicle is stolen or gets damaged? Generally, the cost you pay to the leasing company is GAP-covered. This means, if your vehicle is stolen or is damaged, the insurance company and the leasing company pay back for it. But be careful, there might be a catch in this. Since all the cost is not borne by the insurance company, there is a chance that you might end up paying the residual amount. The second thing is: read your exit clause thoroughly. Once a car goes back after the lease period, it is sold in the second-hand car market. This is done by the leasing company itself. However, the customer might have to pay the residual amount. This means, say for example, a car is worth Rs. 5 lakh and you have paid Rs. 70,000 as the lease amount, after the end of the lease period if the car is sold for Rs. 4 lakh, then the remaining Rs. 30,000 might have to be paid by the customer.
When is leasing better? Car leasing is not always better. It is not economical when it is done for a very short or a very long period. According to Arya, “A three-year period is the average. The value the vehicle gives after three years. It is the most optimum used car sale value. Another thing is that the maintenance cost of the car is quite optimal for a period of DAR E three years.”
DARE.CO.IN
/going global
Doing Business in France Fresh labor reforms, tax incentives for R&D, and world-class infrastructure offers lucrative opportunities for Indian entrepreneurs in the worldâ&#x20AC;&#x2122;s ďŹ fth largest economy /Vimarsh Bajpai
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/going global
DARE/opportunity areas n
Agribusiness
n
Automotive
n
Energy and Chemicals
n
Information and Communication Technology
n
Logistics
n
Pharmaceutical and Biotechnology
n
Renewable Energy
I
t was with an eye on the $2 billion French generics market that Wockhardt, the Indian pharmaceutical major, acquired France-based Negma Laboratories last year in an all-cash deal worth $265 million. Negma was a strategic buy for Wockhardt as it gave the latter a unique opportunity to extend its patented portfolio to other markets in Europe. The French company had 172 patents to its credit at the time of its acquisition. Not just in the pharmaceutical sector, Indian companies in sectors as diverse as IT, telecom, electrical equipment, and manufacturing have entered France in a big way. In mid-2008 OnMobile, the telecom VAS provider, lapped up Telisma, the France-based speech recognition software provider. With Telisma in its kitty, OnMobile aimed at underlining its presence in the European market by launching new speech recognition language modules. Other Indian companies such as electrical equipment major Crompton Greaves, CNC machine manufacturing company, Jyoti, and IT majors like TCS and Wipro are already present in France. TCS entered the country in 1992 and maintains its head office in Paris and a regional office in Toulouse. It serves over 20 French companies, including the likes of Airbus.
Why France? The world’s fifth largest economy has
always remained an attractive destination for investors seeking to benefit from top-class infrastructure, a highly productive workforce, superb R&D facilities, and the opportunity to reach out to the lucrative European market. Although the UK and Germany have slipped into recession, France continues to hold fort. Its economy reportedly grew by 0.4% in the third quarter of this year. France’s hallmark in infrastructure is marked by around 10,500 kilometers of motorway, one million kilometers of roads, six international airports and around 20,000 kilometers of highspeed trains. According to the Invest in France Agency, over 2.5 million companies operate in France, and there are 20,000 subsidiaries of international firms in diverse sectors. These subsidiaries provide employment to around two million people, double of what it was ten years ago. France treats foreign and native companies at par when it comes to rules and regulations and public financial support. This makes it easier for foreign companies to buy property or take it on rent. According to the Invest in France Agency, the country is the third least expensive industrialized nation, next only to Canada and Singapore. It cites a KPMG study that puts France as the leading country in Europe with regard to the cost of set-
DARE/doing business Ease of….
2009 Rank
2008 Rank
Change in Rank
Doing Business
31
32
1
Starting a Business
14
12
-2
Dealing in Construction Permits
18
18
0
Employing Workers
148
148
0
Registering Property
166
162
-4
Getting Credit
43
40
-3
Protecting Investors
70
66
-4
Paying Taxes
66
90
24
Trading Across Borders
22
26
4
Enforcing Contracts
10
12
2
Closing a Business
40
35
-5
Source: World Bank Doing Business 2009 Report DECEMBER 2008 57
DARE.CO.IN
/going global In view of the global financial crisis, do you believe it would be difficult for France to attract fresh investments into the country? Yes, it is true that business is slow. Our agency that helps foreign companies invest in France needs to be more professional and competitive. It is an opportunity for us to improve our processes. Our economy has been resilient compared to those of the UK and Germany. It is a good signal for Indian companies. They come to Europe because of its market’s highest purchasing power. If Indian companies want to take a pie of the market, they need to be present there. Thus, we want France to be their preferred destination. The country’s workforce is very competitive. France’s infrastructure is also world-class. The mode of transport is very fast. And 80% of France’s power comes from nuclear sources. This is the reason why a lot of companies enter France. What makes France an attractive destination for Indian entrepreneurs?
France is on the move. It is more attractive today like never before. The French government has brought about several reforms in labor laws. During my interaction with CEOs of Indian companies, I found that their main prior-
Serge Boscher
ity is labor when it comes to choosing France
Managing Director, Invest in France Agency
as a business destination. They want flexibility
in employing people. These reforms are an interesting response to their need. There is a gap between how France is perceived and the reality of business. Many Indian businessmen who have invested in France want to acquire companies. Unfortunately, we only have fifty Indian companies in France. India ranks 14 when it comes to foreign direct investment in France. The French government wants to double the Indo-France trade in five years. We want to attract more Indian companies. Which sectors would prove lucrative for Indian businesses?
I am amazed to see the quality of entrepreneurship in India. They are quick to grasp opportunities. Renewable energy is one area where I am seeing interest from Indian entrepreneurs. The industrial sector in France is very lucrative. Information technology is also an interesting area. India is very good in the IT sector.
"OUR ECONOMY HAS BEEN RESILIENT COMPARED TO THOSE OF THE UK AND GERMANY. IT IS A GOOD SIGNAL FOR INDIAN COMPANIES" 58
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/going global ting up a business. According to the World Bank’s Doing Business Report 2009, it takes five procedures and seven days to start a business in France. This is below the OECD level of 5.8 procedures and 13.4 days. France has worked extensively over the past one year on labor reforms. This is part of its government’s efforts to bring in more companies, and make itself more competitive vis-àvis its neighbors. The reforms have a multi-pronged strategy aimed at giving greater freedom to people to work more, more autonomy for companies for work week arrangements, and enough flexibility to negotiate with trade unions. Although the legal duration for a working week is thirty-five hours, companies can now negotiate with trade unions on this front. To promote research and development, the French government provides tax incentives in the form of research tax credit. It is a corporate tax incentive based on R&D expenses incurred by a company based in France. This incentive is available to firms of all sizes and from diverse sectors. Companies applying for tax credit for the first time or those that have not availed of this facility for the last five years are eligible for an ‘introductory bonus’. This gives a research tax credit rate of 50% in the first year and 40% in the second. The budget for research tax credit has doubled over the past two years. In 2008, the amount was pegged at 3 billion, up from 1.4 billion in 2006. To further promote innovation, the country has been notionally divided into seventy-one clusters that bring in a competitive edge to R&D. Each cluster brings together private firms, universities, and research laboratories to work closely with each other or various projects spanning a host of sectors. This could help Indian investors tap the network and benefit from the brightest minds in French R&D. According to the Invest in France Agency, the majority of firms availing of research tax credit are not laborintensive. Eighty six percent have less than 250 employees. R&D represents an average of 19% of the total expendi-
INDO-FRANCE TRADE
Note: All figures in US$ million Source: Ministry of Commerce, Government of India
Distribution of companies receiving research tax credit in 2005 according to labor-force size (including subsidiaries)
Source: Report on the research tax credit in 2005, Ministry of Research and Advanced Education, May 2007
ture incurred by companies eligible for research tax credit; 55% of the total research credit was granted to these smaller firms.
Doing Business 2009 The World Bank has ranked France 31 with regard to the ‘doing business’ parameter. This is an improvement of one rank over last year. The country,
however, has done exceedingly well on the ‘paying taxes’ parameter, having moved up 24 points from 90 last year. On ‘trading across borders’ and ‘enforcing contracts’, France improved its position by 4 and 2 respectively. But when it comes to closing a business, registering property, getting credit and protecting investors, the country has DAR E slipped some places. DECEMBER 2008 59
DARE.CO.IN
/INSEAD
Managing your noble intent /Irawati Gowariker
60
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DARE.CO.IN
/INSEAD
C
ompanies like HDFC Bank, CII, Hewlett-Packard, IMRB among others have one thing in common. Employees of each of these companies have been voluntarily donating a part of their pay to a worthy cause, thanks to a pay-roll giving program started by Give India. Eight years ago, Give India’s founder Venkat Krishnan saw an untapped opportunity in increasingly discerning donors and developed an operational model to encourage a giving-culture amongst Indians. The result: over 100,000 donations amounting to over Rs. 55 crores have been made across India through Give India, to help change the lives of 1 million people. The now-famous “Yes we can” attitude is the driver for most social entrepreneurs including Venkat Krishnan. But a deep dive into the experiences of entrepreneurs running successful social enterprises, reveals a hard-nosed business outlook as well. With a governing board comprising senior executives and heads of large corporations, Give India has synergised business principles to run a socially-focussed venture. This professionally managed social enterprise has done due diligence and short-listed 135 beneficiaries from over 1000 NGOs. And that is not all, service is guaranteed!
The now-famous “Yes we can” attitude is the driver for most social entrepreneurs including Venkat Krishnan. But a deep dive into the experiences of entrepreneurs running successful social enterprises, reveals a hard-nosed business outlook as well. DECEMBER 2008 61
DARE.CO.IN
With a governing board comprising senior executives and heads of large corporations, Give India has synergised business principles to run a socially-focussed venture. This professionally managed social enterprise has done due diligence and shortlisted 135 beneficiaries from over 1000 NGOs. Each person who has donated money through Give India’s platform, gets regular updates on the impact of his/ her donation, however small or large the amount. Give India is a not-for-profit enterprise, but several others, which prac-
/INSEAD tise creative capitalism, as coined by Bill Gates, are for-profit enterprises. One such enterprise is Earthy Goods, founded by Reshma Anand. While concepts like innovation and change are often used interchangeably, former Innovation Manager with Hindustan Unilever Ltd. Reshma Anand knew just how to differentiate them and use innovation to create change. As the founder and CEO of Earthy Goods, Reshma Anand’s venture enables agribased enterprises in remote parts of rural India to become competitive and viable businesses. Sharing her unique formula for change, Reshma explains, “By creating a marketing platform that supports many other enterprises, we are able to address the problem of fair market access. This in turn supports the village economy where our partners are based, by creating jobs and secure incomes for people, particularly women in those areas”. Supported by the Network Enterprises Fund, an initiative of the Chennai-based ICICI
Foundation, Earthy Goods has already helped its 12 partners double their revenues in a short span of 2 years. But Reshma is not alone in her efforts towards rural upliftment. R.K. Mishra, winner of Lead India 2008 – a popular, televised 6-month campaign that urged citizens to take the lead in changing India, is a firm believer of generating income opportunities for rural masses. He steers the Change India mission which has galvanised people keen to “make a difference”. Currently working on a 3-year pilot project to transform one village pan-
“
By creating a marketing platform that supports many other enterprises, we are able to address the problem of fair market access. This in turn supports the village economy where our partners are based, by creating jobs and secure incomes for people, particularly women in those areas. — Reshma Anand CEO, Earthy Goods
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/INSEAD
Over 100,000 donations amounting to over Rs. 55 crores have been made across India through Give India, to help change the lives of 1 million people.
chayat comprising nine villages and 1400 families in the Sitapur district in Uttar Pradesh through non-agriculture opportunities, Misra is committed to doubling the income of each belowpoverty line family after the first year of this pilot. In favour of for-profit socially-focussed ventures, Misra feels they can motivate more people towards social entrepreneurship, “A fantastic model. I call that a business with a heart! In fact for my rural initiative, I have put in an initial amount of Rs 1 crore, but the next set of investments will come through micro finance, which is a viable business”. Citing CK Prahlad’s theory of business at the Bottom of the Economic Pyramid, this social entrepreneur and a celebrity in his own right says, “I don’t feel that it is a must to put the profits back into the business. As long as the cause is served and people are happy, there is no harm in people getting paid well and becoming rich”.
When asked if fame through Lead India 2008 had kick-started his life as a social entrepreneur, Misra takes us back to 2002 when he started social initiatives through the innovative Public-Private-Partnership (PPP) model. Misra has a firm ‘grounding’
R.K. Mishra, winner of Lead India 2008 – a popular, televised 6-month campaign that urged citizens to take the lead in changing India – is a firm believer of generating income opportunities for rural masses. He steers the Change India mission which has galvanised people keen to “make a difference”.
in social projects having creating over 100 high quality roads in and around Bangalore through the PPP approach. He explains, “After seeing the first 3 roads that cost us Rs. 30 crores, media wrote about it. The Karnataka government appointed me as the co-chair of Empowered committee of Infrastructure and then we did as many as 100 high-quality roads”. This civil engineer with a master’s degree in urban planning and transport engineering adds, “The govt has not been able to serve certain sectors of society and we as social entrepreneurs are trying to fill that gap. So to understand what govt has done or is trying to do and having them as a partner using PPP model is the best way forward”. Backed by this experience and past professional responsibilities, also as an IT company CEO, Misra has judiciously grown his network to become an effective change leader. Past experience in the corporate sector can be hugely beneficial while DECEMBER 2008 63
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/INSEAD steering social enterprises, feels Give India’s CEO, Ujwal Thakar. After 28 years in the banking industry, he took a step into this space as the CEO of Pratham, an NGO in the area of universal primary education. Elaborating on his role there, Thakar says, “I was expected to introduce corporate processes, institutionalise them to make them effective, while also ensuring that the energy of the movement that was Pratham, was preserved”. With his expertise in retail banking, Thakar was quick to notice an inadequate liquidity of funds as soon as he joined Pratham. “As liquidity can be a stumbling block to growth, I decided to establish my credibility with the board and our founder Madhav Chavan by addressing this early. And with the board comprising heavy-weights of the likes of Mukesh Ambani and Kumaramangalam Birla, greater accountability for Pratham was the need of the hour. First, I finetuned its accounting system and quickly managed to standardise it”. Thakar’s banking experience came handy when he, “got cashflow planning in place with steady sources of funds”. In her ongoing efforts to catalyse change, Reshma Anand too recounts her Unilever experience as invaluable. “Having worked extensively in rural markets with HUL, I have been able to bring a deep understanding of consumers
Past experience in the corporate sector can be hugely beneficial while steering social enterprises, feels Give India’s CEO, Ujwal Thakar. After 28 years in the banking industry, he took a step into this space as the CEO of Pratham, an NGO in the area of universal primary education. 64
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/INSEAD
Give India’s founder Venkat Krishnan saw an untapped opportunity in increasingly discerning donors and developed an operational model to encourage a giving-culture amongst Indians. and markets, basic business processes in managing complex operations and measuring impact into the blueprint of Earthy Goods. I got my grounding in managing tough situations, leading a team of people and working with different stakeholders at Unilever”. Pointing out the large untapped ‘market’ and the endless opportunities that exist for social entrepreneurs,
Misra is more than convinced that “the switch from corporate sector to social sector is also very enjoyable”. He draws an interesting parallel thus, “Here you measure profit in terms of well being and happiness of people you intend to serve. In a corporate, you are looking into the happiness and $$ of your shareholders. Whether a CEO of a company or a Social Entrepreneur, the challenges are similar, business principles are the same and management style though different, has the same objective of satisfying either your customers, shareholders or beneficiaries”. By making the switch from the corporate to the social sector, Reshma however candidly admits that, “The rules of business and competition apply to them as much as mainstream companies. But the context in which partners or beneficiaries work may be very removed from the norm. For instance many of our producers have to travel miles to get to work braving
tough terrains and weather. Supplies can get disrupted by snow. But the customer would want deliveries on time. It is best to accept and mitigate these challenges in your business model”. But despite these challenges, how are ventures like Earthy Goods, Give India and the Change India movement steadily growing in popularity? How do they fare well in this multidimensional construct of social entrepreneurship? Ujwal Thakar places the success of Give India, fair and square on the founder “Venkat’s energy”. This CEOFounder relationship is symbiotic. Thakar believes his role is “to free up Venkat from his day-to-day admistrative responsibilities so that Venkat’s energy can continue to propel Give India’s growth”. Having led two social enterprises, Pratham and now Give India, Thakar observes similarity in the personality traits of both its founders, “Although Madhav Chavan and Venkat Krishnan as individuals are at two ends of the spectrum, they have both got a dogged determination, a deep empathy for the cause, a risk-appetite, (they are) sincere in their work leaving a magnetic impact on others, stubborn yet good listeners, and finally always evaluating themselves and others”. Success of a social enterprise rests largely on how engaged its people are and Thakar explains, “Energy creation and new ideas are vital. Most people that work with social ventures are driven by their passion but they can’t be energised by old ideas. And with limited or no funds allocated for staff training, I encourage colleagues to look for mentors in other large corporations so that they can gain from this knowledge exchange”. With a passion for mentoring young do-gooders himself along the path of success, Thakar adds that, “at GiveIndia, we conduct performance reviews for our staff and recently we have started rewarding staff members to recognise their good work”. Volunteer management is a tough task for most social enterprises as their availability is erratic. “At Pratham, volunteers were taken in only if they committed to a minimum period of nine months” and he is convinced that, DECEMBER 2008 65
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Pointing out the large untapped ‘market’ and the endless opportunities that exist for social entrepreneurs, Misra is more than convinced that “the switch from corporate sector to social sector is also very enjoyable”. He draws an interesting parallel thus, “Here you measure profit in terms of well being and happiness of people you intend to serve. 66
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“volunteers should be given the same accountability and reviewed as regular staff from day 1. This not only helps improve their effectiveness but their availability for an assigned task”. In her efforts to catalyse change, Reshma spells out a few other imperatives, “Comfort with diversity, the ability to connect with people, respect for local expertise and wisdom and being decisive. While it is important to know our goal post, also recognize that the path isn’t one straight line. The right combination of patience and persistence can keep you going” “Don’t take everything too seriously – a socially focused venture can be fun, can be smart and savvy in marketing and can be a great place to work in”. This is Reshma’s mantra for keeping teams engaged. On making their model scalable and sustainable, Reshma’s biggest learning has been, “Less is More. Its much better to work with a few partners, understand their enterprises deeply and take them to scale rather than work with many partners and spread resources thin. This has helped us understand the real triggers and challenges for scale. To ensure sustainability, we’re working continuously on improving supply efficiencies, aligning incentives and margins with the value created by each player in the supply chain and engaging financial institutions to provide appropriate funding to our partners. What we’ve created so far is a model that can now be scaled with the right financial inputs and a strong implementation team”. Management principles for a business venture or social enterprise, according to this IIM graduate, remain the same. “At Earthy Goods, we have an internal planning exercise with goals and objectives defined for each team member in line with the overall company objectives. Team members in each functional area identify the assets they can create. These assets could be new customers for the sales team, a new
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/INSEAD
Look at various social issues from a solution viewpoint rather than thinking of them as problems which are to be solved by someone else. It is best to start from the home base as proximity is important. When you are well known, have expertise and are recognized by stakeholders, then you can grow your canvas and go beyond your city, state and maybe country.
”
— R K Misra
Change India
product formulation for the food technologist, a partnership of several local groups for the sourcing team etc. Over the course of the year, the qualitative impact on our operations is measured. We measure our performance with the success of our partners and align incentives for all team members with this objective as well. Most team members have gone beyond their standard job descriptions.” And, R K Misra, the Lead India campaign winner “leads by example as most people are new to this domain”. The change mission that he is steering has 1000+ volunteers. Making yourself accountable is the basis of Misra’s social initiatives and he urges, “Look at various social issues from a solution viewpoint rather than thinking of them as problems which are to be solved by someone else. Recounting his journey since 2002, he is convinced that, “It is best to start from the home base as
proximity is important. When you are well known, have expertise and are recognized by stakeholders, then you can grow your canvas and go beyond your city, state and maybe country”. To sum up, stand-out traits that mark a change leader are the display of entrepreneurially-moral behaviour, the ability to recognize value-creation opportunities and key decision-making, innovativeness, proactiveness and a risk-appetite. And finally, a rational unity of purpose and action in the face of moral complexity. May causes such as Give India’s mission to create a strong “giving” culture where Indians donate 2% of their income every year to give the poor a chance be replicated by an army of change DAR E agents amongst us. With her rich media background, Irawati Gowariker has led strategic communications for the IT arm of HSBC and ANZ in India. Irawati now ‘dares’ to go beyond large multinationals to tell the story of some Indian entrepreneurs. DECEMBER 2008 67
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/graphs & stats
What percentage of the total are small businesses?
/Krishna Kumar
S
mall businesses are small. right? Reality is actually the opposite. Small businesses are really big and large businesses are small. Let me explain. In any country, small and medium enterprises form the bulk in terms of numbers, while large businesses form a very small percent. In India too, the case is no different. If we were to take the number of employees as the indicator of the size of a business, then, in the case of manufacturing, large businesses - those who employ 250 or more people, are just 5.6 % of the total! The graphs alongside are for the year 2004. How does this compare with other countries? According to the OECD (Organisation for Economic Cooperation and Development), "The contribution and importance of small enterprises across economies varies considerably. Generally, the larger the economy the lower the proportion of small enterprises.". Further, "In most economies, the percentage of businesses with less than 10 persons employed is over 70%. The reverse is true where the number of employees is concerned, where businesses with more than 20 employees contribute around 70% or more." To that extent, the Indian manufacturing sector is more skewed towards larger organisation sizes. This could be because of lower levels of automation and because the general business environment is more conducive to larger organisations.
Data source - OECD
How to read the chart - Less than 10, 23.6 means 23% of all manufacturing enterprises in India by number had less than 10 employees.
Opportunity Obviously, there is a huge space for even more small, medium and micro enterprises in the country.
Data source - OECD
Visit http://www.dare.co.in/graphs-statistics for more such informative data. 68
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Special Interest Groups @ TiE Delhi
S
pecial Interest Groups (SIGs) are smaller networking groups of TiE members who share interest in a specific domain. SIGs are industry-specific forums connecting seasoned entrepreneurs, industry executives, and venture capitalists to provide a high-quality network and community for SIG members and to the broader TiE community. There are currently 3 Special Interest Groups in operation focusing on Education & Training, Internet and Social Initiatives. Education & Training Special Interest Group In April 2007, this was the first SIG to come into existence at TiE Delhi. Since then it has seen regular monthly events and participation. The SIG was started with a vision to connect the entrepreneurs in the E&T sector with emerging opportunities, investment trends and complex & changing regulatory environment. The SIG also aims to engage with regulatory bodies to better understand the policy structure and use this knowledge to better leverage the opportunities in the sector. Internet Special Interest Group The Internet Special Interest Group (SiG) aims to inspire the next generation of Internet entrepreneurs by creating a cutting edge platform for showcasing ‘next’ practices, focused discussions on emerging issues and to impact the policy framework for the sector. The Internet SIG was formally launched in an exclusive event on 14th March 2008 featuring Ram Shriram, one of the foremost thought leaders & investors in the Internet space. Ram shared his views on the theme “Evolution of the Internet and Where We Are Headed”. Social Initiatives Special Interest Group The mission of the group is to create a forum for social, business and technical entrepreneurs with a strong interest in social entrepreneurship that will assist them in translating their interest into substantial social contributions. Currently, the core group for the SIG is working on a finalizing the structure for its initiatives. The SIG launch event is tentatively scheduled for early next year. Do visit the TiE website for updates on the same. For more information on the above mentioned Special Interest Groups or membership, please write to:
Nitin Agarwal – nitin@tienewdelhi.org, Manish Joshi – manish@tienewdelhi.org
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blogs/opinion
The Engine of Entrepreneurship /Anurag Batra
T
he success of any enterprise can be attributed to the efforts of a select number of people. However, it is always the vision and the energy and vision of one single person at the helm of affairs which propels the organisation forward. If life is a journey and entrepreneurship the train, then the train reaches its proverbial destination because of the speed and direction of the engine. The person at the helm is the engine of the organisation, and it is his (or her) zeal and vision which sets the momentum of success for the organization. It was Michel Greber who said that “A business without a dream is a life without a purpose.” The vision of the entrepreneur is perhaps the most important component in the success of any enterprise – it is the compass of the organization – giving direction to the enterprise, and it is the zeal of the entrepreneur that sets the speed at which the organization progresses towards the destination, in this case - the entrepreneur’s vision. The person incharge knows where the organization is going, and knows when to change or steer the path of the organization if it is not going in the right direction. While there may be many lieutenants driving the subsets of the organization, they must all act in consonance with the word of the single entity driving the organization. Take for example
the leading organizations in the world; Steve Jobs is credited for the success of Apple, and Bill Gates for the success of Microsoft. While Paul Allen had a huge hand to play in the success of Microsoft – it is clear that the vision was always that of Bill Gates, and that he was the person at the helm of affairs. Closer to home, the success of leading organizations can be credited to select individuals. Sunil Mittal is clearly the reason for the success of Bharti Airtel, and Aroon Purie (India Today Group) and Dr. Prannoy Roy (NDTV)
“
While it is true that a lot of people work towards creating any enterprise, the final credit for its success (and for its failure) lies with the person at the helm of affairs
”
are stated to be the engines of their respective organization. But what makes these entrepreneurs successful where so many have failed in the past? In my opinion, it is 100% dedication to their work. They were not detracted from their work by something else in the horizon. I find the words of Carleton S. (Carly) Fiorina, the erstwhile CEO of Hewlett-Packard particular relevant in this context, who said “My advice is to focus 100 per cent on doing your job better than anybody else. I’ve seen a lot of high-flying people fall flat because they were so focused on the next job, they didn’t get the current job done.” But this is only half the story. Truth be told, it is usually the dream of im-
mortality that drives the entrepreneur to creating something substantial. I don’t mean the usual definition of living forever – actually I do, but in a different sense. That the entrepreneur creates something which becomes his legacy through time, and lives on even when he is gone, thereby making his name immortal. I know that I am digressing from the famous words of Robert Woodruff (of the Coca-Cola fame) who said, “there is no limit to what a man can do or where he can go if he doesn’t mind who gets the credit,” but I really think that at some level, it is what drives an entrepreneur through the tough times – the vision of creating something of significance, and being credited with its success. I believe that the entrepreneur who creates the enterprise has a right to such a credit. While it is true that a lot of people work towards creating any enterprise, the final credit for its success (and for its failure) lies with the person at the helm of affairs. Jack Welsh once told an interviewer in the 1990s “Everyone who’s running something goes home at night and wrestles with the same fear – Am I going to be the one who blows this place up?” It is true – uneasy lies the head that wears the crown, but then entrepreneurship is not for the faint of heart. It is not just about creating an enterprise – it is about constantly improving and growing it to the next level. And only someone who has the zeal and the vision to do so deserves to be the engine of the organisation. DAR E Anurag Batra is real life, first generation entrepreneur who is Much Below Average (MBA) from the prestigious Management Development Institute, MDI. When he is not busy writing such columns, he can be reached at anuragbatrayo@gmail.com. Anurag is the co founder and editor-in-chief of exchange4media group which includes exchange4media.com. DECEMBER 2008 71
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sector/auto
Electric cars come of age hange in the electric ar segment, thanks to oncerns about global arming, and also ue to advancement technologies. The st electric sports car, e Tesla Roadster, atching conventional ars bit by bit, has hit e market in the US and e UK, creating plenty of citement even in these ours of distress. /Ambrish Jha
“T
he acceleration power is downright startling. When you set up on that pedal, hold on to your hat, because it could go flying. Braking down from high speeds is really quite smooth as well. The turning radius is tight and driving at normal speeds, well...it’s a car. It definitely gets you from point A to point B. It just does it in some serious style,” writes Stins, or, to use her real world name, Cristina, at greenhome. huddler.com. She was not commenting on a new sports model from any of the auto majors GM, Honda, Toyota, or Ford. These were her views on a new electric ‘sports’ car, the Tesla Roadster, which has created quite a buzz. The first electric car model to be rolled out by Tesla, it reaches 0 to 60 mph in under four seconds, as company claims, and can go more than 200 miles on one charge. And, if your car needs a recharge, just plug it in like your mobile. DARE readers will, however, recall that the Tesla is not the first electric car to hit the market. The Reva, an In72
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dian avatar, created quite a stir when it first rolled out in 2001. It has continued to grow ever since, and now sells in 13 countries, including the UK. Th!nk City, bought over by Norwegian investors from Ford in 2003, has been produced on a commercial scale since 1999. With sales of over 10,000 units annually in Europe, the company ( Think Global) claims to be the only mass producer of electric cars of any sort. So, why is there such a buzz about the Roadster? What separates it from others is its resemblance to conventional cars. The Roadster matches conventional cars almost on all counts, a far departure from electric cars, which were treated at best as entry-level cars. The Reva, according to newspaper reports, is also working on a bigger model to enter the US market, and Think is working on the fifth generation of Th!nk City. Auto majors Toyota, GM, Honda, BMW, and Hyundai are all working on electric cars. (They are also aggressively working on hybrid-converted-electric cars, where the vehicles will run for a few
miles on gasoline before switching over to batteries).
Electric Vs Conventional Electric cars are technically different from conventional cars. They are far less mechanically complex as conventional cars. Tesla says on its website: “Sophisticated electronics and software take the place of the pounds and pounds of machinery required to introduce a spark and ignite the fuel that powers an internal combustion engine. “The typical four-cylinder engine of a conventional car comprises over a hundred moving parts. By comparison, the motor of the Tesla Roadster has just one: the rotor. So there’s less weight to drive around and fewer parts that could break or wear down over time.” With no internal combustion engine in place, electric cars don’t need lubricating oils, filters, coolants, clutches, spark plugs and wires, a PCV valve, oxygen sensors, a timing belt, a fan belt, a water pump and hoses, and a catalytic converter. Electric cars rely mainly on two components – battery
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sector/auto and motor. A major component of research and development in developing electric cars actually goes in finding the right technologies for the battery. There is no single proven battery technology in use. Lithium-ion battery systems seem to be more popular, though different players do their own value additions to come up with their distinctive products. According to Tesla, they have “combined available and proven lithiumion battery technology with our own unique battery pack design to provide multiple layers of safety. It’s light, durable, recyclable, and is capable of delivering enough power to accelerate the Tesla Roadster from 0 to 60 mph in under four seconds.” The battery stores enough energy for the vehicle to travel about 220 miles without recharging, something no other production electric vehicle in history can claim, the company says. Th!nk City, on the other hand, uses two kinds of lithium-ion-based and one sodium-based battery. The Reva uses lead acid batteries, though reports suggest the company is working on lithium-ion-based system batteries for its new model. The company claims that the motor used by its models is comparable to the engine in a conventional car. The Reva has a three-phase AC induction motor with a torque of 52 Newton meter at zero speed, and the motor can run at a high speed of 8000 rpm, the company says. Tesla also boasts of a powerful motor that is capable of giving ‘super acceleration’ to its cars.
A brief history of electric cars Fascination with electric cars had begun way back in the 19th century itself, when the first electric car was invented in the 1830s. Innovations have been going on ever since, initially driven more by the passion of a few creative brains, but later more as necessity – mainly to reduce dependence on fossil fuels. This has become problematic for more than one reason. Firstly, cost of the fossil fuels has touched alarming levels, and secondly, there is global warming.
Auto majors have pitched in conservation activities, even though they always found more business sense in selling conventional cars. Things have, however, started changing of late. Some experts, and most of the auto players, find that cost incurred on developing engines meeting stringent environmental norms too high. They have started finding business sense in developing business cars. It is worth noting in this context that Saudi Arabia, a major oil producing and exporting country, has always advocated in OPEC meetings to keep fuel prices within a threshold level. Higher prices have always led to bigger expenditures on researches finding alternatives to fossil fuels, Saudi maintains. It has always lived with the fear that developed countries might ultimately find alternatives to fossil fuels. And this would directly mean a death blow to the economies of the oil producers.
Roadster is produced at Hethel, England, but the final assembly takes place in San Carlos, where Tesla builds and installs the car’s lithium-ion battery packs. The present financial crisis in the West, however, has some bearing on Tesla as well. The company has shelved plans of coming up with another model for the time being. A distinct disadvantage with the Roadster is that it takes three hours to recharge the battery. Another obvious disadvantage, accepted by Tesla, is that after 100,000 miles the battery will need to be replaced. One may end up spending a good amount of money for this. However, one can wonder if someone paying more than $100,000 for this model may find this as disadvantage actually! Still, Tesla Roadster seems a fitting response to those who always value electric cars as entry level cars.
Reva Prominent models A number of electric cars have hit the market over the years, thanks to the efforts of a few creative individuals and companies. A majority of such players have faded away, but a few survived, some of which are doing well commercially. A number of new models are expected to be launched in near future. Let us have a look at some of these.
Tesla Roadster Tesla has delivered 50 of its $109,000 Roadsters to customers this year, though the base price is pegged at under $100,000. News reports from American papers suggest the weekly production of the Roadster as of now at 10 vehicles. The company plans to triple its output by early next year. Tesla says it has orders for more than 1,200 cars from customers in the US and Europe, though it is planning to supply not more than 300 cars a year. Roadster sales might be expanded to Asia in 2009, the company chairman and main investor Elon Musk was reported saying in newspaper reports. Musk named Tokyo, Shanghai, Singapore, and Hong Kong as potential markets in Asia.
The plastic-bodied indigenous Reva is designed for low speed, congested, urban conditions, and is classified as a quadricycle (category L7e) under UK and European law. The Reva, which is marketed in London as GWiz, has reportedly been driven by celebrities like Kristin Scott Thomas. It is reported to have sold over 1,000 units in England. The top speed of the Reva is approximately 50 miles per hour, and it can go around 49 miles on one charge. Recharging takes significantly more time compared to the Roadster – up to eight hours to recharge the battery fully. Reva, which raised $20 million in 2006 through two US-based venture capitals, is said to be working on a UScentric model. Its biggest advantage compared to Tesla is its relatively lower price – $9,000 -$11,000.
Th!ink City This ‘urban car’ is manufactured by Think Global, a Norwegian firm. The company, which sells 10,000 cars annually in Europe, plans to increase its production to 30,000 to 50,000 units. The four-seater has a top speed of 65 DECEMBER 2008 73
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sector/auto
Popular Electric car models Cars
Top speed
Distance covered in one charge
Time for recharge
Price
Tesla Roadster
125 mph
220 miles
3 hours
$98,000 - $109,000
Th!nk City
63mph
110 miles
8 hours
$25,000.00
Reva
50mph
49 miles
8 hours
$9,000 - $11,000
Subaru R1e
65mph
50 miles
8 hours
$17,500 (price in 2012-13)
Zap Xebra
25 mph
25 - 40 miles
mph, and a range of 110 miles. The car, which is priced at $25,000, is made from 95 percent recyclable materials. The car meets all the safety features prescribed for the conventional cars in the UK and the US. Think is coming up with new models as well. This includes the new fiveseater Th!nk Ox, which will come in two variants. This model will have two compartments for batteries and it can be charged up to 80 percent within one hour. A roofless model of Th!nk Ox is also being marketed by the company as Th!nk Open, the company says on its website.
Subaru R1e Electric Urban Commuter The two-seater Subaru R1e, capable of driving at speeds up to 65 mph, with a range of up to 50 miles, has been developed by Subaru in partnership with Tokyo Electric Power Company (TEPCO). The Subaru R1e can be ‘quick-charged’ to 80 percent capacity in only 15 minutes, thanks to the state-of-the-art fast-charge Lithiumion battery used. The vehicle can be fully charged overnight (eight hours) while connected to a standard household electrical outlet. Some 40 Subaru R1e vehicles are currently in use. Subaru’s parent Fuji Heavy Industries is adding 100 more electric vehicles into a consumer test program in Japan in 2009.
2002 Toyota Rav4 Electric Vehicle The Toyota RAV4 EV is an all-electric version of the popular RAV4 SUV. It is powered exclusively by NiMH bat74
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$11,700.00
teries. Only 328 RAV4 EVs were made available in November of 2002. After the 328th unit was sold, the program was unceremoniously shut down. The backbone of RAV4 EV, NiMH EV-95 battery, which was produced by Texaco for Toyota, was no longer available, as the company was acquired by Chevron from General Motors. With this acquisition, Chevron also acquired the patents over the EV-95 batteries, and Toyota (and Panasonic) had to pay $30,000,000 to Chevron to settle patent violation issues. Chevron decided to close down the production line for the large NiMH batteries. With this came the sad demise of a promising electric car. Toyota has, however, announced it is working on electrical cars again, and these will be launched sometime in the near future.
Chevy S10 Electric & GM EV1 GM made electric Chevy models in 1997 and 1998 to comply with the California zero-emission mandate from the air resources board. These were sold and leased as a fleet vehicle. As the fleet life of these vehicles ended in 2006, the few that were fully titled (rather than leased) were auctioned to private owners. As a result, there are about 60 of these EVs on the roads today.
Zap Xebra Zap, a distributor of fuel-efficient alternative energy vehicles in the United States, launched the XEBRA in 2006. This comes in two variants – four-passenger sedan version and a two-pas-
senger utility pick-up version. It has a top speed of 40 mph, and is priced under $11,700, according to the company website. There are some other companies working on electric vehicles, including Zenn Motors, Myers Motors NmG, Universal Electric Vehicles’ Electrum Spyder, and Mitshui. According to the Electric Auto Association, there are over 56,000 EVs on the roads today.
Future It is estimated that almost all EVs sold till date are low-speed vehicles. This notion is also destined to change with Tesla, Reva, and Think coming up with vehicles with reasonable top speeds. These vehicles are now almost 100 percent pollution free. Auto majors have flirted with this segment from time to time, stopping short of committing to mass production. Probably they have not been convinced of creating infrastructure for recharging of vehicles, and conventional cars made more business sense. This is likely to change, thanks to an initiative taken by Hero Electric (a subsidiary of Hero Group), which is going to set up 2,000 recharge stations in 2009. The company is doing it to boost the sale of its electric scooters. They intend to increase this number to 10,000 in three years, an official from the company confirms. Once set up, these can also be used for charging cars and other electric vehicles. Chetan Maini, founder of Reva, was probably correct when he had said in a previous interview with DARE: “I think that over time you will see [recharging] infrastructure being built up.” He had said that a similar problem in London was resolved with the government putting up electric charging facilities in all parking lots. No wonder then that some auto experts have already predicted electric cars being the new savior of the sagging auto sector. Their unanimous suggestion – bigger players (read GM, Ford and Chrysler) should focus on this segment for their survival. Rest assured, plug-in technology is DAR E very much alive and kicking.
/http://www.dare.co.in/blogs.htm from the PG 47
Why else would a new airport cost a few thousand crore
to build? Why else would two idlis cost almost a Rs 100 at the new Bangalore airport? Obviously, if your idli shop is in an airport that costs Rs 1334 crore to build, you would have paid good money to get that shop. And in turn you have to charge a premium for two idlis to survive! Why else would you have to spend more than Rs 1000 as taxi fare at both ends when you fly from Bangalore to Hyderabad? Why else is airline fuel priced the highest in the region here? So, what can the industry do? Far too many have enjoyed the benefits of flying to let the industry revert to catering to just the rich. The problem is that, unfortunately, for the airline companies it is not a question of just them alone changing. The entire set-up has to understand that times have changed and has to adapt accordingly. While the pain of the airlines themselves is splashed across TV screens and newspaper front pages for all to see, the pain of the rest of the ecosystem is not visible. What about the infrastructure companies that have taken on high-cost airport development? Or the food industry that is supplying food to the airlines? Or the hotels that put up the crew? Obviously, all of them are feeling the pinch of an industry refusing to change with changing times. It is high time the whole airline ecosystem understands and accepts this. No amount of government aid or deferral of fuel price payments will wish away the problem. They are just palliatives, not permanent solutions. Till then the pain will continue; in cycles, in surges, till the industry changes.
Hotels and Tourism in India: Dealing with the global meltdown Posted by: Binesh Kutty in tourism, strategy, slowdown, recession, meltdown, information, india, idea, how-to, hotels, government, geographical indication on Nov 07, 2008 ere is the latest update for those in the business of hotels and tourism in India. Sujit Banerjee (Secretary, Ministry of Tourism) has proposed hoteliers to slash room tariffs by 10 to 15 percent to send out a right signal to the foreign travelers coming to India. Priya Paul (President, Hotel Association of India [HAI]) has assured to get members of the HAI to consider the suggestion and formulate a response soon. Further, a suggestion has been made by the secretary to promote and focus on new tour circuits such as Puri – Bhubaneswar – Konark, Amritsar – Kurukshetra – Haridwar, Nasik – Aurangabad – Nanded, Dwarka – Gir – Diu, and so on. DARE had coined an idea (Dreaming Big for Darjeeling) to do something different with our geographical indications. Perhaps, this is a good time to give it a thought. Also, one could explore possibilities
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DARE.CO.IN of agri-tourism (Read: Digging Gold in Rural India), and alternative transportation (Read: Sea Planes Anyone?). Coming back to the current issue, tour operators have drawn attention to some of the problems faced by them, and suggested removal of luxury tax on hotels, easing of service tax, and revival of airline commissions for agents. Meanwhile, the delegates of the HAI have urged the tourism secretary to pursue the matter of delinking hotels from real estate and taking steps to boost liquidity for hotel construction activity in the country. This update comes from an initiative by the Ministry of Tourism to assess the impact of a global recession, and to do well in the given situation, for which it has been in dialogue with the stakeholders in the Indian tourism sector (the Indian Association of Tour Operators and the and HAI).
Is recession a good time to start a business? Posted by: Ambrish Jha in recession, Business during Recession on Nov 08, 2008 rguments may be pitched for or against calling the ongoing slowdown a recession. There is no denial whatsoever in anyone’s mind, however, that there is indeed a slowdown affecting all, with the effect on developed economies – US, the EU, and Japan – being the most adverse. Stock markets have crashed the world over, including in emerging economies like India, China, and Thailand. Investors are selling their assets in these countries to meet their commitments back home. Back in India, industrial production has taken a dip along with the worst hit financial sector, which had serious spillover effect over even the IT sector. The auto sector has also taken a hit along with the aviation sector, and things are looking far from encouraging at this point. Growth rates have slowed down significantly. India is expected to grow at a little over 7 percent in 2008-9 and at even less than this in 2009-10. China’s growth rate is also expected to slow down to close to 9-9.5 percent, far slower than the over 10 percent expected earlier. Governments have been forced to come out with bailout packages. The US with a financial package over $700 billion, Japan with over $100 billion, and now China announcing a $586 billion package have hogged limelight. India has also taken some indirect measures through the Central Bank in the form of cuts in different interest rates. Does this mean that this is the time for entrepreneurs to shelve their ideas and wait for an improvement of the economic situation? That hardly seems to be the case. Many successful companies have been started when the chips were down. Examples are in the form of Google, Yahoo, and even Microsoft. Google started when the US was reeling under the effect of the dotcom bust. Yahoo also started expanding during this very period. Microsoft flourished after
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DARE.CO.IN the infamous US stock market crash of 1981. There are many more companies that at different points of time have been started, survived, or flourished during recession or slowdowns. What makes a downturn different from other times is that entrepreneurs willing to start up are really focused. It is indeed difficult to raise money during slowdown, and this directly means founders have limited resources on hand. This makes them think creatively. Frugality, however painful, brings its own advantages – founders pay far more attention to cash flows, budgets, and balance sheets. Since raising money during recession is far more difficult, this results in far closer scrutiny by the investors – angel or venture capitalists. If a company manages to start during recession against all odds, it ought to be in perfect shape to attract good investments once economy comes out of recession. This will give the particular company enormous advantages over the competition. In addition, chances of getting very committed employees during a recession is far higher than during normal times, and they would come cheaper too. Same would be the case with other essentials like office space, computers, and software. Steve Schwarzman, co-founder of Blackstone Group, one of the US-based big private equity players, has described the current slowdown as “wonderful, wonderful time to be an investor”. He has been quoted in the latest issue (Nov 18-24, 2008) of the Economist saying, “It is very easy to make money [now] and you basically can’t lose.”
Indian banking model better than the Western ones? Posted by: Ambrish Jha on Nov 18, 2008 ooking at the newspapers today (18th November, 2008), I came across three news stories – "Citigroup plans to make deep job cuts" (Mint's main story), "NRIs trust desi banks, deposit $513 million in Sept" (ET story on main page) and "Goldman Sachs CEO decides not to take 2008 bonus" (Business Standard). Do these stories have bigger lessons than what they appear in the first look? Western banks and financial institutions, led by the American ones, are in a mess. Plausible reasons may be floated to explain why the American banks plunged, and why the credit crisis took place without anyone realizing it. What were the various central banks doing in these countries when this was slowly creeping in? After all, the crisis did not grip the sector all of a sudden. Lehman Brothers, Citibank, Goldman Sachs, Society Generale, Morgan Stanley – name any bank and you will find them being already sold, or surviving courtesy bailout packages. Governments may be justified in trying to save these institutions. Had they decided not to do so, the situation could have turned into utter chaos. But what about the regulators and banking models? How could the most highly paid
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banking experts not know they were overleveraging their institutions? How could the insurance companies insure such bad home loansbased sub-collaterals offered by the banking mammoths? The experts may and will still find reasons to justify their deeds, but the bottom line is that the crisis took place there – in countries that dictate to developing world banks all the time. The Goldman Sachs CEO might have decided to not to take a bonus this year (it seems he has done the company a great favor!), but according to an AP report, the salary he took last year was whopping $54 million, more than the turnover of many Indian midsized companies. But what did he get this salary for? Definitely not to let the bank drift towards a crisis. Contrast this with India – Reserve Bank of India deserves all kudos in ensuring the Indian banking sector does not fall into a trap and go the way the Iceland banks did by blindly trusting their American counterparts. K V Kamath, MD & CEO, was right when he said at the India Economic Summit that there was no place in the entire world where 34% of the bank's assets were parked with the central bank as cushion to tide over difficult times like this. No wonder the Indians living abroad have found it better to park their money with Indian banks, and not local ones. With sustained efforts from the regulator and government, Indian banks should be able to tide over the difficulties they are encountering in the face of the looming crisis the world over without major hiccups. One wonders whether it is high time the management schools based in the US and other Western countries changed their curricula and embrace Indian and Chinese models of managing economies.
Around the World in a Solar Plane! Posted by: Aswathi Muralidharan in opportunity, news, idea, environment, eco-friendliness on Nov 17, 2008 nbelievable? Yet true! At a time when fuel prices have skyrocketed, here comes an attempt to fly a plane on solar energy! Solarimplse, a solar plane, is being tagged as a next revolution in the field of aviation. The single-pilot plane is said to be microlight, and is based on the innovative techniques of aerodynamics, structure, construction methods, and propulsion. It is claimed that the plane causes zero pollution and can fly day and night. A prototype of the plane was displayed in Jaipur as part of the celebrations to mark the 60th anniversary of the India– Switzerland Friendship Treaty. The plane will have its first test flight in April 2009 in Switzerland, and is also scheduled to takeoff for around-the-world flight in May 2011. According to the communication head Phil Mundwiller, two aircraft with the investment of $100 million are being designed by a team of 60 engineers. Commercial production is expected to start by 2011. D A R E
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Sonia the Socialist and the Lady-in-Waiting /Paranjoy Guha Thakurta
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olitics is in the air. Statements made by important leaders cutting across parties are aimed at garnering votes. The 15th general elections are scheduled for April–May 2009. Too much should not be read into the outcome of elections to the legislative assemblies of states like Madhya Pradesh, Rajasthan, Chhattisgarh, and Delhi, not to mention Jammu & Kashmir and Mizoram. The electorate of the world’s largest democracy has strange ways of surprising psephologists and political pundits. The Bharatiya Janata Party realized this the hard way. Five years ago the BJP and its allies in the National Democratic Alliance were overjoyed after winning the assembly elections in MP, Rajasthan, and Chhattisgarh, defeating incumbent Congress governments in these 3 states. The right-wing Hindu nationalist party thought its “India Shining” campaign would counter antiincumbency sentiments. Party strategist, the late Pramod Mahajan, wanted elections in early-2004. Prime Minister Atal Behari Vajpayee demurred, for the 14th elections were not due till September. But Deputy Prime Minister L.K. Advani went along with those who felt early elections would help the party. The rest, as they say, is history. The BJP and the NDA were taken aback that their ad-campaign had actually backfired on them and put off voters. This time round too, there is a section within the Congress that is arguing for early elections, but for a different reason: the economic downturn. Those with this viewpoint argue that the economic situation might worsen in the coming months.
The high inflation rate, especially the spurt in food and fuel prices, has already hurt the aam admi. And who does not know that the poor go out to vote in much larger numbers than the rich or the middle classes? Hence, there is a section in the Congress that thinks the party should “cut its losses”. This view is, however, not subscribed to by many in the party, and certainly not by the allies of the Congress in the United Progressive Alliance, notably the Rashtriya Janata Dal (led by Lalu Prasad Yadav) and the Dravida Munnetra Kazhagam (headed by Muthuvel Karunanidhi), both of whom seem to be down in the dumps. Ever since the Left stopped supporting the Congress and the UPA, the Communists have been going hammer and tongs against the government’s economic ideology. The worldwide recession has given the Left an opportunity to take credit for not allowing ardent liberalizers like Prime Minister Manmohan Singh, Finance Minister Palaniappan Chidambaram, and Deputy Chairman of the Planning Commission Montek Singh Ahluwalia to integrate the Indian economy more closely with the financial systems of the US and the rest of the world. After supporting the government for over 4 years, the Communists have intensified their attacks on the Congress for following pro-rich, marketfriendly economic policies. Realizing that the “grand old party” of India is in danger of losing votes, its president Sonia Gandhi has sought to “outperform” the Left in claiming that the credentials of the Congress in supporting the underprivileged remain intact. It’s worth quoting a few paragraphs from a speech she made at a conference organized by the Hindustan Times on November 21 before an affluent and influential audience in the country’s capital: “If you allow me the liberty of showing what is to you that proverbial ‘red rag to the bull’. Let me take you back to Indira Gandhi’s much reviled bank nationalization of 40 years ago. Every passing day bears out the wisdom of that decision. Public sector financial institutions have given our economy the resilience we are now witnessing in the face of the economic slowdown…We
will not be thrown off course by the winds buffeting us from abroad…There is no need for overreaction, let alone for panic. There is no need for us to get back into the era of controls. At the same time we cannot allow things to spin out of control…In the changed scenario, liberalization must be pursued within a framework of sensible but not heavy-handed regulation. “What concerns us most today is that this economic upheaval could grievously affect the most vulnerable sections of our society…The poor have had nothing to with the hubris of the rich. Their lives are spent close to the edge, simply trying to make their ends meet after a hard day’s toil. They have nothing to do with the fancy-sounding financial instruments – derivatives and credit default swaps – that have ensnared so many and which very few even fully understand... Should they then become the victims of the unchecked greed of bankers and businessmen? Should the avarice of a few be allowed to inflict misery on the many?” Whereas the tone and tenor of the UPA chairperson’s speech was clearly to occupy the high moral ground at the expense of the Left, on the same occasion an important prediction was made by the former Chief Minister of Andhra Pradesh and head of the Telugu Desam Party who suffered an ignominious electoral defeat in May 2004 because his government’s policies were perceived to be in favor of the rich. Today, of course, N. Chandrababu Naidu is a chastened man. At the HT conference, he said: “It is most likely that the next Prime Minister would be a lady of a regional party.” Was he referring to the general secretary of the All Indian Anna Dravida Munnetra Kazhagam, the lady who lives in Poes Garden, Chennai, who (like Naidu) was humiliated by the electorate? Probably not. The chances are that the person he had in mind is the woman who was sworn in as Chief Minister of India’s most populous state for the 4h time in May 2007? No prizes for guessing her name! DAR E The author is an educator, an economic analyst and a journalist with over 30 years of experience in various media—print, radio, television, Internet and documentary cinema. DECEMBER 2008 79
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reg Chappell was one of the star speakers at TiEcon Delhi, last month. What was not as well known was the fact that the legendary Australian batsman and former Indian coach was simultaneously pitching for investments from VCs for his company in order to promote a world championship in tennis ball cricket. Softball cricket, or tennis ball cricket as it is popularly known in India, is not exactly a new game. A few countries already have clubs. The West Indies, for instance, has the West Indies Softball Association (WISA), where local teams compete with each other. Like T20, it is considered a faster format of the original version. The number of overs in an innings varies from twenty to thirty. A lot of successful players, especially in India, have come via the softball route. In an exclusive interview, Chappell talks about entrepreneurship, soft ball cricket, and sports opportunities in India.
Tell us something about your entrepreneurial venture SBCI. Softball Cricket International (SBCI) is a company that I started with my partner, Sohan Singh. We are looking at setting up an international structure for the various softball formats — tennis ball cricket or whatever formats
entrepreneur of the month they are playing in, standardize the rules, and the format and play some national and international tournaments, culminating in a World Cup of softball cricket, hopefully by the fourth quarter of 2009.
How will it generate revenue? There are a variety of ways. The revenue streams would be the same as for any other event. They can come from a whole range of wings, from player participation to gate receipts to television sponsorship, all of those areas.
What all sports opportunities do you see in India? Cricket is my game and I look at opportunities in cricket. There is a lot happening at the top level, but the bottom of the pyramid is not being focused on very much. A lot of people only play softball cricket and never get an opportunity to play hardball cricket. There are limited opportunities for them. They probably never get a chance to live their dreams like the guys who reach the top in leather and hardball cricket. So, we would like to bring professionalism, standardize it, and offer opportunities. I also see it as a great opportunity to discover talent. A lot of champions of the past and present such as MS Dhoni, Rohit Sharma, S Sreesanth, Munaf Patel, and 80
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The beauty about entrepreneurship is that you have the opportunity of running your own business, making your own decisions, succeeding or failing by your own actions. The big thing is to keep persevering, keep looking for opportunities, looking for ideas, looking for things you can get really enthusiastic about.
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GREG CHAPPELL
PLANS TENNIS BALL CRICKET WORLD CUP: FORMS COMPANY AND PITCHES FOR INVESTMENTS Legendary cricketer, captain, commentator and coach, Chappell is now co-founder of Soft Ball Cricket International (SBCI) for which he was seeking investments at the dealflow sessions at TiEcon. The other co-founder of SBCI is Sohan Singh Negi.
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Shoaib Akhtar came from tennis ball cricket. So it is an area where talent can be identified. One of the great challenges of cricket of the future would be finding and identifying talent. And bringing talent through the development process is going to be very important. So, I think softball cricket is an area where, through the modified formats that we are seeing in the game, we can develop talent and that’s an area I would like to focus on now.
they face strong competition at the local level. So, it’s not as simple as let's take fifteen individuals or thirty individuals, select them, train them with the best methods, and we become the best team in the world. It‘s not quite that simple. Maybe the structured format of academies is not the best way to go.
What are the major challenges in sports entrepreneurship?
And opportunities beyond cricket? I think in the peripheral area of sports, there are various sort of things. There is fitness, strength, sports science, sports medicine, and sports nutrition. If you look at some of the elite sports in other parts of the world, in America and Europe, soccer is a game that has a lot of science and technology software. They are all areas where I think there is opportunity. Training methods and training systems are a very important part of talent development. And I think cricket, unlike other sports, lacks the understanding of what it is but produces champions [nonetheless]. I have spent a majority of my time focusing on how we find champions, what is that produces champions, talking to people who have been successful not only in cricket, but reading about people who have been successful in other sports and drawing the similarities that come through. I have come to the conclusion that it’s not necessarily the academies that do wonder, it’s not necessarily the major cities that the champions come from, they often come from poor backgrounds, with very little in the way of infrastructure and training.
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They are similar to any other business. I mean, there is a risk in everything entrepreneurial. If you are trying something that has not been tried before, it’s always a risk. But there is always a great reward if you get it right. I suppose the challenge is to make sure that your success is big and failures are low.
One of the great challenges of cricket of the future would be finding and identifying talent. I see softball cricket as a great opportunity to discover talent. A lot of champions of the past and present such as MS Dhoni, Rohit Sharma, S Sreesanth, Munaf Patel, and Shoaib Akhtar came from tennis ball cricket. So it is an area where talent can be identified.
Is there an opportunity in setting up training academies for sports that India is not good at? Training academies have an academic approach. Learning from experience is more important. Strong competition is a critical part for the development of the player and so for the team. So, pick a sport like basketball that India hasn’t been successful at. To try and develop a team that will be successful at the international stage is very difficult unless 82
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What would be your advice to budding sports entrepreneurs?
I would say look at things a bit differently, look a bit deeper, a bit wider. Don’t just look at the core business of sports, look at other areas, the services that sports require, the peripheral industries that grow around sports. Maybe you can find something that you are interested in. Passion is a very important part of success in any field. People who are not passionate won’t spend hours and hours that are required to be successful. Successful people are passionate about what they do and they have a great belief in what they do, so they keep persevering. Perseverance is a great attribute for entrepreneurs.
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Your take on entrepreneurship? Well, I think the beauty of entrepreneurship is that you have the opportunity of running your own business, making your own decisions, succeeding or failing by your own actions. Through my success on the cricket field, I had a lot of opportunities on the business front. I have had some successes and I have had some failures. The big thing is to keep persevering, to keep looking for opportunities, looking for ideas, looking for things you can get really DAR E enthusiastic about.
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World Bank's classification of countries by per capita income /Krishna Kumar
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he world bank classifies all its member countries (185 of them) and all economies with a population of 30,000 or more (another 24; altogether 209) by various classification. One of the most commonly referred to classifications is by per capita income (GNI per capita). There are four classifications based on income - high income, upper middle income, middle income and low income. The current basis of the classification is data from 2007. Incomes below $935 fall under low income economies. $936 to $3,705 falls under lower middle income economies. $3706 to $11,455 of per capita income is classified as upper middle income economies and above $11,455 of per capita GNI qualifies as a high income economy. At today's (Nov. 14, 2008) exchange rate (Rs. 49.46 to the USD), that would be - Below Rs. 46, 245 for low income, from there to Rs. 1,83,249 for lower middle income economies, and from there to Rs. 5, 66,564 for upper middle income economies
Source : World Bank
and beyond that for high income economies. The world Bank, further divides high income economies into two - OECD economies and non- OECD economies. OECD is the Organisation for Economic Cooperation and development.
For those who are curious, India is classified as a lower middle income economy and so is China. Pakistan is low income and Sri Lanka is lower middle income. Nepal is Low income and Bhutan is lower middle income. MyanDAR E mar (Burma) is low income.
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Harnessing the tides for power Can tidal energy be a solution to India’s power woes? /Aswathi Muralidharan
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t is common knowledge that India faces a severe electricity crunch. In fact, it would not be wrong to say that power deficit has been one of the dampening factors in the Indian growth story. According to reports, India’s power deficit is about 14 percent during peak hours. Again, this varies from state to state. The more industrialized a state is, the more its demand for power. Maharashtra for
Some tidal power plants Location
Capacity
Rance Tidal Power, La Rance, France
240 MW
Bay of Fundy, Nova Scotia, US
18 MW
Kislaya Guba on the Barents Sea Russia (2 projects)
1.2 MW & 12 MW
SeaGen, Strangford Lough, UK
1.2 MW
1 Million
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Where can tidal power be produced in India? Potential sites for tidal power development have already been located at the Gulf of Cambay and the Gulf of Kutch on the west coast where the maximum tidal range is 11 m and 8 m, with average tidal range of 6.77 m and 5.23 m respectively. The Ganges delta in the Sunderbans in West Bengal also has good locations for small-scale tidal power development. The maximum tidal range in the Sunderbans is approximately 5 m with an average tidal range of 2.97 m. The identiďŹ ed economic tidal power potential in India is of the order of 8000 to 9000 MW with about 7000 MW in the Gulf of Cambay, about 1200 MW in the Gulf of Kutch and less than 100 MW in Sundarbans. How does tidal power compare with other renewable energy sources? There are many advantages of tidal power. Unlike the wind and the sun, tides can be predicted many years in advance. There are many disadvantages of tidal power plants too. They are very expensive to build. The time that the tidal ďŹ&#x201A;ow occurs may not be ideal as far as demand is concerned. So, tidal generation should be coupled with some form of storage. Hydropower makes an ideal storage choice. Water or energy could be stored in these dams for times when power cannot be generated at the tidal stations. Tidal energy is extremely site speciďŹ c and requires mean tidal differences greater than 4 m and also favourable topographical conditions, such as estuaries or certain types of bays, in order to bring down the cost of dams, etc.
Dwipen Boruah
What is the estimated cost of setting up and running such a project? Are there any ways to reduce the costs? The cost of a tidal power project is relatively high and depends on many factors, including geophysical characteristics of the site and technology adopted. The optimum design for a barrage system would be the one that produces the most power, but also has the smallest barrage possible. The production cost for a barrage power plant for Half-Moon Cove, USA, was estimated at approximately 9 cents/kWh. With government support and carbon credits, the generation cost may be less than 5 cents per unit in 2010 as predicted by the engineering consultant for the project. The Kutch Tidal Power Project in India, with an installed capacity of about 900 MW, is estimated to cost about Rs 1,460 crore ,generating electricity at about 90 paise per unit. The capital required to start the construction of a barrage has been the main stumbling block. It is not an attractive proposition to an investor due to long payback periods. This problem could be solved by government funding or large organizations getting involved with tidal power. Once the construction of the barrage is complete, there are very small maintenance and running costs, and the turbines only need replacing once every 30 years or so.
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General Manager, IT Power India
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DARE.CO.IN example, faces a deficit of more than 30 percent. According to a McKinsey study ‘Powering India: The Road to 2017’, if India is to grow at 8 percent for the next ten years, its power requirement may rise from 120 GW to 315 to 335 GW by 2017, requiring an investment of $600 billion on adding the required capacity. So while on one hand India is developing new and enhancing existing traditional power sources, at the same time it is also laying emphasis on nonconventional sources such as solar and wind power. But looking beyond these traditional non-conventional sources, what about tapping the tides in the ocean for power? With the demand for energy skyrocketing, several countries are showing interest in this sector, even though it is still in an experimental stage. This year, SeaGen, the world’s first commercial-scale tidal turbine, developed by the British tidal energy company Marine Current Turbines, started generating power on an investigational basis. One of the possible reasons for the interest in tidal energy maybe the fact that compared to other renewable energy sources, tides can be predicted many years in advance. With two-thirds of our boundaries flanking oceans, shouldn’t we be looking at tidal power more seriously? The power of tides can be harnessed in two ways.
Barrage System
TELEVISION
This involves building a barrage across a bay or river that has high and low tides. Turbines installed in the barrage wall generate power as water flows in and out of the estuary basin, bay, or
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The Kutch Tidal Power Project with an installed capacity of about 900 MW is generating electricity at about 90 paise per unit. Another project is proposed to set up a 3.6 MW capacity plant at Durgaduani Creek in the Sunderbans area of West Bengal. river. These systems are similar to hydro dams that produce power from a static head or pressure head. The largest such installation has been working on the Rance river, France since 1966 with an installed (peak) power of 240 MW and an annual production of 600 GW. There are two other small plants, one operating on the Bay of Fundy and the other across a tiny inlet in Kislaya Guba, Russia. On the flip side, barrages suffer from high civil infrastructure costs, shortage of viable sites, and several environmental issues.
Tidal stream systems Tidal stream generators draw energy
8 Million
from currents in much the same way as wind turbines. A higher density of water (832 times that of air) means that a generator can provide significant power, even at low tidal flow velocities (compared with wind speed). This method is gaining popularity because of the lower cost and lower ecological impact compared to barrages. SeaGen, which claims to be four times larger than any of the tidal projects built so far, works on this system. This 1.2 MW project uses two 600 KW turbines, and costs around £8.5 million. It is estimated that it can power 1,000 homes. Tidal power technologies are very much in their infancy and there is no single direction as yet. A large variety of designs and concepts are being experimented with; so, it is quite possible that a third variant is what becomes ultimately successful.
Where does India fit in? The identified economic tidal power potential in India is 8,000 to 9,000 MW, according to Dipwen Boruah of IT Power India, an environmental and renewable energy consultancy. Even though we boast of a long coastline of 7,517 km, tidal energy cannot be produced everywhere. It is extremely site specific, requires mean tidal differences greater than 4 m, and also favorable topographical conditions, such as estuaries or certain types of bays in order to bring down costs of dams, etc. Therefore, the government has identified three suitable sites in India — the Gulf of Cambay (7,000 MW), the Gulf of Kutch (1,200 MW), and the Sundarbans (<100MW) — for production of DAR E tidal energy.
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Should teams fight?
R BALAKRISHNAN (BALKI) National Creative Director Lowe India “It is important to be with the right set of people who to a certain extent share the same wavelength and chemistry. The worst thing for an entrepreneur is to surround himself with people who don’t have a trip or a vision or anything common with each other. That’s a disaster; because half the energy is spent on getting people to 88
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take this trip. One person may have the idea, but there has to be at least twenty people with similar wavelengths who can latch on to that idea and take it forward. That’s how ideas are created. It is not done by one person.”
RAMAN ROY Chief Executive Officer Quatrro BPO Solutions “If two people agree all the time, one of them is not thinking. I encourage difference of opinions by not commenting on it, by staying silent. Because people have to disagree, they have to find their own space and their own solutions. That is creativity. And meeting halfway is a management methodology. You have to allow people to differ as long as the disagreement is on the idea. My biggest struggle is when the disagreement becomes personal. How does one stop it? I’m no genius to say that in my organization we only disagree on ideas and not on people. People tend to fight. Do we have issues? Yes, we do. But getting them to disagree but still find solutions to a business problem is a way to nurture creativity.”
Does diversity in the team affect creativity too?
TINA SEELIG Executive Director Stanford Technology Ventures Program “Diversity in the team develops creativity. People from different backgrounds and different attitudes bring in different perspective and areas of expertise. This helps in bringing together interesting ideas as opposed to having a mono dimensional point of view.”
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Startups on the hot seat Hottest startups claim eyeballs, mindshare and heartshare
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ew-age entrepreneurs are betting on consumers — whatever the industry whether entertainment, hospitality or healthcare — and opting to be in the B2C segment. Clearly the underserved consumer in India is attracting a great deal of attention. This was apparent after six weeks of nominations, when the first phase of TATA NEN Hottest Startups closed in November. Five hundred eighty eight high-potential startups from across India were nominated for the awards, of which over 60 per cent had a clear customer focus. Otherwise, the industries were somewhat as expected: A large 90
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chunk — almost 35 percent of the startups — belonged to IT/Internet/software sector. The media/entertainment sector seems set to become the next hot trend — 10 percent of startups are exploring this segment. Closely trailing are the mobile/telecom startups who claimed 7 percent of the pie. Startups belonging to varied fields like robotics, sports, defence and infrastructure also made their presence felt in the list. Twenty six percent of the startups chose to be safe — working on products and services that have close substitutes in India or abroad. This information derives from what is the largest collection of startups in
India to date. A testament to the willingness of entrepreneurs to participate in an entirely new format of Awards — one not without risk. For the first time, entrepreneurial awards were launched on an open platform, where the shortlist was selected based on online votes and expert rating. The goal was to provide value to all the participants, not simply the handful of winners. The question was: Would it work? Would this open platform provide value for the entrepreneurs in a way that traditional awards do not? To participate, startups had to expose their ideas to the outside world; deal with public reviews made by in-
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TATA NEN Hottest Startups enters Phase II It’s time to vie for the top five slots in Hottest Startups. Thirty companies with the highest ranking in Phase I have been shortlisted for the final round. After a month of extensive campaigning, five startups with the highest number of online votes will be declared as winners. Voting for the top five will be on till December 22. To learn more on Hottest Startups and to cast your vote, visit www.hotteststartups.in
dustry experts; and allow strangers to comment on their labour of love. Jay Shah, founder of The Sports Gurukul, a sports development and training company, describes his concern, “While an online platform gives lots of visibility, it also increases the chances of losing original ideas as their ideas and efforts are now open for anyone to duplicate.” Despite these concerns, nominations poured in steadily from across the country — by the end, topping 500 companies, from more than 40 cities, representing over 30 industry segments. The results to date, as shown by examples from around the country are clear — the visibility provided by such an open platform does, in fact, benefit the participants. Jay Shah admits that the Hottest Startups platform has been a blessing for entrepreneurs exploring unique
ventures like them. “By participating, our startup has received visibility across India, including the media. We were not only featured on UTVi News, but were also invited to participate at their annual event on entrepreneurship. It was a wonderful experience to present our story to the management gurus of tomorrow — and show them that thinking differently can make all the difference,” he said. Tunespray, a year-old telecom startup nominated from Kolkata, got two investors from Delhi and Chennai so excited that they promised to bring in not only funds, but also customers to support the venture. Tunespray managed to woo a famous Chennai-based singer as well, who is interested in using their technology to promote her music. “Hottest Startups has provided us the confidence to canvas for votes, showcase our application and get feedback. We reached out to several people
who had never heard of us before, and today they have become our supporters, giving us suggestions on how we can improve our technology. They have also voted for us so that we can be among the top 30 shortlist,” shared Rahul, the man behind the startup that allows one to create and deliver multimedia messages to mobile phones in a single download. Sanjeev S, founder of Medsphere, a teleradiology solutions provider, was approached for VC funding after being featured in Hottest Startups. He admitted that “it is a good feeling that, if ever we are in need of money, companies like Sequoia Capital would be willing to look at us seriously.” Increased visibility helped Ashutosh Sharma of Tukka.in by way of enhanced profit margins. “Thanks to our growing popularity, it has become easier for me to sell advertisements at a premium,” said this 29-year-old entrepreneur whose startup in Ahmedabad helps even Internet-illiterates find relevant websites easily. Laura Parkin, Executive Director, National Entrepreneurship Network is enthused by the response. “We are delighted by the response of the entrepreneurial community. The basic premise seems to be working — together we are creating a platform to showcase Indian startups. We look forward to working with the community to strengthen, improve and build the platform in the future,” she said. D A R E More articles on www.nenonline.org. Content provided by NEN DECEMBER 2008 91
Organizations DARE.CO.IN
covered in this issue, in alphabetic order; ďŹ rst appearance
Actis ........................................................................... 26
General Atlantic Partners .......................................... 29
Mmupi and Clay General Trade ................................. 95
Airbus ........................................................................ 57
General Electric ......................................................... 25
Myers Motors NmG ................................................... 74
Amazon ..................................................................... 25
General Motors .......................................................... 74
NDTV ......................................................................... 71
Apple ......................................................................... 39
Give India .................................................................. 61
Negma Laboratories .................................................. 57
Avigo Capital Partners ............................................... 48
Google ....................................................................... 39
Network Enterprises Fund ......................................... 62
Ayur Herbals .............................................................. 34
HDFC Bank ............................................................... 61
OnMobile ................................................................... 57
Bharat Petroleum ....................................................... 18
Helion Venture Partners............................................. 24
Orkut .......................................................................... 39
Bharti ......................................................................... 24
Hero Electric .............................................................. 72
PlugHR ...................................................................... 51
Bigstep.com ............................................................... 27
Hero Group ................................................................ 74
Pratham ..................................................................... 64
BMW .......................................................................... 71
Hewlett-Packard ........................................................ 61
Punjab University....................................................... 24
Body Shop ................................................................. 45
Hindustan Petroleum ................................................. 18
Robust Designs ......................................................... 38
Brand Planet Consultants .......................................... 38
Hindustan Unilever .................................................... 62
Soft Ball Cricket International .................................... 82
Carzonrent (India)...................................................... 53
Honda ........................................................................ 74
Stins........................................................................... 74
Chevron ..................................................................... 74
Hyundai ..................................................................... 72
Subaru ....................................................................... 72
CII .............................................................................. 61
IBM ............................................................................ 29
Tata Tea ..................................................................... 45
Citigroup .................................................................... 27
IBM Daksh ................................................................. 29
TCS ........................................................................... 57
Coca-Cola.................................................................. 71
ICICI Foundation ....................................................... 62
Telisma ...................................................................... 57
Commonwealth Development Corporation ................ 26
IIM.............................................................................. 66
Tesla .......................................................................... 74
Crompton Greaves .................................................... 57
IMRB.......................................................................... 61
Texaco ....................................................................... 72
Daksh ........................................................................ 24
India Today Group ..................................................... 71
Thermax .................................................................... 24
DCM .......................................................................... 24
Indian Oil ................................................................... 18
Think Global .............................................................. 74
Digital Equipment Corporation .................................. 24
INSEAD ..................................................................... 16
Tokyo Electric Power Company ................................. 72
Doppelmayr Garaventa.............................................. 40
Invest in France Agency ............................................ 57
Toyota ........................................................................ 74
Earthy Goods............................................................. 62
IT Power India............................................................ 86
Universal Electric Vehicles......................................... 72
Edelweiss Securities.................................................. 26
JuxtConsult ................................................................ 38
West Indies Softball Association ............................... 80
Electric Auto Association ........................................... 72
LeasePlan India ......................................................... 53
Whistler BlackComb resort ........................................ 40
Elon Musk .................................................................. 74
LinkedIn ..................................................................... 39
Wipro ......................................................................... 57
Ernst & Young ............................................................ 24
Marine Current Turbines ............................................ 86
Wockhardt.................................................................. 57
Executive Access....................................................... 51
Maruti......................................................................... 24
Yahoo......................................................................... 45
Facebook ................................................................... 39
McKinsey ................................................................... 29
Zap ............................................................................ 74
FieldTurf ..................................................................... 20
Microsoft .................................................................... 71
Zenn Motors .............................................................. 74
Ford ........................................................................... 73
Microsoft .................................................................... 39
Zizamele Ceramics .................................................... 94
Fuji Heavy Industries ................................................. 72
Mitshui ....................................................................... 73
Zwathu Art and Craft Centre...................................... 94
92
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People DARE.CO.IN
covered in this issue, in alphabetic order; first appearance
Anil Kumar ......................................... 20
Mrutyunjay Mishra ............................. 38
Animesh Dasgupta ............................ 51
M.S Dhoni .......................................... 80
Anita Roddick .................................... 45
Mukesh Ambani ................................. 64
Anupam Puri ...................................... 29
Muthuvel Karunanidhi ........................ 79
Aroon Purie........................................ 71
N. Chandrababu Naidu ...................... 79
Ashish Gupta ..................................... 26
Naresh Sadasivan ............................. 38
Atal Behari Vajpayee.......................... 74
Palaniappan Chidambaram ............... 79
Bill Gates ........................................... 62
Paul Allen........................................... 71
Carleton S. (Carly) Fiorina ................. 71
Pavan Vaish ....................................... 25
Chetan Maini ..................................... 72
Pramod Mahajan ............................... 79
Chetna Manglik.................................. 51
Prannoy Roy, Dr. ................................ 71
CK Prahlad ........................................ 63
R.K. Mishra ........................................ 62
Dilvinder Singh Narang...................... 34
Ramadimetja E. Labese .................... 95
Dipwen Boruah .................................. 80
Reshma Anand .................................. 62
Ekkehard Assmann ........................... 40
Robert Woodruff ................................ 71
Greg Chappell ................................... 79
Rohit Sharma .................................... 80
Indira Gandhi ..................................... 79
S. Sreesanth ...................................... 80
Jack Welsh......................................... 71
Sanjeev Aggarwal .............................. 24
Karunesh Arya................................... 53
Sanjeev Prasad ................................. 53
Khathu Tshirhidzo .............................. 86
Shoaib Akhtar .................................... 80
Kristin Scott Thomas ......................... 72
Shouvik Roy ...................................... 38
Kumaramangalam Birla ..................... 64
Sohan Singh Negi.............................. 80
L. K. Advani........................................ 79
Steve Jobs ......................................... 71
Lalu Prasad Yadav ............................. 79
Sunil Mittal ......................................... 71
Madhav Chavan................................. 64
Toni Burton ........................................ 95
Manmohan Singh .............................. 79
Venkat Krishnan ................................ 64
Michel Greber .................................... 71
Vivek Subramaninan ......................... 48
Montek Singh Ahluwalia .................... 79
Yedu Balehosur ................................. 38
DARE is not an acronym. It represents the daring spirit of the entrepreneur. The red color for the R of DARE represents the fire in the belly of the entrepreneur. You could think of the D representing the face, A representing the chest, R representing the belly and E representing the feet of the human body. Hence the red R. The entrepreneur dares to do things. (S)he dares to do things differently
SMS “DARE <your comments, questions or suggestions>” to
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/INSEAD
African handicrafts seek Indian markets A small group of rural South African artisans are looking for business opportunities in India /Mohita Nagpal
94
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A
beautiful display of handicrafts made of ceramics, wood, clay, and bamboo adorns the stall set up by a handful of South African entrepreneurs at the India International Trade Fair in New Delhi. Among them is Toni Burton, the woman who runs Zizamele Ceramics, one of the many small units that have changed the lives of rural, unemployed artisans by training them to make decorative pieces. Zizamele’s handicrafts are fairly popular as corporate gifting items. The price of these goes up to Rs 22,000. Burton is now stressing heavily on the marketing of her products, having restricted herself to the home country for long. The firm bagged an order of 1,200 ceramic decorative pieces from the US recently. “Marketing is crucial in South Africa. You will find many people who make beautiful things, but it does not sell.
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/INSEAD
Marketing is crucial. You will find many people who make beautiful things, but it does not sell. This is because they don’t know how to sell it.
I am more interested in working with women. I believe women are the backbone of every country. — Ramadimetja E. Labese
— Toni Burton Coordinator, Zizamele Ceramics This is because they don’t know how to sell it,” says Burton. The story behind Zizamele is that of development and women’s empowerment. Four years back, the South African government sponsored an 18month course in ceramics handicrafts for the rural unemployed. This was followed by a six-month internship called the Learn and Earn Program. The products made by the rural artisans were well-liked and it made good business sense to sell them at a profit. “I decided to register my company, and the same people have been with me for four years now,” Burton adds. For entrepreneur Ramadimetja E. Labese, what started as a hobby to make clay models such as jewelry, neck pieces, and bracelets is now a business under the name of Mmupi and Clay General Trade. She founded the firm in 2003 with five people who
came from rural areas. Recently she launched a new range in bathroom and kitchenware. She is now looking to supply to big shops and export houses worldwide. Then there is Zwathu Art and Craft Centre, established in 1996, which exhibits the creations of 41 people from the Venda region in South Africa. Their products include pots, beaded handbags, and tablecloths ranging from Rs. 300 to 7,000.
The secret of quality The quality and finish of these South African handicrafts is commendable. According to Khathu Tshirhidzo of Zwathu Art and Craft Centre, “We spend considerable time making each product.” Burton believes it is the combination of her Western education with traditional African designs that paves way for innovative designs
Founder and Designer, Mmupi and Clay General Trade that ultimately sell. According to her, “We have not just stuck ourselves to traditional craft, we have moved further. But, the African vibrancy is still reflected in our work.” Tshirhidzo talks at length about pot making, and highlights the importance of burnishing and finishing. She says, “The more you burnish the pot, the more the shine. After burnishing, it will look more glossy. Sometimes, people go for two to three minutes of burnishing, not giving it enough time. And that is where our secret lies, we burnish it a lot. After that we also give emphasis on finishing. We make sure that the end product is extremely neat.” “I don’t think we can ever be a factory; with the kind of work we do, we will always be a studio. Every single piece we produce is unique, even the animals. What we make is almost an DAR E art piece,” says Burton. DECEMBER 2008 95
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