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The global
economy is today faced with the spectre of rising
unemployment. According to the International Labor Organization, the world
economy will need to generate nearly 280 million new jobs between 2015 and the
end of 2019 to make up for the ground lost during the last recession and ensure
new entrants to the labor market can find work.
It is this realization that is driving policy-makers the world over to
increasingly recognize the job creation potential of start-ups. Germany is
looking at a start-up initiative to create more than 100,000 new jobs by 2020.
UK has an Entrepreneurial Action Plan which has seen tech start-ups increase
from 200 in 2010 to 1,200 in 2013. Israel is running a ‘Startup City Tel Aviv’
program to create an early stage innovation ecosystem that can extend to Europe
and beyond.
India,
on its part, needs to create 10 million jobs per year for the next 10 years to
sustain acceptable Gross Domestic Product (GDP) growth.
To
generate such a large volume of employment, the job market of the future will
not be able to solely rely on the traditional pillars of lifetime employment in
large companies and the public sector. Clearly there needs to be an alternate
channel that creates these multiple jobs. The recent success of some of the
start-ups in India indicates that more of such enterprises can lead to creation
of millions of job opportunities. However in order to unleash this
entrepreneurial potential we need a robust ecosystem, which is currently in a
very nascent state, primarily because culturally we are a risk averse nation.
The
need of the hour therefore is to create an enabling ecosystem that encourages
a flourishing ‘start-up’ culture in the
country.
As a first generation entrepreneur who started my
own business in response to an unsuccessful job pursuit, I can attest to the advantages
of self-employment. I turned to entrepreneurship quite by accident and became a
job creator rather than a job seeker. Instead of the one job that I was seeking
then, I have created over 7,500 jobs today. If I add the ancillary businesses
that my company relies on or supports, it has had a multiplier effect.
In building my company Biocon, I was a
beneficiary of the visionary political leadership in the state that led to the creation
of an enabling context for the incubation of successful start-ups in Bangalore.
The financial support lent by the Karnataka State Financial Corporation
in the early 1980s to pioneering companies like Biocon and Infosys, promoted by
first generation entrepreneurs with no business track record, has led to
Bangalore’s emergence as an ‘IT & BT Hub.’
Key differentiators such as the availability of
venture capital funds through initiatives like the Karnataka Information Technology
Venture Capital Fund (KITVEN) and the presence of premier academic institutions
such as Indian Institute of Science (IISc) have also contributed to make the
city a fertile field for innovative start-ups to bloom.
Bangalore today accounts for nearly 30% of the
country's start-ups. The city provides a conducive entrepreneurial ecosystem
that links research, capital and technology-led ideas to the market place.
India needs a similar innovation ecosystem that enables entrepreneurs to propel ideas into
sustainable businesses, which in turn will have a multiplier effect on
job creation and value accretion for the economy.
The Ideas Economy
Today technology is unshackling innovation through
entrepreneurial zeal like never before. No longer is value creation linked to
scale but to the power of the idea.
Information
technology, communication technology and biotechnology are rapidly and
disruptively changing the way we communicate, educate, medicate and eradicate.
In 2014 the global Biotech sector raised $40
billion through venture funds, private equity and IPOs - the highest ever to
date. Add information
and communication technology (ICT) and this number zooms to
$200 billion. These “technopreneurs” are all focused on breakthrough ideas and
money is chasing every one of them.
Not everyone will succeed but we are already seeing
fantastic valuations being ascribed to young entrepreneurs who are as smart as
they come in terms of innovative business models. Eg. Google, Facebook,
Twitter, WhatsApp, Amazon and Uber to name but a few. This has created the
'start-up' revolution the world over from Boston to Bangalore, from Sydney to
Singapore and from Trondheim to Tel Aviv.
We are today
witnessing the birth of the “ideas economy,” where the value of a company is
measured by its “innovation quotient” rather than traditional metrics such as
revenue, profit, physical assets etc. The potential of the WhatsApp messaging
platform to change the way the world communicates led Facebook to pay an
“innovation premium” resulting in a blockbuster deal value of US$19 billion.
The power of the idea is being reinforced by the dizzying valuations being
commanded by companies like Snapchat (US$16 billion), Uber (US$40 billion) and
Xiaomi Corp (US$45 billion)!
The fact
that this "innovation premium" is getting larger over the years is
illustrated by a Bloomberg analysis that traces this through the Amazon and
Netflix public offerings in 1998 and 2002 at values of just US$450 million and
$750 million respectively, followed by the Google IPO in 2004 at a value of
US$23 billion, which in turn quadrupled to the US$100 billion IPO that Facebook
had in 2012. Whilst all these companies have similar risk-return profiles, the
investor appetite for “new ideas” has emerged only recently.
India is also experiencing the changes being
brought about by the birth of the “ideas economy.” According to market reports,
the Indian start-up sector received more than US$4 billion in funding in 2014,
compared to US$1.8 billion in 2013 and US$760 million in 2012. What’s more,
Flipkart (valued at about US$11 billion) and Snapdeal (valued at about US$5
billion) are now worth much, much more than the total market capitalization of
India’s major brick-and-mortar retailers.
Unleashing
Entrepreneurial Energy
In order to capitalize on the evolving trend, we
need to build an enabling ecosystem that unleashes the entrepreneurial energy.
An ecosystem that relies on: the ease of starting a business,
availability of skilled workers, reliable infrastructure, and has access to
capital.
Fast-tracking Approvals Process
Companies today prefer to register their start-ups
in the US and Singapore, where it takes significantly less time to start a
business compared to India. A multiplicity of laws and regulations has a
choking effect on business, which explains India’s 142nd rank on the World Bank’s ‘Ease of Doing
Business’ index for 2014.
Therefore,
the need of the hour is not more regulation but smarter regulation. The
government needs to focus on a number of regulatory reforms that will address
the ease of doing business, reduce transaction costs and expedite approval
timelines. A time-bound
approvals system can help fast-track projects, businesses and start-ups, thus
improving the business climate in the country.
Addressing Skill Deficit
There is also an urgent need to create high-skilled jobs that add
long-term value to the economy. So far, our academic institutions have focused
on churning out a large numbers of graduates with very basic skills. They lack
the quality attributes that will make them employable. As a result, manpower in general
unskilled category is abundantly available in India however high‐skill areas
are facing a talent crunch. It is vital to fix this skill deficit through
advanced learning avenues that bridge the gap between industry and academia,
science and business.
Building Reliable Infrastructure
If
businesses are to flourish then there is also a huge need to improve roads,
rail, ports, power and other infrastructure. India’s infrastructure could
require investment of up to US$1.7 trillion by the end of the decade, the World
Bank has estimated. Also, low broadband penetration in India means the country
is still some distance away from leveraging the Internet for commerce,
information and development. We rank a poor 89th among 143 countries
on the World Economic Forum's global Network Readiness Index, far behind
China’s 62nd position. It is imperative, therefore, that work on the ambitious National Optic Fibre
Network to connect 20,000 Indian villages to the Internet via broadband is
speeded up. We also need a robust regulatory framework to address concerns over
privacy and data safety in the digital space.
Creating a Virtuous Financial Cycle for
Innovation
Indians fail to take ‘ideas’ to ‘market’ because unlike
in the West, capital is virtually inaccessible here. There isn’t enough public
funding available for academia to pursue discovery and invention. Similarly,
critical risk and seed capital needed by entrepreneurs to translate concepts
into ‘proof of concept’ is hard to come by. Moving ahead in this cycle,
industry also finds it difficult to obtain private funding from financial
institutions, venture funds and capital markets to innovate and commercialize.
India, therefore, needs to create a virtuous financial cycle to realize the
nation’s huge entrepreneurial potential. This financial ecosystem will work
only if all three components – academia, entrepreneurs and industry – work
symbiotically and in tandem.
To set the wheels spinning and make the model self-perpetuating
monetization needs to happen at every stage of this cycle. Academia therefore
needs to create intellectual property (IP) through its discoveries and
inventions that can be licensed to either entrepreneurs or directly to industry
with royalty payments upon commercialization. Entrepreneurs need to create
value-added IP that can be licensed to industry with royalties upon
commercialization. Industry needs to monetize through successful
commercialization that enables the payment of royalties.
Laying the Groundwork
Recently, capital markets regulator Securities and
Exchange Board of India has moved to ease rules and allow start-ups to list and
raise capital from domestic stock exchanges through the Institutional Trading
Platform. This will open up fresh funding avenues for budding entrepreneurs.
The
Narendra Modi government has also shown that it is in sync
with the aspirations of a New India and wants to give a big thrust to
entrepreneurship in the country.
The government has unveiled The National Policy for
Skill Development and Entrepreneurship 2015. Among other things, the policy
seeks to promote a culture of innovation-based entrepreneurship for generating
wealth and employment in the country. Besides educating and equipping potential
entrepreneurs, the policy also seeks to connect them to mentors, incubators and
credit markets.
To improve the employability of the nation's youth
Prime Minister Modi has also unveiled an ambitious Skill India Mission that
seeks to upskill 402 million workers by 2022 through additional skills and
vocational training.
The government has also launched an online portal
to speed up the regulatory processes required to start and run businesses.
Moreover,
the government has also announced a US$1.7 billion (Rs. 10,000 crore) fund
for start-ups, a US$1.2 billion (Rs. 7,000 crore) budget to fund smart
cities, and a US$90 million (Rs. 500 crore) fund for a National Rural
Internet and Technology Mission.
These new measures are well timed as the youth of
today has begun to opt for an entrepreneurial journey enabled by the technology
of the day.
The Path Ahead
India’s daunting challenges throw up unlimited
opportunities to innovate and create business solutions. Therein lies the
entrepreneurial potential.
In the economic reality of a developing country
like ours, we require innovative start-ups and businesses that think locally
but have the potential to make enormous global impact.
The government must realize that encouraging
technopreneurs in the small and medium enterprises (SME) sector will create a
compelling opportunity to take innovative ideas to global markets. In doing so,
we will be able to move up the value chain from ‘Make in India’ to ‘Innovate in
India.’
For that to happen, we
will need a robust ecosystem that allows the flourishing of a
vast number of fast-moving companies that are small, nimble and
entrepreneurial. This, in turn, will create a vast and vibrant market place of millions of
small, medium and large enterprises symbiotically interconnected to deliver
superior and sustainable solutions.
A
large reservoir of entrepreneurial energy in India is waiting to be tapped. It is by investing in breakthrough ideas
and embracing entrepreneurship as an economic model of growth that India will be able to unleash the power of
innovation to ensure a better life for its billion-plus citizens.
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