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Perspectives on building technology businesses and AcceleratorIndia from Cartezia

The Innovation Challenge: an Indo-UK Perspective

Sunday, October 19, 2014

It has become very fashionable to talk about innovation as the source of national competitive advantage. Leaders of all the advanced Western economies and the rapidly growing Indian and Chinese economies have identified innovation, particularly in technologies and processes, as the key to building new companies, and creating jobs and future prosperity. It is also generally accepted now that this is not a zero-sum game, so that innovations in one geographical region can benefit other regions.

The UK and India have both identified cross-border innovation as a key opportunity, given the long legacy in commercial, educational and human relationships between the two countries. India and the UK are seeing fast growing trade and commerce, increasing levels of M&A and joint ventures across multiple industry sectors, active collaborations in academia and a growing number of Indian students choosing the UK as a destination for higher-education. The UK’s role as a global leader in innovation, established through its excellent track record in R&D, effective commercialisation of research and the presence of active innovation ecosystems, offers significant scope for successful collaborations with India.

For example, James Dyson in his 2010 report[1] titled ‘Ingenious Britain: Making the UK the leading high-tech exporter in Europe’, identifies the opportunity for sharing of UK technological expertise by identifying market segments in India in which such UK technology can be adapted and commercialised.

Converting this rhetoric into reality, however, requires a much better understanding of the situation on the ground in both countries.

The Ideological Backdrop

In India, necessity-driven entrepreneurship is just as strong as opportunity-driven entrepreneurship, with people from a wide range of socio-economic groups becoming entrepreneurs as means of creating jobs for themselves and others. In the UK, opportunity driven entrepreneurship is the norm due to its well-developed economy, social security and care provision.

The Indian government has provided a strong lead by creating new opportunities to exploit publicly-funded R&D (CSIR Tech, DRDO Tech). This is being underpinned by additional initiatives such as the DSIR  notification of May 2009[2] and the related CSIR  scheme that now allow Indian R&D labs and their scientists to own equity stakes in new ventures in exchange for intellectual property, consulting, and technical support. The Indian Government has also established several major national strategic initiatives such as the National Solar Mission. This stands in direct contrast with the UK situation where, post the privatisation of the Defence Research Establishments and the Govt Research Labs in the 1980s and early 1990s, there has been limited involvement from the government.  This situation has changed a little with the setting up of the Technology Strategy Board, but the level of funding and ‘state intervention’ is small and requires heavy private sector involvement to increase the chances of success.

Indian academia has always had to deal with the historical divide between the pursuit of knowledge for its own sake and the pursuit of wealth. Metaphorically described as the Saraswati-Laxmi divide, it juxtaposes Saraswati, the goddess of knowledge with Laxmi the goddess of wealth in the Hindu pantheon. As early academic innovators and entrepreneurs achieve success and with government initiatives that encourage academic entrepreneurship, this divide is slowly being bridged, but the situation is probably akin to that in the UK in the early 1970s

Markets and Consumers

Powered by economic, demographic and social factors, India has a large and growing domestic market as a driver for innovation. In this context, innovation in India is focused on supporting and sustaining the growth. In contrast, innovation in UK and Europe is focused on the creation of new jobs and growth in a moribund economy that is still struggling to recover.

The attitude of the Indian middle-class market and its consumers gravitates towards value engineering, where it is very important to clearly establish the value proposition and optimise the price-performance envelope. Examples such as the Tata Nano, the Rs 1-lac car and $30 smart-phones amply illustrate this point. This is similar to the UK market where value consciousness has high priority in the adoption of innovative products and services.

Given the significant social disparities, however, the Indian market has a large so-called ‘Bottom of the Pyramid’ component that requires a more radical approach: the MLM Philosophy (More from Less for More) supports inclusive innovation where the focus is on delivering more (performance) to the customer using less (costs) thereby addressing more market segments, e.g. 1 rupee shampoo sachets. This approach of inclusive innovation can provide UK businesses with a fresh approach to rethinking their core offerings and business models and help them expand into international markets, including low-cost economies.

Structural Considerations

The Indian government is very active via the Department of Science and Technology (DST), Council for Scientific and Industrial Research (CSIR), and the Department of Bio-technology (DBT). The goal is to increase impact through strategic priority setting as well as the provision of on the ground support such as Proof-of-Concept and seed-stage funding and training and fellowships for aspiring entrepreneurs. This is similar to UK government initiatives administered via HEFCE, the TSB and some regional initiatives.

Indian corporate commitment and investment, however, is weaker than in the UK, as evidenced by the low % R&D spend; for example, when it comes to research spending as a proportion of revenues the numbers are 0.3% for Tata Consulting Services as against 15% for Microsoft.[3] Even at the country level, India's R&D spend as a proportion of GDP, at 0.9%, which is one-third that of the US and around half that of the UK.[4] But India is strengthening its IP management and protection regimes by investing in new facilities, recruitment and training programmes to build capacity. This is an area where the UK can work closely with Indian agencies to share its expertise and best practices.

Funding

The UK and India both face similar funding gap challenges for innovation, with very similar policy responses through the creation of funding bodies such as Technology Strategy Board in the UK and the Technology Development Board in India. In India, various central government agencies are increasingly playing an active role, especially for early-stage funding of innovators and entrepreneurs.

At the start-up and early stage level, angel communities now exist in India, the Indian Angel Network based in Delhi, Mumbai Angels and other networks in emerging cities. This is similar to the UK situation where groups of investors like Cambridge Angels, Isis Angels Network also provide seed and early stage investments to innovative companies, but clearly the scale of the opportunities in India requires the creation of a wider angel community.

India has a rapidly growing VC investment community, which consists of the Indian units of international VC firms(mainly US-centric) and a small number of indigenous VCs. The US-centric VC investors have a mixed portfolio of early stage and growth companies, whilst the focus of Indian VC investors has been primarily in growth businesses, irrespective of whether they have a strong technology base or not.

Apart from the angel and VC investors, big banks and the public companies are beginning to work more broadly in the innovation space in India.  This includes banks such as Small Industries Development Bank of India (SIDBI), National Bank of Agricultural and Rural Development (NABARD) and public companies such as Reliance, Aditya Birla and others.

Learnings from the UK

The success of UK in innovation has been built on the following key factors:

  • Effective harnessing of the existing R&D base is critical.
  • Matching technology to markets requires the ability to synthesize innovative new approaches. However, synthesis is much more difficult than standard analysis which is primarily the approach followed in problem solving. 
  • Wide range of skills, expertise and experience required for success.

 The potential for collaboration between the UK and India in innovation and commercialisation of technologies is described extensively in the AcceleratorIndia report ‘Scaling up collaborations between the UK and India in in the Innovation landscape – Reflections from ACTIV workshops’. The report is available for download from the British High Commission website[5].

Partnerships to build products and services

By focusing on key verticals where the experience of the UK is very relevant to India, new partnerships can be built to allow sharing of UK innovation, with targeted adaptation and commercialisation. An example is the provision of British design, engineering and high-value manufacturing expertise to Indian entrepreneurs who then convert the same into products and services for Indian customers.  

The selection of such verticals should also allow for variations in terms of inbound and outbound innovations and their scale, illustrated by the ‘expensive’ Tata Nano vs a ‘very cheap’ shampoo sachet.

Building Eco-systems

The technology innovation and commercialisation ecosystem in UK has evolved over the past few decades. There are a number of key aspects of UK innovation that can serve as signposts as Indian innovation continues to evolve. These are the creation and active running of a variety of formal and informal, industry and professional networks strengthened by industry sponsorship of events, fellowships, R&D projects and support towards new venture creation.

The basis for designing and building such an ecosystem will include programmes that bring together the core players of this ecosystem such as entrepreneurs, innovators, scientists and technologists and managers and staff of incubators and providers of support services to innovators. For example, AcceleratorIndia ran a series of three workshops in 2010 that served as the concentrators to help develop such ecosystems.

Education

The UK does very well in providing a wide-range of formal and informal educational programmes that assist in the development of an innovative science and research base. The key layer of capacity building must involve long-term engagement of budding innovators and their enablers such as faculty and mentors. Examples that are relevant to the Indian context include Entrepreneurship Project , (Social) Entrepreneurship & Innovation courses and the Venturefund at the University of Oxford (Said Business School), the MSc in Innovation & Entrepreneurship programme  at Imperial College, the Master's in Bioscience Enterprise multidisciplinary programme  at the University of Cambridge (Institute of Biotechnology) and the newly launched Postgraduate Diploma in Entrepreneurship  at the University of Cambridge (Judge Business School).

Combined with a focus on industry verticals (e.g. biotechnology, specialty chemicals, scientific computing, aerospace & defence technologies, alternative/clean energy, pharmaceuticals and telecom infrastructure), such programs will be highly effective in helping convert IP & know-how into tangible social, environmental and monetary value.