The policy on domestic manufacturing released by the Telecom Regulatory Authority of India, and the draft new telecom policy (NTP), 2011, appear to take the national imperative of setting up a domestic telecom manufacturing capability seriously. While in general it is a good idea for a country to focus on one’s strengths and import goods and services that lie in other country’s strengths, this principle needs to be tempered under a few circumstances: firstly, when there are national security concerns, as there are with telecom equipment; secondly, when triggering a particular activity can have significant spillover effects on the remaining domestic economy, as is the case with high-technology manufacturing as a whole.
But in terms of intention, we are not saying anything that has not been said before. Indeed both NTP 1994 and NTP 1999 emphasized domestic manufacturing, without being able to bring about much change. The challenge before us is that the development of local manufacturing can only happen with the development of local entrepreneurship. Except China, which has a unique political system, no country in the world has been able to develop high-tech manufacturing in the public sector. However, high tech entrepreneurship in India is entirely paralysed by a virtual absence of entrepreneurs, investors and know-how.
Illustration by Jayachandran/Mint.
In order to cut the Gordian knot, here are certain suggestions for the use of the telecommunications entrepreneurship development fund that the government intends to float. Firstly, the government grant should be matched by a similar amount from a venture capital firm. The matching investment ensures that the decision to invest is grounded in commercial considerations of sustainability, while at the same time ensuring a higher effective rate of return for private capital, even with relatively risky investment. The total volume of financial support per company should be between $10-30 million over three to five years.
Secondly, the fund should specify the product areas in which new businesses will be supported and also create a geographically proximate cluster that will enable the companies to gain from each other. The aim for India should be to secure a portfolio of patents that would enable us to negotiate in the international standards bodies. As an example, Huawei was not really considered a full player within the standardization process of the telecommunications industry until it had established a sufficiently large patent portfolio that made it necessary for other companies in the standards forums to establish reciprocal patent agreements with it. The product areas could include routers and switches, radio equipment, Wimax and long-term evolution, and mobile handsets.
Thirdly, with the non-resident Indian (NRI) community highly successful in communications technology (including Vinod Khosla of Kleiner Perkins, Gururaj “Desh” Deshpande of Sycamore Networks, and Kanwal Rekhi of Excelan), the fund should leverage their expertise in two ways: a) as investors and mentors to the companies supported and; b) as recipients of grants to seed the entrepreneurship culture in the clusters that are set up. The number of NRI recipients needs to be capped and all NRIs who benefit need to be subject to the condition that they set up local manufacturing units and be present in India for at least three of the next five years. Such a scheme has been adopted by the government of Chile which, not having a large pool of successful non-resident Chileans, has invited entrepreneurs from all over the world with a promise of $40,000 and a two-year window for residence in Chile. The NRI entrepreneurs will serve to seed the entrepreneurial landscape, and a structured (but non-demanding) programme for their interaction with local entrepreneurs must be worked out.
The fourth and final requirement is a tie-up with a top engineering and a top business school physically close to the cluster that can act as mentors for the new businesses. While technical inputs are obviously necessary and perceived to be so, business guidance is often not regarded as important. Yet, 80% of start-ups fail because of poorly conceived business models, and not bad products. In order to avoid imbalance between product and business, the cluster should not be within the jurisdiction of either a business or an engineering school, but open to the inputs of both.
Such a model can also be applied to biotech, automobiles and other industries where high-tech manufacturing is needed. Only by challenging and finally overthrowing old ways of thinking can we traverse the steep climb that lies ahead of us.
Rohit Prasad is chairman of the Centre for Entrepreneurship at MDI Gurgaon.
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