India had over 525 million mobile phone connections as of December 2009 which makes it the world’s second largest in terms of connections. India’s telecom network is also the third largest in the world. Revenues of the industry are currently over $36 billion, telecom equipment market was estimated to be over $24 billion in FY09 and mobile value-added services are expected to generate over $2.5 billion this year. With 3G licensing expected to result in over 60 million 3G subscribers by 2013, the outlook for Indian telecom couldn’t be rosier.
But here’s something to think about. There’s only one, yes just one, Indian telecom equipment ‘start-up’ company that designs (owns intellectual property), develops, manufactures, sells and supports active equipment that sits in a telecom network. That company, Tejas Networks, started by first generation entrepreneurs is about 10 years old and is about $150 million in size. The rest of the $24 billion market for equipment is supplied, directly or indirectly, by foreign players including Chinese companies like Huawei and ZTE, which do over $3 billion in sales from India alone. In China, companies like Huawei supply a majority of the equipment to its telecom service providers (which, in turn, are all Chinese!). Huawei and ZTE, set up in the mid-1980s struggled to compete against foreign vendors, but are now, according to BDA China, expected to own over 50% of China’s 3G infrastructures in the coming years. They own 25% to 35% of the existing wireless networks. Both these companies have received up to $15 billion in lines of credit as well as access to low-cost land. These companies are now globally competitive with others feeling the heat.
India’s defence budget for 2010-11 is over $30 billion. India is currently the second largest arms importer (2005-09) behind China. However, according to the SIPRI report, China is well on its way to becoming self-reliant and saw its imports decline to $0.6 billion in 2009 from $3.5 billion in 2005. During the same period, India increased its defence imports from $1.04 billion to $2.1 billion. The role of the Indian entrepreneur in catering to this huge market is less than negligible. The US is the world’s largest exporter of arms and the names of its private companies like Lockheed Martin, Northrop-Grumman and Boeing being known around the world.
While one must undoubtedly celebrate the rise of world class entrepreneurs and companies like Sunil Mittal’s Airtel, it is important to realise that having one’s own R&D capabilities and access to indigenous technology is crucial in important strategic areas like telecom and defence. Nokia, Ericsson and IBM are the key vendors supplying equipment and running the networks at Airtel. Huawei supplies 3G equipment to Airtel in Sri Lanka. The near absence of Indian entrepreneurs in these areas is, therefore, very unfortunate. There’s a lot that needs to be said, therefore, for the policies that don’t encourage Indian entrepreneurs to set up and build indigenous intellectual property based businesses, especially in areas like defence and telecom. Contrast this with the situation in other countries that are taken seriously on the world stage-China, the US, Russia, France, the UK, Israel.
The only thing worse than believing one’s own PR story is believing PR stories about oneself put out by others! While we continue to consume the story of India’s impending superpower status, it is important to realise that there’s a world of a difference between rhetoric and action. One doesn’t become a superpower by just having 8+% growth rates and by talking about it but through ownership of key assets?intellectual property, markets, financial and socio-cultural?and deployment of those assets around the world. Else, there’s a real danger that India will remain not just an aspiring superpower, but also a perspiring one as it struggles anxiously to make it!
The government can and should be a huge catalyst for the creation of industries that require large capital outlays, have long gestation periods and need highly trained and qualified manpower. Such sectors also provide great opportunity for the government to create appropriate funding mechanisms, regulatory frameworks and business models that enable Indian entrepreneurs from all over the world to set up businesses.
What do you think?
Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings close to two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school. He can be reached at sanjay@jumpstartup.net. These are his personal views