Tech giant Zoho founder Sridhar Vembu has said Indian entrepreneurs must change their mindset and embrace research and development (R&D) in order to build big billion-dollar companies.
Compared to India, the West and many East Asian countries had leapfrogged because they had invested in R&D, according to Vembu.
“Not just with the West, with East Asia too. Koreans have technology, the Japanese have technology. Of course, the Taiwanese have technology. Now, the Chinese have for example the largest drone company in the world is DJI. $8 billion. In drone, they are the world leader. So, it's not just the West, also East Asia has done it. Always focus on R&D,” Vembu said in the podcast Josh Talks.
Vembu gave an interesting example of how the Indian market was flooded with Chinese nail clippers to make his argument.
“You go to any rural shop in India, try to buy a nail clipper. It'll say made in China or made in Korea, right. Why? I went down this rabbit hole. I asked why can't we make a nail clipper? It turns out the metallurgy, we don't actually invest in the metallurgy.”
He said steel companies in India were not building the kind of alloy needed for a simple product such as the nail clipper.
“Our steel companies only invest in the commodity steel, like the stuff that you build buildings with. But this is specialized alloy [needed for nail clipper] that have to hold the cutting edge.”
Similar trend could be found in other items sold in India, according to Vembu.
“It turns out it's not just nail clipper, your dental instruments, that steel is also very special steel. We don't make those. So, you go to a dentist, all the instruments are imported. Because, you go back, it's not the instrument alone, it's the metallurgy. We need to make alloys.”
Vembu said that he’d even invest in a team which could build such alloy.
“I mean right here in Delhi, in fact this was in my one of my presentation, we have the Iron Pillar. That has lasted 2,500 years. So, we knew how to make metals. We just don't today. We lost it along the way. So, we have to regain it. If you ask me where I will invest next: If I find some very sharp metallurgy team that's interested in making these all, I would invest in that.”
He said R&D doesn’t even need any big factories. “R&D, you don't think in giant factories. You think in like small workshops where you are doing recipes. You are trying various recipes. You are characterizing them. You're collecting data, you are forming manufacturing processes.”
Vembu said India should aspire to manufacture capital goods and not settle for anything less. “There's another piece of technology that we don't have in India. If you go to any big factory, all of the capital goods, all of the factory machines are imported. This has a very serious economic implication.”
Suggesting cheap wages cannot be India's strength in the long-term, Vembu said there were other countries that could make products cheaper. So, it's critical for India to focus on manufacturing capital goods.
“We basically settle for the low wage jobs - turning those machines, turning the knobs, operating the machinery. Not inventing the machinery. We need to be competing for Swiss jobs and the Japanese jobs and the German jobs. Otherwise, if we don't do this, well, already in textile belt of Southern India, the businessman will complain our tailor cost us Rs 20,000, Bangladeshi tailors only cost Rs 6,000 and the Kenyan tailors only cost Rs 3,000, the same machinery."
"I say, well your competition is not Bangladesh, your competition is Germany where you're buying the machinery from. That's what I tell them. If you don't aspire to that, it'll be a race to the bottom. If we want a prosperous nation with equitable distribution of our prosperity we definitely have to invest in R&D. We have to figure out complicated stuff.”
He urged Indian entrepreneurs for a mindset shift towards R&D. “The mindset of a business person is I invest so much money, when is the return? Business people want to reduce the uncertainty of their capital. In R&D, you have to embrace the uncertainty, you have to accept that intrinsic uncertainty but that's the key problem, and the mindset shift."
“But the other side of it is, it doesn't cost as much money as building a factory. Like I talked about this metallurgy. Maybe two three crores a year, five crores a year can actually get you a very good metallurgical team. That's not a lot of money. That could be the seed of some billion dollar business.”