Innovation is beginning to change India
What image do you have of India? Most people might have its image being a developing country with a low GDP.
In fact, the infrastructure in India is not fully established, and some streets are littered with garbage. Rural villages are poor, and consequently, many people are concentrated in cities, which causes chronic traffic congestion in urban areas.
However, industries, including AI and IT, have been developing in India, and Western and Asian companies have expanded their business and established bases in Bangalore, a city in the south. Furthermore, Bangalore is also home to many Western and existing IT and AI companies and startups, making the city the center of the world for the IT and AI industries as the “Silicon Valley of Asia.”
India originally has a tradition of mathematics education, and continuously produces excellent engineers. They used to be recruited by major Western IT companies and to work as engineers at Western companies in India or those in Europe and the United States. Recently, however, more and more people stay in India and start businesses. Particularly, there seems to be increasing the case where students graduate from technical universities and then go to business school in a graduate school, to start businesses with knowledge of both engineering and business.
They establish startups, leading to various innovations, which has made Indian society start to change in recent years.
For example, in India, three-wheeled taxis called auto rickshaws serve people as a convenient and reasonable means of transportation. Yet, some drivers rip off the customer when they find out that the customer is a foreign tourist.
However, Ola (OLA cabs), a system that allows you to call a taxi using your smartphone, is now widespread. In this system, you can write a review of the driver, which has decreased malicious drivers, and accordingly, tourists can take a taxi more safely than before.
In Japan, several taxi-hailing apps are in operation, but the Ola system, which started with a startup in India, has also been recognized in developed countries, and the services have been launched in Australia and the UK.
Moreover, cashless payments are rapidly becoming widespread in India. A system called Paytm has become the key part. In urban areas, not only shops but also street stands are equipped with the Paytm QR codes.
The company that provides this Paytm was also established as a startup. One of the reasons for this prevalence is that they do not take any settlement fees from small- and medium-sized shops. This has increased the number of member stores, the convenience of users, and the number of users all at once.
In addition, purchase data and other data have become enormous to be big data, which are not only utilized for marketing, but also become credit information of each user. As a result, the poor, who had not previously been able to open a bank account, now have access to various financial services.
Paytm has been expanding its business in finance, from cashless payments to banking services. Ola’s services have also diversified into music and movie distribution, food delivery and financial services, and the number of its users is further increasing.
Such IT platforms have network effects, where the more users they have, the more convenient they become. Ola’s and Paytm’s business expansions on IT platforms have made a significant contribution to the increase in the network effects by locking customers into Paytm’s and Ola’s ecosystems.
Developed countries are now paying attention to the innovations realized by such companies established as startups, and foreign investment in such innovations is rapidly increasing. In other words, the innovations created by Indian startups are changing Indian society, raising expectations for the future of new India based on these innovations, and generating investment enthusiasm across the world.
In fact, Japanese companies are also making heavy investments, and consequently, for the PayPay system, which started in Japan, technological licensing is provided by Paytm.
Jugaad as one of the characteristics in Indian society
The number of unicorn companies is one of the indicators to see the growth of startups and ventures. This refers to unlisted companies valued at one billion dollars or more. According to 2020 statistics, India has 24 of them, which is the third largest after the United States with 235 and China with 118. On the other hand, there are only four of them in Japan.
Why are such startups founded and grown substantially in India? There are several reasons for this, but as I mentioned earlier, there is a tradition of mathematics education in India, and talented students are inclined to study engineering, such as at the Indian Institute of Technology, which plays a major role in the development of IT and AI human resources in India. Another reason is that universities and companies are actively engaged in industry-academia collaboration. Startups sometimes use technologies developed at universities, and incubation centers are widely available at universities and business schools in India. Moreover, there are also tax incentives for startups and startup investors.
Nevertheless, I would like to turn to the cultural background of India. India has a culture called Jugaad. This is an idea that before you construct a new solution to an issue at hand, you first combine what you can do and what you have in order to deal with the issue, even if it is impromptu.
For example, Paytm has become popular in India because it allows the poor without credit to hold a bank account. In India, there were many people who could not have any accounts because they were poor and had no credit. Paytm has resolved such an issue.
There is also a healthcare startup named Niramai in India, which has been reported in the Japanese media as well. A major problem in India is the higher morbidity of breast cancer and a much lower patient survival rate compared to other countries. The popularization of breast cancer screening is one of the countermeasures. However, it is difficult for a hospital to reinforce mammography equipment due to the costs, and the examination is physically and mentally burdensome for women as well. Meanwhile, thermal cameras are in widespread use. Niramai has therefore established a system that amasses thermal images acquired by a thermal camera and analyzes them using AI to detect slight abnormalities in cells.
It is safe to say that this is also Jugaad business carried out by a startup. This is based on the idea that even existing facilities can be utilized, if not 100%, by being combined with AI and other technologies. There is also a kind of generosity to allow that on the part of citizens.
Japan would start with developing new examination equipment. That would improve the accuracy of examinations and meet the demanding needs of patients.
However, such perfectionism could be time consuming and costly. On the other hand, advances in AI and other technologies have made it possible to save upfront investment and development time significantly. It may be cultural aspects and national character that allow a system created by such advancement.
Nevertheless, the Indian spirit of Jugaad – to try first even if it is hasty, and to make improvements or think of another way if it does not work – is definitely increasing the opportunities for young talented people to make the best use of their abilities, which leads to innovation.
Generosity and looseness that is tolerant of failure creates innovation
In contrast to the era of manufacturing, which once supported Japan’s rapid economic growth, software and systems based on IT and AI technologies have become the driving force behind social change. It may be natural that India, which has nurtured human resources in these fields, is now growing.
Meanwhile, of course, India also faces various issues.
For example, the Indian business community is centered around so-called Hindu undivided families, companies that solidify within lineal kin for generations.
Like Japanese zaibatsu (financial cliques) before the World War II, the parent company and other group companies are owned by family members that hold shares reciprocally, and the family members control the entire business group through the management by relatives. Even emerging ventures often turn into family-run companies as well. Such an exclusive family ownership structure has caused various problems. While taking the form of a general stock corporation, family members have a strong intention to take the company private, and they often cause incidents that have a significant negative impact on shareholders, employees and society, such as tunneling (transferring company assets to a private account), accounting fraud, and suspicious transactions between family members and related companies.
On another front, some family-run companies have a strong sense of supporting startups and ventures, and contributing to society. Family-run companies are a dominant form of corporation in India and have indeed contributed greatly to the economic and social development of the country.
I believe that whether family-run companies have a positive or negative impact on the economy and society depends on the risks and environmental factors surrounding them. Although we are still in the middle of research, we were able to understand that there is a tendency where family-run companies actively invest in research and development when they face severe competition from other companies.
In other words, a sense of overcoming risk by taking new actions instead of protecting themselves is likely to develop into the support of startups and the innovation that has a positive impact on society.
This may be because the decision of the family head is immediately carried out in their system, unlike the Japanese way, where common ground is to be found in discussion.
In India, the new Companies Act was enacted in 2013 for the purpose of strengthening surveillance and supervision to prevent scandals involving family-run companies. Under the new Companies Act, companies are required to appoint female directors and to spend 2% of net income within the last three fiscal years on CSR activities, which has attracted attention.
This is the most advanced level of corporate governance, way beyond Japan. Although it is doubtful that all of these are actually observed, setting a lofty target for issues that need to be overcome is also the Indian way.
In Japan, targets and regulations are determined after sufficient discussion and consensus-building on the premise that they are implemented. That is why people who do not observe what they have decided are heavily criticized.
Naturally, this is also, in a sense, a perfectionist way of governing society. Thanks to this, postwar Japan has grown.
In India, on the other hand, a standard is set first, aside from its feasibility. If it is difficult to implement it, another new standard might be set. Such an aspect of realism can also be Jugaad culture.
Meanwhile, companies which comply with the new Companies Act are very proud of the fact. It is because this can lead to social contributions and enhance their reputation in society. Such awareness is strong in India.
Indian society is complicated and chaotic. This has actually hindered India’s growth, whereas this has also become the driving force for innovation, serving as the vitality that does not fear failure.
Japan and India have quite different cultures and situations. However, I believe that what Japan needs now at least is the generosity and looseness to support repeated tries and to be tolerant of failure.
* The information contained herein is current as of November 2021.
* The contents of articles on Meiji.net are based on the personal ideas and opinions of the author and do not indicate the official opinion of Meiji University.
* I work to achieve SDGs related to the educational and research themes that I am currently engaged in.
Information noted in the articles and videos, such as positions and affiliations, are current at the time of production.