N Sankar’s lecture on entrepreneurship at the Madras Management Association elaborated the changing role of the Indian entrepreneur, cascading down from the early days to present times. Classifying an entrepreneur’s role into four stages - Identifi cation, Organisation, Management and Sustenance of the Enterprise, the lecture caricatured the evolution of entrepreneurship with particular reference to South India.
In the last quarter of the 19th century, India made a convincing leap forward into modern industries. The main examples of Indian investment were in Cotton mills in Bombay and Ahmedabad, and in Jute mills in the Eastern region. Another striking example was the setting up of the Taj Mahal Hotel in Bombay by the Tatas.
In South India, Indian entrepreneurship at that time was by and large restricted to small hometown businesses, serving the needs of the local community. Most of the larger businesses were owned and controlled by the British and other international corporations. Indian businessmen at best marketed or dealt in these products.
The early days of the 20th century saw a gradual increase in industrial investment by Indian businessmen. Indian investments now expanded into new lines such as sugar, paper, starch, shipping, engineering, chemicals and many others, including air transport.
In 1936, with an initiative by the Tatas, several Indian firms merged to form The Associated Cement Companies. The 30s also saw the emergence of the Kirloskars around Pune in the engineering industry, and the Shriram Group’s DCM in the north, primarily in textiles, but also in sugar, engineering etc.
In the South the business families hitherto engaged in traditional business activities, ventured into industry. The textile mills of Coimbatore, the sugar industry, newspaper publishing etc., had their beginnings at this time. Native banking was an area where communities like the Chettiars and others fl ourished, and many of them spread their wings offshore to Ceylon, Malaya, Burma, etc., to carry on this activity.
Identifi cation of the opportunity rose from their own abilities to choose and evaluate a business. However, in most cases the activity taken up would have been an extension of their own current family business. As for Organisation of the activity goes, the raising of resources, came from the entrepreneur’s own family savings, and what he could convince others to co-invest with him. The entrepreneur handled the business management and of course, the fi nances. Any sustenance required for the business again drew on family resources.
The natural Indian entrepreneurial drive, which had so far been bottled up under foreign rule, burst forth and the Indian landscape was strewn with a number of ventures, which proudly bore Indian names. In the South, the late 40s and the 50s, saw the take off of many of the industrial houses that grew to prominence thereafter. TVS, Tube Investments, India Cements, Indian Overseas Bank, Indian Bank, United India Insurance, the Easun Group, the textile groups of Coimbatore like the Premier Mills, Madura Mills etc. Identification of opportunities finally began to be driven by an estimation of future potential. Investments went into areas like spinning and weaving mills, cement, building accessories, electrical accessories, fans, and so on.
Jawaharlal Nehru’s call for industrialisation brought with it the need for huge expansion in infrastructure, and in materials and equipment required for infrastructure such as electrical equipment, trucks, cables, steel and AC pipes, etc. Availability of money was a little better organised with Development Financial Institutions like the Industrial Finance Corporation and many banks being willing to fund industry. Most large factories at that time had a colony attached to them, and in effect the businesses ran little townships of their own. Organisational ability was thus crucial for success in this period.
Management became slightly easier in this period, with availability of a large number of educated young Indians looking for work, and being willing to consider the private sector. Sustenance of the enterprise was not too much of a problem – demand for almost anything was huge, and there were very few businesses at that time, which did not succeed fi nancially. The other distinguishing feature of these businesses in the early 50s was that many of them were truly pan-Indian and not just regional players. The products were marketed all over the country.
To pick an example in Southern India, my own grandfather, S N N Sankaralinga Iyer was primarily involved in native banking till the 40s. The business grew from a small money lending operation to one with many locations, including a branch in Colombo. He then took a huge entrepreneurial step by starting a scheduled bank – the Indo-Commercial Bank, which along with the Indian Bank and the Indian Overseas Bank was, among the largest South Indian banks. As for organising, business was conducted through trusted people who were sent to man the different locations. Management - The primary business strategy was laid down by him as the Managing Director. He determined the parties to whom the bank would lend, the margins they would operate on and so on. But like many others at that time, he was perhaps caught up in the heady excitement of establishing new industries, and did not pay enough attention to sustenance, with the result that the bank had to merge with a larger bank.
Another entrepreneurial vision that my grandfather had in the 40s was that of organised farming, and he actually set up a joint stock company for farming. That venture failed, but he discovered on those lands large quantities of limestone, which then formed the basis for his next entrepreneurial step – setting up of India Cements Limited in the late 40s.
To pick another industry, the Electrical industry, Mr Eswaran started in the servicing and distribution side of the business, and from these, with vision, he identified the huge opportunity in the growth of the Electrical Infrastructure of the country, and invested into the hardware side of the business – in transformers, switchgears, electrical controls and so on. There are many other shining examples in a variety of industries, ranging from chemicals to textiles, cycles and so on.
The latter half of the 50s saw the emergence in full measure of Nehruvian Socialism with all its implications for business and industry. Industrial Licensing spread its constricting tentacles in all directions. Identification of opportunity was in the main not driven by any study. Demand for most products was exploding. Supply was curtailed on the one hand because of the Industrial Licensing system, and on the other by infrastructural shortcomings.
Organising the business - Most of the public issues at that time failed, but a whole slew of government fi nancial institutions – LIC, IDBI, IFC, ICICI UTUI supported these issues with underwriting, and also advanced them loans. The primary organisational function of the entrepreneur was keeping the ‘powers that be’ happy. Management per se did not receive its due share of importance. Again the critical job of the managers was to interact with various regulatory authorities at different levels to ensure the continued functioning of the enterprise. Sustenance of the enterprise involved more of the same.
Moving on from the 60s, I cannot but mention the extremely supportive industrial climate in the then Madras State engendered by that visionary Industries Minister R Venkataraman fully supported by Chief Minister Kamaraj. It was a true partnership between the Government and the private sector, which worked jointly to overcome obstacles in the path of industrial development.
The 70s saw further deterioration of the industrial and business climate. Nationalisation of Insurance, Banks, the introduction of the dreaded MRTP Act to curb the growth of large industrial houses, FERA and its draconian provisions and the restrictive import regime were obstacles for the entrepreneur to grapple with. However many good trends started and strengthened in this period. A number of international fi rms entered India in joint venture with Indian corporations. The multinationals in India like Hindustan Lever and ITC which were professionally managed also kept abreast of developments in management science in the rest of the world. The Indian Institutes of Management at Ahmedabad and Calcutta, and subsequently in other locations, became primary hunting grounds for management talent. Of course, this decade also saw the beginning and escalation of the Brain Drain.
We thus had a curious mix in India, the traditional Indian business houses, large multi-nationals, and new ventures promoted and manned by the younger scions of Indian business. Increasing regulations, foreign exchange controls, limitations on management salaries etc., curbs on inculcation of new technology with appropriate royalty payments, etc., led to many of the longer standing multinationals exiting India, and this opened up another opportunity for quick thinking Indian entrepreneurs, who got into deals to acquire the controlling interest held by these multinationals in their Indian ventures. Groups like the RPG Group of Calcutta, the Murugappas here in Chennai, the Singhanias, the Birlas and many others made very profi table and progressive acquisitions in different fields.
One such Southern group which was quick to seize upon the opportunity at that time was the Amalgamations Group where the dynamic Late Shri Anantharamakrishnan took over Simpsons and other companies of the group and grew them signifi cantly.
The mid 80s saw a glimmer of hope for liberalisation of the Indian economy. The large IMF loans that India had to seek brought along with them ‘Conditionalities’ which primarily argued for a lessening of controls and opening up of the economy. One of the first beneficiaries of this was the cement industry where the longstanding price controls that had inhibited its growth, were gradually relaxed, leading to sharp expansion. Corporate India generally increased its clamour for liberalisation of controls, but at the same time was fearful of competing with the world in an open arena.
The 80s of course still rewarded those that could work their way in the controlled regime and towards the end of this dark period of controls, there emerged the most successful of them all, Dhirubai Ambani of Reliance. Without question he was the best player of all time in the over regulated Indian economy.
He introduced the best practices in project management into India - the Reliance mega projects were set up in a way that global corporations envied. The industries he established were the best able to transit to the open economy of the 90s. He almost single handedly rejuvenated the equity cult in India.
Then came 1991 and the foreign exchange crisis that led to India having to literally sell the family jewels – in this case its Gold reserves. Desperate times called for desperate measures.
With some not so gentle pressure from the International Monetary Institutions, Prime Minister Narasimha Rao and Finance Minister Manmohan Singh, crafted and implemented a series of reforms targeted towards opening up the Indian economy. In a space of just a few months Industrial Licensing was abolished, Foreign Exchange controls were significantly liberalised, import restrictions were slashed, foreign investment was welcomed, and India actively sought the influx of foreign investors.
Almost instantaneously the Indian businessmen faced competition from the latest and best products overseas. His process and products had to become competitive on a global scale, quality-wise and cost-wise. With foreign investment liberalised, international corporates with deep pockets went onthe acquisition trail in India.
To the entrepreneur, the correct identification of an opportunity became a crucial win or lose decision. He faced a typical open market economy. As for organisation choice of location was now free and not dictated by an Industrial License. However the newer generation of educated Indian professionals were far more picky. Industry locations were increasingly dictated by such factors. Financial resources were far more easily available. The equity markets were buoyant, fuelled by both domestic and international money, and the banks and institutions, although more market driven, were still there to support. Early 21st Century The other phenomenon of this period, the late 90s and the early 21st century, was the huge impact on the Indian economy of industries that did not exist a couple of years ago. Software development and Business Process Outsourcing became major parts of the Indian business scene, and its main success stories. The Indian economy was truly free, and robust enough that it was not affl icted by the virus that hit the rest of the Asian economy towards the end of the 20th century or by the downturn sparked off by the DotCom bust. This set the stage for the next phase of Indian entrepreneurial development. Cover Story However, the providers of both equity and loan resources, were far more demanding. The days of taking them for granted were behind the entrepreneur. Coming to the aspect of management on an ongoing basis, there was now a large pool of executive talent available. But retention became a big issue. Continuous infusion and development of management talent became a requirement for the Indian entrepreneur. The widespread use of computers, and the latest processes and techniques, were increasingly becoming a necessity. Sustenance of the businesses was important, but could be handled objectively. There were now developed and responsive markets for the critical resources of men, money and materials, and with the development of the internet, global sourcing was as easy, if not easier,than domestic sourcing.
The other phenomenon of this period, the late 90s and the early 21st century, was the huge impact on the Indian economy of industries that did not exist a couple of years ago. Software development and Business Process Outsourcing became major parts of the Indian business scene, and its main success stories. The Indian economy was truly free, and robust enough that it was not affl icted by the virus that hit the rest of the Asian economy towards the end of the 20th century or by the downturn sparked off by the DotCom bust. This set the stage for the next phase of Indian entrepreneurial development.
Half way into the fi rst decade of the 21st century, Indian entrepreneurs began to spread their wings abroad. Indian entrepreneurs of all sizes and backgrounds were quick to identify opportunities in their respective areas. In most cases, these involved superimposing lower Indian costs on distribution channels acquired internationally. Organisation involved intricate fi nancial arrangements to secure the fairly signifi cant resources required; and then putting in place key personnel to secure the entrepreneur’s control of the acquired entities. There were many doomsayers who predicted that management of these entities acquired in far-fl ung locations would be beyond the capabilities of the Indian acquirers, but they have so far been proved wrong. By and large, the Indian Entrepreneur has followed a model of locating just a couple of senior managers at the top of the acquired entities, and adopting a system of integrating and identifying with the local management for the rest. This technique seems to have worked smoothly in most cases.
Thus in the space of few years we had the Indian fl ag fl ying at businesses all around the globe, and quite successfully too.
The shake-up in the fi nancial markets has put enormous strain on the fi nancial arrangements for the huge acquisitions made by Indian entrepreneurs in the last couple of years. Over different periods in the 20th century, there was much emphasis on identifi cation, organisation and development. But sustenance was somehow always not as critical as the rest. But today things are very different. How the entrepreneur sustains the enterprises he has acquired in the last few years is the most important issue.
I for one am confident that as we look back at this period some years down the road, we will be pointing to it as another shining example of how the Indian entrepreneurial spirit faced seemingly insurmountable diffi culties, but still came through successfully.
In these difficult times, we need Entrepreneurs more than ever before. Everyone is talking about recession and sitting tight waiting for a revival. Who or what will make the revival happen? It has to be the Entrepreneur. In downturns, new opportunities are created, and a new economic order would emerge. It is at times like these, that Entrepreneurs are created. There are always those who at such times heed the whispering voice of society’s needs, pick up opportunities that are hidden to most of us, and have the appetite for risk that exploiting these opportunities involves. With a little bit of luck, a successful new Entrepreneur is born.