India’s entrepreneurial road ignored

Everyone in India is a businessman, from the roadside stall owner selling snacks, to the country’s corporate elite such as the billionaire magnate Mukesh Ambani. In fact, the country is said to have the highest number of entrepreneurs in the world.

But only a small percentage of these businessmen and women are leading the country’s growth through innovation and new ideas on a big scale. The majority of India’s traders work in privately run businesses and their number, in a population of 1.2bn people, is difficult to estimate.

Indian Institutes of Management (IIM) were established to create a pool of the best and brightest individuals who would foster development, creating a growth story for India that would include every individual from the top to the bottom of the pyramid. But even among graduates of these schools, arguably the most qualified and best placed in society to become entrepreneurs, few go on to do so.

Although some former students such as Tapangshu Das do opt for the entrepreneurial route, such examples are few and far between. The reality is that more than 90 per cent of graduates at IIMs prefer to take secure, well-paid jobs at international companies such as Accenture and Goldman Sachs, or domestic corporations such as Hindustan Unilever after finishing their postgraduate programme in management – the PGP – often likened to a Masters of Business Administration in India.

But John Sculley, a former president of PepsiCo and former chief executive of Apple, says that if India is to grow, it needs to embrace its entrepreneurial spirit in order to innovate.

“When it comes to innovation, there is a huge gap. You can trace it to the fact that India is very strong with the left brain, which is about frugal engineering, execution, adapting to processes, for example, where it has built a huge reputation.

He told journalists at a leadership summit in Mumbai, organised by the information technology lobby Nasscom that “innovation takes both right and left brain thinking, and the right brain is about taking risk”. Risk-taking is not part of the culture of India, he added.

Bakul Dholakia, director of the Adani Institute of Infrastructure Management and former director of the Indian Institute of Management in Ahmedabad (IIMA), echoes Mr Sculley’s views.

He says: “In Indian culture, in your early 20s, your parents still play a very important role in your lifeand have a huge influence on key decisions. When I was director at IIMA I really did try to encourage entrepreneurship, but it wasn’t the students that didn’t want to take the risk. It was their parents who objected and questioned why their sons and daughters would want to give up a good job and the security of a certain type of lifestyle and salary that goes with it. They do not want their children to have to struggle.”

Moreover, securing a coveted place at one of the 11 highly competitive IIMs involves considerable amounts of time, effort and money and many parents would rather their offspring opted for a foot on the relatively secure corporate ladder, than embark on an entrepreneurial venture.

To encourage entrepreneurship, Prof Dholakia introduced a policy change at IIMA in 2006. If students embarked upon an entrepreneurial route that after a year was unsuccessful, they would be eligible for placements at big-name corporations for the two years after graduation.

“Parents really welcomed this, as they wanted something for their children to fall back on. But hardly any of these students came back [for the placement],” he adds.

Age is also a factor. B.H. Jajoo, dean at IIMA, says that the average age of an IIM graduate is 24. However, globally, most entrepreneurs do not consider their own entrepreneurial venture until the age of 28.

“Remember that MBA students in India really are less experienced than their counterparts abroad. They tend to complete all of their education first, and then start work. They would rather use those few years after graduation to gain some on-the-ground training.”

A lot of students are also deterred because “an unsuccessful venture takes away prime time for career building”, says Prof Jajoo. Failure at such a venture could result in two or three years of lost time in which a student could have moved up the corporate ladder significantly, he adds.

At IIMA more than 90 per cent of graduates accept offers from domestic and international companies, with nearly 60 per cent accepting jobs in finance or consulting. These ratios are typical across all IIMs.

However, the climate may be changing. The government-backed IIMs are trying to cultivate entrepreneurship to provide more chances to those Indians willing to take that leap of faith.

The IIMs at Bangalore, Calcutta, Lucknow and Kozhikode all have centres for entrepreneurship and the Indian School of Business at Hyderabad has a compulsory course in entrepreneurship as part of its PGP.

IIMA offers a number of entrepreneurship courses alongside seed funding from private equity groups, incubation labs, finance training and a mentoring system to support fledgling entrepreneurs. But such opportunities are only available to a few people.

“We take around four or five companies on a year [into the incubator], some from IIMA and some from outside,” says Prof Jajoo.

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To date, IIMA has taken on about 25 companies. Of IIMA’s 9,000-strong alumni, about 10 per cent have set up or are running their own businesses. “Every year around 15 to 20 students will go into business,” adds Prof Jajoo. About 300 chief executives of professionally run organisations in India are IIMA alumni, he says. Prof Jajoo is keen to emphasise the role of private equity funding in fostering entrepreneurship.

“This funding for postgraduate ventures is picking up. As the economy grows and consumption increases, there is a greater demand for new technology. This is providing fertile ground for innovation particularly in India,” he says.