Challenges and Opportunities in India

22 June, 2009
For this submission, I decided to present something slightly different than what one might expect from a VC. This is a compilation of two different but related set of issues – the first few points have to do with the behavior of the Indian consumer and service provider, which is sometimes intriguing, often oxymoronic, and always interesting;  the second set of bullet points have to do with specific areas that are poised for innovation and growth in India. It’s a bit of a mix with no clear transition from one to the other, but here it goes…
 
Window or aisle: A few weeks ago I happened to travel to Delhi and as usual the experience at the airport was partly annoying and partly entertainment. I got to the airline counter in my typical fashion (exactly 35 minutes before departure). The agent politely asked “window or aisle, sir?”. I answered, “give me a window as far in front as possible” (will get to the reason for that shortly). He looked at his screen and said, “sir, there is no window seat available”. “Well then, give me an aisle as far in front as possible”, I said.
 
He replied, “sir, there is no aisle seat available”. I looked at him and smiled but he had a blank look on his face as if he had done or said nothing wrong (or funny). I ended the conversation by saying, “just get me a seat, any seat on the plane”. Of course, he handed me the boarding pass with “29E” (the very last row next to the toilet). A big piece of India is stuck in the BPO well, one that builds as they are told, and doesn’t question why something is or is not a certain way.
 
The airline representative was simply reading from a script without actually realizing what had just happened. Same is the case in many different industries which, ironically enough, are consumer centric, yet have a long way to go from a customer service centric standpoint. The reason, by the way, I ask for a window seat is simple, which leads to the next point.
 
Patience is a virtue (sometimes):  Usually, the behavior on the plane is not so different from a Delhi Transportation Corporation public bus in Delhi that I so fondly remember from my childhood.
 
Continuing with the air travel theme, let me emphasize the ubiquity of patience (and simultaneously lack thereof) in India. As soon as the plane lands and is still slowing down with reverse thrusters on and often heavy braking, the clicks of the belts start, the “Airtel welcomes you to Bangalore” sms chimes perform a chaotic symphony and if you are lucky enough to view live entertainment, one or two people actually get up to open the overhead bin before the plane has even turned off from the runway.
A couple of times, I have actually seen multiple people go flying down the aisle because they got up prematurely and the pilot slammed on the brakes harder than usual. Coming back to the point on the “window” selection…the reason for choosing window is so that I don’t get trampled by others trying to get out of their row to their luggage as if in a rush to catch a connecting DTC bus; of course, the B.O. is not so refereshing as people stick their underarms in your face, whether to stretch or to reach for their belongings.
 
I lean against the window,I simply turn on my blackberry and catch up on a few emails while the circus of “everyone trying to get off the plane in a hurry” goes on. I am usually the last person off the plane. As a result, I am usually the last person on the 2nd bus taking passengers to the terminal, 1st person off the bus and out of the airport. The irony in the above scenario is simply that to survive in India, one has to really have a lot of patience and not let things get to you. One simply waits, whether it’s for transportation, customer service, hospital staff, and of course, in traffic among many others.
But for some reason that level of patience goes out the window as people try to rush out of the aluminum tube just after landing. The aforementioned reaction may not make sense, but it’s part of human behavior and habit, something from a startup standpoint entrepreneurs should always consider, and realize that like it or not, people behave in a certain way and it’s often better to “go with the flow” rather than have people change their behavior to adopt a particular product or service.
Changing customer behavior especially around technology often requires a fair bit of education and handholding (via an offline product or service delivery center). I often say that the spectrum of methods to cause a person to act in a certain way varies from the art of persuasion on one extreme (Education) to art of threat (consequence) on the other (falling down the aisle for getting up prematurely is the latter).
 
Value conscious: I am convinced that Indians and Chinese are the most value conscious people on the planet. I was speaking with a senior executive from Coca Cola India a couple of months ago, and he remarked, and I think accurately, that “nothing of value ever goes to waste in India”.  For example, the leading handset vendor in India is Nokia, the 2nd place vendor is “2nd hand Nokia” and the 3rd place vendor is “3rd hand Nokia”.  
 
DFJ has an investment in a very interesting company called Attero in the Electronic Waste recycling space. The company is initially focusing on computers and mobile phones. While in the west, one could make the assumption that the typical useful lifetime of a computer is about three to four years, in India that timeline probably needs to be at least doubled. Therefore the low hanging fruit for the company is more on the enterprise side from IT and BPO companies rather than consumers.
 
 Stuck in the BPO mindset: As the 1st point indicates, the poor airline agent was simply following a script without realizing that there was something fundamentally flawed with the system logic. India, although making tremendous progress, is stuck from a human capital standpoint in a BPO mindset. i.e. tell me what to do and I will do it, rather than thinking a bit more creatively (even at an individual contributor level to make the customer experience better).
 
Let me give another example. Given the recent H1N1 scare, obviously certain health checkup procedures have been put in place at airports. Recently, I returned with the family from the US and upon landing at Bangalore airport stood in line to have a temperature checkup to detect who might have the flu. My wife happens to have spent some time in the healthcare field and was pretty disturbed when she saw what was going on. Basically, everyone was being checked via an ear thermometer.
 
Usually these thermometers have little plastic disposable covers for sanitary reasons. Instead of using any sort of cover, the nurses were using a dry cotton piece to quickly wipe the thermometer nozzle between passengers. By using the same thermometer without the use of the plastic cover, they were more likely to spread the virus than detect it.
 
 Customer service is not something that comes naturally: Again, this may be a by-product of growing too quickly, whether it’s on the telco front, financial services front, offline retail or something else, outside of airlines, others have not done a very good job of customer service training.
 
I still get trailed when I enter a retail outlet, and the guy behind me fixes everything I touch.  I run into the same mindset when I have to use customer service for my Airtel service or ICICI credit card, both of which should consider me a premier customer because of my long term value. Yet I get the same runaround as anyone else. Segmenting the market and creating different tiers of service for high value customers is promised, but rarely practiced even by significant “brand equity” companies.
 
Cleanliness is next to godliness: That is one of the old proverbs that I remember from early childhood. In India, that is very true, but only inside the house. While the whitewashing and constant cleaning happens inside, it’s somehow considered perfectly acceptable to toss trash anywhere and everywhere, and use the streets of the city as a toilet. The dichotomy is striking. Again it’s human behavior, mindset and civic sense.
 
The same people, when put in a place like Singapore will be the most law abiding and civic minded. It’s part the syndrome that “everyone else is doing it, so why does it matter if I do it” and lack of incentives perhaps to not do it, or lack of disincentives for doing it (remember the art of persuasion vs art of threat).
 
I don’t want to get into the socio-economic aspects and I am simply not an expert to debate the subject. But from a venture capitalist and an entrepreneurs’ standpoint targeting the mass market, whether in India or elsewhere,  it’s important to really understand human nature, behavior, and habit to try and get the portfolio companies to best adapt to the existing way of doing things, or determine a way to educate people into doing something differently (easier said than done).  In other words, really know who the customer is and why and how that customer will interact with the product or service being offered.
 
Innovate, but not necessarily when it comes to business models: This may seem a bit strange, given that there are some very incredible examples of business model innovation that has helped create giants (Google, eBay, Netflix, and SaaS based companies like Salesforce.com). But that’s usually when truly ground breaking technology or a brand new market is being created, where there is no traditional way of buying and selling that’s applicable.
 
But let me present a counter example.  DFJ has a portfolio company called Seventymm which is a DVD rental service business (effectively the Netflix of India). The assumption at the onset was fairly straightforward – that the Indian consumer loves watching movies, understands the rental concept and would be happy with a subscription model as long as selection and convenience (pick up/drop off at home) were provided.  
 
Although the thesis was right on the market, certain core assumptions were proven incorrect. Among them was the thought of the Indian consumer embracing the idea of subscription. Indian consumer is very used to the prepaid concept, and a pay per use or pay per view model. Effectively, people like paying as and when they derive value from a service.  While the Indian consumer is used to subscribing for newspapers, the idea of subscription for movie rental is foreign. He/she is used to going to the corner shop or the standard pirated movie delivery guy around the corner and pay as and when they watch the movie. Seventymm ran into a double whammy.  
The physical interface to the consumer is the least paid employee, the scooter boy who delivers and picks up movies and collects cash. Often they ran into unhappy customers who had not watched a movie in the previous month and therefore didn’t feel that they should pay, even though they were technically “subscribers”.
 
The mobile revolution: I recently heard Ray Kurzweil speak at a conference about his research into technological change over the past several decades and the pace of change during that time period. His claim is that technological advances, whether in IT, medicine and elsewhere are on an exponential curve. In other words, the pace of the change itself is getting faster over time. What’s also interesting to note is that the younger generation is able to deal with that increasing pace of change better than the older one.
It’s perfectly normal for young adults now to be on facebook, listening to their ipod, texting, chatting on skype and doing homework, all at the same time. By the way, the texting phenomenon has now led to coining of an interesting automotive term – “driving while intexticated”.  In the mobile world, which is very pertinent in the Indian context, startups often rely on a particular application being downloaded to the phone.
While 3-4 years ago, people were very apprehensive about doing just that, the young crowd is happy to experiment and download apps, content etc, thanks in large part to the iphone phenomenon. The handset prices are dropping while functionality is increasing. Now if the heavily operator-centric business model were to be made more amenable to mobile startups in India, perhaps we would see a lot more innovation in the mobile arena. I personally believe that Indian companies in the mobile arena will be the behemoths several years and decades from now.
 
Healthcare and Education: This is one of key areas of focus for DFJ. Indians are prone to chronic heart disease, diabetes and increasingly, due to the lack of exercise and not the healthiest eating habits…obesity.
The country is young, so potentially the large majority of the population feels a bit invincible, but it’s a time bomb that will rock this country perhaps 15-20 years downstream, if not sooner.  I, unfortunately, have gone through tremendous health related issues, especially with my kids being misdiagnosed and mistreated by supposedly the experts in their respective fields in Bangalore and the best hospitals. Let me give a couple of specific examples. My five year old had a severe infection for which I took her to Manipal, a fairly renowned hospital. The ER doctor gave her an overdose of antibiotics before even doing a urine culture, which is very standard practice in the developed world. Doing a culture after pumping antibiotics doesn’t help since the antibiotic is already in the system. Once she was lying in bed, I was then given a bunch of paperwork to go to the pharmacy and get syringes, and other medical equipment as well as medicines. Luckily my wife was with me, but what if one family member comes with a sick child. The expectation is to simply leave the child while one goes and takes care of the transaction. There is severe lack of diagnostic facilities where specimen can be sent, and results received fairly quickly. And I am talking about the metros, not tier 2/3 cities or the villages. Finally, there is absolutely no communication between various healthcare specialists. Again, for our kids’ situation, we need the internal medicine, urologist, nephrologist and radiologist to interact with each other to properly diagnose and treat the patient.
That is a very foreign concept in India. On the Education front, India is proud of the sheer number of schools, colleges, and graduates it produces every year. The fact of the matter is that although the number of graduates is very high, the number of those who are actually employable is a small fraction. Casual conversations with those in charge of hiring provide a glimpse into the fact that the yield is in the low single digit percentages (to hire 5 people, 100 may need to be interviewed).
 
Where is India’s Amazon: People often ask me why the Amazon or eBay haven’t flourished in India.  There are several reason for it, in my opionion, ranging from the lack of broadband, PC and credit card penetration to a certain extent.
Additionally, the India consumer is still not willing to transact online in a big way (although IRCTC and other travel sites are making good progress). I also believe that delivery of digital goods (airline ticket, show tickets, stock trades) is a lower hanging fruit where the initial online transaction adoption is taking place. However, the delivery of physical goods involves a different level of supply chain sophistication, from warehousing, logistics, return policies that are simply not there. Finally, the India consumer likes buying by touching/feeling/trying the good.
 
The aforementioned was also the case at the onset in the developed countries, but as and when the audience built a level of trust and delivery reliability improved, so did the number of transactions. I think the same will happen in India, and sites are already popping up to enable these on mobile and the web. It will be a matter of time before they proliferate. Just how long is anyone’s guess.
 
The reason for mentioning the points above is not to simply point out what’s wrong or the fact that things are not perfect (I can imagine some readers asking me to simply leave the country if I am not all that excited about being here).
 
More importantly, the point is to highlight that the same challenges the country faces today provide tremendous opportunities for innovation and solutions. It will be startups more likely than larger companies that will offer those solutions and by doing so, flourish, whether it is in healthcare, education, infrastructure, training and dozens of other areas. What’s equally important in the points above is that it is crucial for companies to really understand their customers (especially when the customer is the individual consumer).
Consumer behavior is difficult to change, whether it’s using a particular product or service or paying for that product or service. But as Kurzweil points out, change is inevitable and the rate of change is increasing.
 
The irony is that on the one hand change is difficult, yet on the other hand the younger generation finds it second nature to multitask. Segmenting the market, educating the customer and delighting the customer with incredible service have been and will continue to be the hallmark of successful startups.

 


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Alok . 4 years ago

Very good articulated thoughts. Thanks for this aricle.

Challenges and Opportunities in India

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