Reimagining India: A conversation with Eric Schmidt 12-19

Reimagining India: A conversation with Eric Schmidt

Google’s executive chairman expresses optimism about India’s technology sector but urges companies to prioritize domestic excellence over global dominance.

December 2013
Google opened its first office in India almost a decade ago, and executive chairman Eric Schmidt has since watched the country’s technology sector expand rapidly. In this video interview, Schmidt is optimistic about the role technology can continue to play in India’s development but warns that the regulatory environment must keep improving. This interview was conducted by James Manyika, a director in McKinsey’s San Francisco office, and what follows is an edited transcript of Eric Schmidt’s remarks.

Interview transcript

The Indian Internet

Well, to me, India is still well behind in the potential that it’s going to have with a connected society. India has about 120 million users on the Internet, which is less than 10 percent of the population. So we have no idea what is going to happen when the next 50, 60, 70 percent of the Indians—which represent a sixth of the world population, I might add—join the conversation. We hope that it’ll be the same as what we’ve seen before, but we don’t know. And unleashing that creativity is a great opportunity and challenge for the next few years.

There’s never going to be the kind of broadband infrastructure in a physical place at the scale that we see here in America. But it’s perfectly possible that India can leapfrog much of the technology that we’ve taken for granted over the last few decades and build very, very powerful fourth-generation LTE¹ networks to handle the tremendous load of all these Indian users and consumers. So the Indian Internet will be lower cost, mobile. But I’m sure it will be very creative and very clever.

A smartphone revolution

One of the greatest things in the last decade has been the arrival of the modest-cost mobile phone for the developing world. People who do not have televisions, refrigerators, literally, stable bathroom situations, have mobile phones. And if they don’t have mobile phones, someone in their village has a mobile phone.

Technology is a declining cost industry. And the phone that we have today, which using US prices is a $400 phone, will be a $200 phone in a couple of years, because of Moore’s law, and a couple years later, it’s a $100 phone. So if you simply take the phones from two years ago, wait two years and distribute them, you have a $50 to $70 phone by the time you’re done. And that’s without subsidies.

There’s every reason to believe that in the next five years we can get Android-type phones, through partners that are doing it at volume and doing it in a very clever way. We’ll get a basically successful smartphone with a modestly powerful screen. And the price points can be well below $50.

The general rule in these markets is that at a price point below $50, people will save up their money. They can pool their money together, they can do it for a village, and that will change the world. The other issue that India and other countries have is very high data rates, because there’s not enough competition in the telecommunications industry.

India’s addressing that by bringing in more competition for the LTE layers. But one of the simple solutions there is to have much more access to WiFi hotspots and the ability to be mobile between them. So even there, we have some solutions. I think there’s every reason to believe that in five to ten years, the majority of Indian citizens will have good access to the Internet.

And it’ll be modest in the sense that they’ll have a browser, they’ll have reasonable bandwidth—certainly nothing compared to what we will have in the same time. But it’s life-changing for them. That’s what’s important. Life-changing. Access to information they never had. Access to the world’s information. Access to all those languages. Access to pictures, the ability to take pictures of what’s going on around them as a security measure. On and on and on. For them, it’s a huge deal.

India’s tech sector

A reasonable expectation for a developing country is not that they’re going to produce a global Boeing or Google or what-have-you company within a decade. A reasonable expectation is that they will build local firms that have unique talents and skills. Those firms will have high wages, high growth, and really transform the country.

That opportunity is available to India because of the quality of the people, the educational system and, frankly, the large domestic market. There are hundreds of large firms for the Internet that will be founded and will be successful—ones that are simply for Indian consumers—as India gets connected.

Indian taste, Indian style, Indian sports, right? Cricket as an example. There are many, many, many examples where the local culture, the local languages, and so forth will drive a local solution. As to whether such a company could ultimately become a global powerhouse, it’ll take more than a few years to see, but of course they can.

But the way it works is you first start with your domestic market and you do a great job. The reason to think that an Indian company can do this is that American firms have worked for a long time with Indian engineers in India. So we know the technical talent is there. It’s not a question of talent, and it’s not a question of education. It’s a question of the way in which the system is run, the regulations, the way capital is formed, and so forth. And there’s evidence that those issues are changing.

India’s impact

India has had a big impact. Sun Microsystems was founded by someone who’d been to an IT university in India. And here in Silicon Valley, there is evidence that 40 percent of the entrepreneurs are Indian foreign born. So it gives you a sense of the scale and reach of Indian entrepreneurs outside of the country. So the problem is not the Indians, the problem is the country. And the country appears to be relatively dysfunctional politically, and has some corruption issues. You can see the potential when the Indians come here. Imagine if they were there and they were doing the same things with the same kind of structure. They’d change the world.

About the authors

Eric Schmidt is executive chairman of Google. This interview was conducted by James Manyika, a director in McKinsey’s San Francisco office.

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Reimagining India: A conversation with Yasheng Huang 12-19

Reimagining India: A conversation with Yasheng Huang

MIT Sloan School of Management professor Yasheng Huang warns of the dangers of India’s reliance on the IT sector for economic growth, calling for regulatory reforms and greater investment in basic services.

India is known globally for the rise of its information-technology and software industry. Yet in this video interview, Yasheng Huang, a professor of global economics and management at MIT’s Sloan School of Management and essayist from 

Reimagining India: Unlocking the Potential of Asia’s Next Superpower (Simon & Schuster, November 2013),

 warns the country against becoming too dependent on those sectors. He argues India’s potential will only be realized if the country develops its manufacturing and services sectors, which requires labor-market reforms and significant investments in both education and social services. Without those, India will not only face growing social inequality but could also jeopardize its pipeline of college-ready students critical to the high-tech industry. What follows is an edited transcript of his remarks.

Interview transcript

Needed reforms

The key for India to move forward is: how do you maintain a healthy growth rate—which, I believe, is 5 percent, 6 percent—in this kind of adverse environment? I see labor reforms as the key. For a country with 1.2 billion people, you cannot grow just on the basis of software engineers and business-process operations.

You have to include the workers, the women, villagers, and the rural Indians into the growth machine. We’re talking about simple manufacturing. We’re talking about simple service-sector jobs that require basic reading, a little bit of math, functional capabilities. And labor regulations in India are killing those potentials. They don’t kill the IT, they don’t kill the high tech, but they do kill the blue-collar manufacturing jobs, which India needs the most.

The other area that would require more government intervention is in the social sector—health and education. If the government doesn’t provide health and education, nobody can come close to matching the government. And this is where you actually want more government intervention. You want more tax money to go in those sectors. And the Indian government is not able to collect enough taxes to spend on health and education; it is also constrained administratively and politically in terms of scaling up education.

If India doesn’t fix the problem of education—primary-education, first-tier education—they are going to undermine their success in the high-tech sector. The reason is very simple. The tertiary education requires a long pipeline of college-ready students. If you don’t fix your primary education, if you don’t fix your high school, primary school, you’re going to have a very narrow pipeline.

Leapfrogging wisely

There are many analysts and scholars and observers who believe that India can skip this sort of normal, sequential economic-development model and leapfrog directly into the information age, the IT age. I think there are two kinds of leapfrogging, and one is more plausible than the other.

The leapfrogging in education, I do believe that there is a lot of potential there—the Khan Academy model of delivering educational content to villages and children in remote places, for example. You probably can leapfrog the brick-and-mortar education-provision model.

The leapfrogging view that is laid out by some observers, which is that you don’t need manufacturing, you just go directly into IT—there’s absolutely no evidence in support of that. The current struggles that India has now are actually related to the lack of manufacturing. The only way for a country of that size to have broad-based economic growth, to have sustained income growth, is to do those things that the majority of your population can do. It’s manufacturing; it’s not writing software codes.

My worry about India is that if you just have IT, if you just have software, business-process operations, you’re going to have an economy in which one part of the country, a very narrow slice of the country, does extremely well, leaving the vast majority behind in economic development and economic growth. Politically, I don’t think that’s a sustainable proposition. Economically, I think it’s very unhealthy to have the growth be so concentrated in just one or two areas and leaving the vast majority of the population behind.

About the author

Yasheng Huang is the International Program Professor in Chinese Economy and Business and a professor of global economics and management at the Massachusetts Institute of Technology’s Sloan School of Management. He founded and heads the school’s China Lab and India Lab, which assist entrepreneurs in areas of management.

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Thinking outside the bottle 12-4

Thinking outside the bottle

Even the world’s biggest brands can struggle to succeed in India. Coca-Cola chairman and CEO Muhtar Kent urges global companies to accept the market as it is, not as they wish it to be.

I moved to India with my family as a young boy. My father, a career diplomat, was dispatched to New Delhi to serve as the Republic of Turkey’s ambassador to India. We lived in New Delhi for two magical years. I don’t remember anything from those days about India’s politics or economics. What I do remember are the vibrant colors of clothing and flowers and shops that lined the streets, and the natural beauty of the Indian countryside, from the mountains to the north to the plains of the Ganges basin to the south. I remember the mysterious music, the aromas of spicy curries and chutneys that friends of my parents would prepare for us. And of course I remember the people: friendly, bright-eyed, ambitious, and sometimes very poor. Everywhere, crowds of people.

India was unlike any of the other places my family had lived—Sweden, Iran, Poland, Thailand, and the United States. From the moment I arrived, India captured my imagination.

Today, as a businessman, I see global companies drawn to India in much the same way I was as a boy. They are dazzled by the promise of adventure and extraordinary opportunity. They are intoxicated, even overwhelmed.

But as I learned, even as a young a boy, in India, appearances can be deceiving. For outsiders, there is always a hint of mystery. Even if you live and work there, you can never be entirely sure you understand. It is best to assume that you do not. If you come to India with some grand, predetermined strategy or master plan, prepare to be distracted, deterred, and even demoralized.

That’s something I keep in mind as I think of The Coca-Cola Company’s experiences in India. Coca-Cola launched operations in India in 1950 shortly after independence. Our business grew steadily. But in 1977, we exited (along with other multinational companies) after a new law diluted ownership of our assets and operations.

We returned to rebuild our business in 1993 as economic reforms unleashed a period of robust growth. It was harder going than we’d imagined. We struggled at first to find and keep talented employees. We learned that although Indian consumers were eager to embrace global brands, they resented any hint of global corporate dominance. It took us time to understand that small stores, many operated by families out of the front of their homes, were an unappreciated source of economic opportunity.

Today our India business is thriving. I am happy to report that India now ranks among our top ten markets in unit-case sales. Our growth in recent years has been particularly dynamic. I still see enormous potential in India—which is why last summer I went to New Delhi to announce that The Coca-Cola Company and its global bottling partners will invest $5 billion in our India operations between 2012 and 2020. By the end of that period, we think India could be one of our top five global markets.

The key to this success has been learning to see the Indian market as it is, not as we wished it to be.

Our first challenge was building the right team. For many years after our return to India, turnover among Coca-Cola workers was too high; as recently as a decade ago, our Indian attrition rates were 34 percent. That was a key weakness, not least because it prevented us from building relations with suppliers and consumers. So we focused on training and talent recruitment. We recruited a lot of young professionals with deep experience in India’s retailing culture and provided them additional training in customer-relationship management, sales, service, and conflict resolution. These changes helped lower attrition by two-thirds.

At the same time, we worked hard to source more products from within India and deepen our ties to the Indian market. For example, we began growing mangoes and invested in citrus farms that supplied our business. Those efforts helped send an important message: all over India, people knew we were there not just to sell to them but to buy from them and invest in them as well.

And we made it a point to understand our customers. India’s people still cherished long-held goals of self-sufficiency and sustainability—and those ideals were essential to our continued growth. Through careful study of how Indian consumers live—people all over the nation, not just those in cities—we learned that most are more likely to buy our products at a small family store than a big supermarket.

At the same time, we saw how a rising generation of young Indians, most of them raised without landline telecommunications infrastructure, has embraced wireless technologies and, in many ways, is leading the global revolution in mobile commerce.

Recognizing that small stores play a huge role in the lives of our customers has required us to do many things differently in India than we do in developed markets. We figured out, for example, that it wasn’t enough to provide small stores with Coke signs and teach them to display our products. Often, these stores had more basic concerns. Many couldn’t keep our drinks cold, because they weren’t connected to the electrical grid. More critically, small stores in India often are run by women, who have more difficulty than men in exercising economic rights like getting access to credit. We found we could help store owners address those and similar problems in ways that helped them, helped their communities, and also helped Coke.

For instance, when our bottlers help supply nearby villages with access to running water, the women in those villages are spared the considerable time and trouble of walking to a well, drawing water, and bringing it home. When we help bring electric power to village stores, that helps us sell our products cold—but it also means electricity for the whole village, boosting literacy rates by making it easier for kids to study after dark. 

When we help a woman secure property rights for her store, that makes it easier for us to sell Coke products and also enables her to build a business and employ other residents. We recently launched our “5by20” initiative, which seeks to bring additional business training, finance opportunities, and mentoring to five million women entrepreneurs across our global value chain by 2020. Indian women make up a significant focus of this program.

One of my favorite examples of how we’re trying to come up with solutions tailored for the Indian market is eKOCool, a solar-powered mobile cooler we developed for use in the tens of thousands of rural Indian villages that lack electricity. The eKOCool looks a little like an ordinary pushcart, but it’s actually a sophisticated marriage of technology and local market savvy. Stores using our eKOCool solar coolers can stay open later and generate enough extra power to do double duty, recharging mobile phones or electric lanterns. We hope to distribute more than one thousand eKOCool carts to rural store owners in India by the end of 2013—and we have begun testing them in dozens of other countries.

Back when my father was stationed in India, the country was only a few years removed from colonialism. Indians had had a long and painful experience with foreign businesses exploiting their market without contributing to the well-being of the local economy. What we now understand intimately—and what other companies who want to sell in India must recognize—is that our future is tied to the communities where we operate. A thriving and sustainable India creates thriving and sustainable business opportunities for us.

For The Coca-Cola Company in India, the rewards from being in the market will materialize only if we see our investment in broad terms: not just capital investment in bottling plants and trucks but also human investment in schools and training, social investment in women entrepreneurs, and technological investment in innovations like solar carts that can power a cooler, a mobile phone, or a lantern by which a young boy or girl can study. That’s an expression of our commitment to India—and our commitment to succeed on India’s terms.

About the author

Muhtar Kent is chairman and CEO of The Coca-Cola Company. This essay is excerpted from Reimagining India: Unlocking the Potential of Asia’s Next Superpower. Copyright © 2013 by McKinsey & Company. Published by Simon & Schuster, Inc. Reprinted by permission. All rights reserved.

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