Prof. Tarun Khanna’s interaction with Al-Noor Ramji Former Chief Executive Officer of BT Innovate & Design and Chief Information Officer, BT Group Plc., David Kirkpatrick Author, The Facebook Effect: The Inside Story of the Company that is Connecting the World and Chris Scalet Executive Vice President, Global Services & Chief Information Office, Merck at a session in Orlando, Florida. Vineet Nayyar, CEO of HCL Technologies gave welcome address at the session.

Tarun Khanna: Thank you Vineet. Good morning everybody.

As the panel is approaching, I thought I’d just say some introductory words. It’s hard to stand here in the shadows of a charismatic individual like Vineet or an intellectual like Bonnie. My compliments Bonnie – a wonderful and inspiring job! But I thought I’d just set the stage for this panel, which is to explore this idea of EMPLOYEES FIRST, CUSTOMERS SECOND a little bit.

I met Vineet through a friend – unconnected from HCL, through more of a social meeting and I think we hit it off because he was talking a lot about this idea of EMPLOYEES FIRST, CUSTOMERS SECOND. This is about five or six years ago. And I recognize in this an aphorism that my mother had always raised us with, which is sunlight is the best disinfectant.

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Prof. Tarun Khanna of Harvard Business School in his latest article on Forbes talks about “The Business of Inclusion” with special focus on India.
“Bringing the part of India that is ignored to the mainstream is the right thing to do. With a bit of innovation, it can be profitable too”

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Blue River differentiated itself from competition by targeting a segment it identified as an underserved niche: Middle-market businesses established and still managed by families or entrepreneurs. Shallow coverage of companies by research analysts narrowed the pool of companies targeted by foreign private equity firms looking for more known quantities — even at a premium — as they raced into a market that was relatively unfamiliar to them.

Blue River avoided this competition by targeting companies not covered by analysts, including private companies and public firms that were not actively traded or widely covered. Blue River also pursued investments in businesses outside the sectors typically pursued by global venture capital and private equity firms. Sectors in which Blue River invested — such as textile, packaging, and auto components — might be considered mundane and not particularly high-growth prospects in the United States, for example, but could become big businesses in an emerging market like India.

Blue River sought out high-potential, low-risk companies within a segment deemed risky by many investors because they were not prescreened and could be difficult to assess. As with other firms operating in emerging markets, intermediaries need different capabilities to target different segments. Blue River exploited institutional voids directly as sources of investment opportunity by targeting a segment containing more institutional voids (see table ‘Segmentation for Blue River Capital’) — but where it could exploit the relative advantage of its local knowledge. “If it were easy, then it wouldn’t be an opportunity” a company executive said. “Because of all the complications, because of all the challenges, that creates the opportunity for the folks who are able to manage through that.”

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Blue River Capital: Institutional Voids

Don’t look now, but capitalism – maligned in these bailout-ridden recessionary days – is reshaping Africa inexorably. What is different today is that it is emanating from China and India, rather than from the conventional bastions of capitalist prowess.

Devi Shetty, a celebrated cardiac surgeon in Bangalore, brings health relief to India’s masses through his Narayana group of hospitals. Some years ago, I witnessed his early experiments with rural telemedicine, especially in the Indian states of Karnataka and West Bengal. In my visit last month, the wall was adorned by a large map of Karnataka festooned with colored pins, to indicate that he now served most district capitals in the remotest parts of the state. Moreover, a world map showed outreach to rural areas of East Africa and Southeast Asia, and the room has been upgraded to reflect a still-expanding global reach.

All this comes from carefully acquired experience – technical and sociological – with delivering expert medical advice through teleconference facilities, aided by satellite links. Shetty’s team has successfully participated in telemedicine consultations – multi-specialty, non-stop availability, and supplemented by continuing education – with hospitals in 14 African countries. This effort is part of then Indian President A. P. J. Abdul Kalam’s ambitious pan-African e-Network project to link all 53 African capitals to tertiary care facilities across India.

Shetty is a healer, first and foremost. But he is also an entrepreneur, and this is the latest in his many efforts to create successful, low-cost, but cutting-edge medical ecosystems in tough locations worldwide. He aspires audaciously to what he calls the universal Walmartization of healthcare – a reshaping of medical care that the world’s indigent need, and in Africa more than most other locations.

Cynics say that India’s e-Network is currying favor with Africa in exchange for natural resources. Perhaps. But in that effort, India must contend with its neighbor, China, which speaks with a louder voice and carries a larger stick.

Chinese Communist Party President Hu Jintao’s peripatetic diplomacy across Africa has ensured that the Chinese are omnipresent there. China has traded much investment in physical infrastructure in places otherwise shunned – Angola, Sudan, and Zimbabwe – for access to natural resources.

Witness also an unprecedented convening of 48 African heads of state and senior officials in Beijing in 2006 to signal unequivocally that China would speak with the loudest voice. India tried to mimic the event, with an India-Africa summit in New Delhi in 2008. Fourteen countries attended to discuss food price inflation, energy needs, etc. Alas, India’s voice was drowned out, not by China’s attempts to provide medicine and education to Africa, but by the sheer magnitude of Chinese state-owned enterprises’ investments in physical infrastructure.

But loud voices need not be the most effective. Indian influence will no doubt exploit assets less available to others, particularly the Indian diaspora in countries like South Africa, Kenya, Tanzania, and Nigeria. India and Africa have been linked over the centuries by trade, religion, and post-imperial political consciousness. Gandhi and the Non-Aligned Movement remain important symbols. Indians are more part of Africa’s social tapestry than are the Chinese, a fabric that has been strengthened through opportunity and adversity through the ages.

Consider Olam, a Singapore-headquartered but Africa-centric global agribusiness company. From the soybean farms of Brazil’s Matto Grosso to the granaries of Ukraine, Olam is prized for its ability to add value in disparate conditions.

Olam was started by Indians in Nigeria and remains a world-beating trader in cotton, coffee, cashews and the like. To succeed, Olam has had to work “up-country” ­– a euphemism for difficult conditions far from comfortable port cities – requiring it to rely on Indians’ familiarity with, and willingness to work in, Africa’s interior. Indeed, so competent is Olam that when Wilmar, a Southeast Asian firm run by overseas Chinese and a force in its own right in China and across Asia, sought to expand in Africa, it sought out Olam in a joint venture.

The connection between Nigerian cashew farmers and Devi Shetty’s pediatric cardiac surgery is that they both represent decentralized private activity, undertaken through the market, unlike the operations of the China National Petroleum Corporation, Sinopec, and others in Darfur and elsewhere.They all add value, but decentralized market-based activity appears likelier to engender additional goodwill.

But there is more reshaping to come, again fostered by mutual self-interest, rather than by fiat. The Olam and Wilmar joint venture is, in a sense, symptomatic of the combination of assets from across Asia that can catalyze productive change in Africa. It is fitting that Olam, in Hebrew, means “transcending boundaries.”

Such symbiosis requires a healthy disregard for convention. Failures will result, surely. But, to my mind, for the most part, decentralized experimentation beats Africa’s partial addiction to aid.

Few economic ideas are more lauded and reviled than that of industrial policy. Proponents, such as those who studied the rise of the East Asian economies, swear by it. Opponents see red at its very mention. The former point to economic development; the latter maintain that tens, even hundreds, of billions of dollars have been squandered.

One recent theatre of (dis)content is that of renewable fuels. Worldwide, $184 billion is being allocated in public stimulus investments to promote clean energy, led by the United States ($67 billion) and China ($47 billion). Of course, there is some progress—wind power meets 20 percent of the electricity demand in Denmark and about 15 percent in Spain and Portugal, for example—but the recipe for success remains elusive.

In this vein, Brazil’s experience at promoting renewable fuels, beginning in the 1970s, is directly relevant to today’s polarized views of industrial policy. A 10-year industrial policy program called Pro-álcool was crucial in the development of the industry. Today, Brazil is the world’s most competitive producer of renewable fuels, based primarily on bioethanol. Ethanol accounts for more than 50 percent of current light-vehicle fuel demand in the country, and Petrobras—Brazil’s energy giant and one of the largest companies in Latin America—expects this share to increase to more than 80 percent by 2020. Read the full article here

Pundits are wrong to focus purely on Sino-Indian border tensions, China’s string of military establishments around India, or the competition for natural resources. I am an academic, but as a business school professor, live very much in the present, and recognize these tensions. Nonetheless, I aver that we will miss the much richer forest for the sparser trees by failing to highlight many more positive-sum possibilities, whose signatures are already among us. One such reality concerns the future growth of global commerce lying largely with interactions among developing countries, so-called ‘south south’ interaction.

Whether one looks at the Indian mobile operator Bharti buying assets across Africa, the Chinese investing in Brazil’s natural resources, or the Afrikaner-origin Naspers gradually buys Russian media assets, much of the next several decades of cross-border commerce will likely bypass New York and London. Indeed, economic symbiosis between China and India, the biggest ‘south’ economies, ought to be the sine qua non of such South-South interaction.

But will it be? Though bilateral trade has skyrocketed, there is reason to be sanguine. As I argued in Billions of Entrepreneurs in 2008, there is an underlying complementarity between the Chinese and Indian economies – what China is good at, India is not, and vice versa – but neither country has capitalized on the possibility of leveraging the other’s strengths. Paradoxically, global corporations, developing ‘hardware’ in China and ‘software’ in India, are more attuned to this. India must drop its reflexive insecurity of Chinese competition, and China must recognize that India’s strengths now extend far beyond software, ranging from microfinance to life-sciences.

Further, a modicum of creativity will expose many win-win opportunities. India is often held to punch over its weight globally in the projection of soft power, whether through Bollywood, or English literature with an Indian twist. Lately, China’s Confucius institutes, disseminating language and culture worldwide, are in catchup mode. Surprisingly, India, the ultimate palimpsest of influences, a cultural mélange through the centuries, has expressed skepticism of this; wouldn’t it have been better to suggest a reciprocal cultural program from India into China?

Unlike competing for factories, telephone licenses, or oil patches, cultural exchanges are not zero-sum. In Sino-Indian history, for example, travelling monks between the countries lubricated commerce. Instrumentally, monasteries provided respite for traders; more to the point, interchange bred familiarity and it is harder to demonize the familiar.

The American philosopher, Will Durant, said in a 1945 speech, “It is a mistake to think that the past is dead. …..The present is merely the past rolled up and concentrated in this second of time.” Naysayers about Sino-Indian relations perhaps, paraphrasing Durant, suffer from a limited perspective. [Pessimists] “view history as a turbulent stream of conflicts….But if we turn from that Mississippi of strife, hot with hate and dark with blood, to look upon the banks of the stream, we find quieter but more inspiring scenes.”

For China and India to be lodestones for the impending gush of South-South commerce, they must learn to cooperate, as they have in history, and more than they do currently.

Authored by Prof. Tarun Khanna, featured in Jinri Yindu (published by the Embassy of India, Bejing). Jinri Yindu translates to Our India in English.