Over the past thousands of years, we have generated an enormous amount of wealth.

Living standards have improved dramatically. It is clear that the key driver behind all of this wealth is technological innovation that started with the ability to use tools.

There are three broad steps in wealth creation: invent a new method, perfect it, apply it. Indian businesses and industry in general have generated most of their wealth from the last step, a little from the second and almost nothing from the first.

We tend to go backwards and end up with severely limited opportunities compared with those who start from the first step.

That is a fundamental difference between Indian businesses and businesses of the highly developed world.

Many of the things that define modern life were invented by Europeans and Americans. They created wealth not only from the first step, they also established first claim on the second and third steps.

Unsurprisingly, then, their share dominates the global wealth. The Chinese, Japanese and Koreans excelled in perfecting production techniques; as a result they have managed to corner a substantial chunk of the wealth.

Simple strategy

Once things like roads, electricity, televisions, cars, malls, toasters, soaps and so on have been invented and their use or implementation defined, it is possible to create wealth simply by making more of them and selling them to the population neglected by the inventors and the improvisers. That has largely been the market for Indian companies. But they have just not focused on innovation.

In terms of valuation, India’s largest companies are in the region of about $40-45 billion depending upon the stock market.

Those companies took generations to get there, and not to forget, many of them were generously helped by what is euphemistically called crony capitalism.

On the other hand, a 17-year-old student in the US named Mark Zuckerberg built a company in 10 years that had an IPO valued at $100 billion! (Facebook, in spite of a lower valuation now, is still bigger than Reliance or DLF.)

Consider Google, founded barely 15 years ago by two students. It now stands at a whopping $300 billion. Then there are more mature companies such as Apple that are worth over $400 billion. These achievements are entirely to the credit of the founders.

Many Indian ‘experts’ in business and finance tend to dismiss these companies as vapourware, paper money, mere websites, luck or even as companies that do no real work. However, if we examine our daily living standards, it would be hard to find any contribution from Indian companies.

Virtually everything around us, from the internet to lighting to healthcare, was invented by the developed countries.

If they had not been, we would have still been living in the Stone Age; on the other hand, if Indian industry had not been there, no one would have noticed.

While this comparison may seem odious, it highlights the one-way relationship as far as innovation is concerned.

Not technology alone

Government at various levels periodically exhorts scientists and engineers to push the boundaries. But focusing on technologists is like putting the cart before the horse.

Innovation is not the domain of technologists. They are one link in the chain. US companies such as Intel, IBM and Google routinely outsource the development of their latest technologies to Indian engineers; yet these cannot be called Indian innovations.

In the same way if an Indian company were to innovate and if the work related to technology were outsourced to American engineers, that would still be Indian innovation.

The most crucial element of innovation is building a business case, funding it and commercialising it. That is the domain of businessmen and finance experts; it is also the weakest link in India. There is little knowledge of how to assess the risks and rewards of innovation.

This is mainly because most of those involved have never been through the cycle of failure and success in commercialising innovation. In other words, they have no precedent.

Foreign companies have commercialised innovations for the last 300 years. Their financial experts have routinely assessed the risks and rewards of innovation and have gone commercial with great success. The historical precedent for India Inc and MNCs is starkly different.

Easy way out

Indian businesses have remained satisfied with the lowest hanging fruits. Their success is primarily driven by the large size of India’s population and staying in the good books of the powers that be. India Inc has two formulas for success:

Replicate what’s in the West. They have fast food, cars, banks, expressways, malls, airports, and so on, so let us build them here too.

Export poverty: If it costs them $100 to do something, we can do it in $20 because of lower wages, as in software and manufacturing.

But success is its own worst enemy. When you succeed using a particular formula, you tend to take that formula as the absolute truth.

This is not to say that India Inc does not take risks. It does and sometimes it loses and sometimes it wins. Indian businesses have taken substantial risks in diverse areas, including real estate, airlines, telecom and power and have often taken losses of billions of dollars.

They take these risks because they understand market risks and regulatory risks. But they do not take technology risks as they do not understand technology. The engineers may understand technology but their CFOs, sales heads, CEOs and chairmen don’t.

For instance, most Indian companies would not invest $10 million to develop some unique technology that could give them an upside of $10 billion, but they would invest $10 million in building another shopping mall that would give them an upside of, maybe, $50 million.

The decision-makers must train themselves better in technology and understand what is possible and what is not. Without that understanding, Indian companies cannot innovate meaningfully.

Our biggest imports are to do with modern technology, including electronics and oil, while our biggest exports are labour, handicrafts and tourism — that too based on historical places like the Taj Mahal. The writing on the wall is clear!

(The author is Vice-President, SkyTran India. The views are personal.)