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Lessons from a New Industry Cluster in India
The creation by entrepreneurs of a destination for tech
companies in Rajasthan's Thar Desert shows it's time to
rethink regional development planning
By Vivek Wadhwa
For government officials and planning consultants looking to
create regional economic growth and drive innovation,
industry clusters are the Holy Grail. Popularized by Harvard
professor Michael Porter in the early 1990s, cluster theory
holds that a government or economic development body can
create a viable hub of economic activity in a specific
industrial sector by bringing in businesses, suppliers,
researchers, and additional related people or entities. In
other words, a focused governmental effort can create
something from nothing, turning, for example, a fallow field
into a tech park bursting with highly competitive,
innovative companies. Governments all over the world have
invested millions—sometimes billions—of dollars to attract
industries they consider strategic.
The trouble is that clusters engineered from the top down
don't usually work. I am hard-pressed to find a single
example that has proven an unqualified success because of
government intervention or the advice provided by economic
development experts. They all talk about how great things
will be, one day in the future, when they succeed in
attracting venture capitalists to the area. But central
planning rarely spawns innovation in free economies. Even in
China, where the government has been able to transform slums
into economic marvels, regional governments that spent
billions on building semiconductor technology clusters have
ended up with outdated fabrication facilities and massive
oversupply.
Not that regional innovation-based economic development is
impossible. It's just that government officials and
consultants put the cart before the horse. The best example
I've seen of a region that has successfully pursued cluster
development is the unlikely locale of the Thar Desert in
Rajasthan, India. It wasn't the government that made the
magic happen, but the region's ambitious entrepreneurs who
prodded officials to follow their lead and team up with
them. In a few short years, that group has turned the
sun-blasted state once known for backwardness and poverty
into an up-and-coming destination for top technology
companies around the world.
Bakshi: Jaipur meets Silicon Valley
The largest state in India, Rajasthan came late to the
technology revolution that has swept the country. In 2002,
the Rajasthan state government banned the purchase of
computers for personal use because, confusingly, it
considered them "luxury items" and the state was
experiencing a drought. That's right. Banned. Women were not
allowed to work after sunset in any industry. The state's
capital, Jaipur, had only 10 small technology businesses.
Most of the state's businesses had little or no automation
and made limited use of computers.
Enter Naren Bakshi. A Silicon Valley entrepreneur, Bakshi
grew up in Jaipur. He earned graduate degrees in engineering
and business at University of California-Berkeley, worked
for a number of multinationals, and then launched two
technology companies in the U.S. before retiring to mentor
entrepreneurs in both Silicon Valley and his native state.
Bakshi believed that he could make a big difference by
bringing modern management practices and technology to
Rajasthan's entrepreneurs. To get the ball rolling, he
arranged a meeting in 2001 between budding technology
entrepreneurs and those from traditional industries as
diverse as carpet manufacturing, jewelry production, and
mining. He encouraged them to work together to boost
technology and entrepreneurship in the region. Bakshi laid
out no priorities other than making smarter use of
technology to drive innovation. There was no planning for a
semiconductor or a biotech cluster. Rather, Bakshi hoped
that by simply building a network of entrepreneurs and
enhancing their global connections, good things would
result.
Excited by Bakshi's vision, the entrepreneurs banded
together to educate the state government about technology
and help craft more tech-friendly policies.
In 2002, they started a chapter of an international
networking group for entrepreneurs called TiE to expand
their networks in India and abroad.
Rajastan's entrepreneurship boom.The results of this
bottom-up economic development strategy have been
impressive. Over a short period of time, Jaipur rose from
nowhere to contend for technology companies looking for a
home in India. Top Indian executives such as Anand Mahindra
(vice chairman of Mahindra & Mahindra (MAHDY)) and Narayan
Murthy (co-founder of Infosys (INFY) got involved and helped
educate the state government on how to make itself
friendlier to technology companies and to technology in
general. Officials, eager to improve the economic lot of
Rajasthan, listened closely and made changes quickly. The
state sent delegations to Silicon Valley to learn from the
"gurus" of technology. The law I mentioned earlier
forbidding women to work after sunset was altered at the
request of Genpact (G), a business-process outsourcer that
needed its employees to work 24/7 to service a global
clientele. Rajasthan's government also started a campaign to
train its senior bureaucrats on the use of technology.
On a recent trip to Rajasthan I witnessed an
entrepreneurship boom. At a TiE-Rajasthan networking
conference this December, attendance topped 750, including
more than 100 tech companies—many of which employed hundreds
of workers. Over 200 college students skipped classes to
attend. All the students I spoke with wanted to become
entrepreneurs. They talked about tech companies they wanted
to start, solving problems of infrastructure, developing new
methods for agriculture, renewable energy, and so on.
Everyone wanted to change the world.
It wasn't just tech entrepreneurs and students who shared
the dream. Many traditional industries are now employing
modern IT practices in their operations. This has allowed
them not only to compete globally, but to create innovative
new business models. Consider Jaipur Rugs. In 2008,
the company had annual revenues of $21 million and became
one of the largest handmade rug fabrication companies in
India. Jaipur Rugs comprises six business units
serviced by a huge workforce of 40,000 independent
contractors who weave rugs in their homes but tap into the
company's supply chain networks for wool, as well as
quality-control methodologies. The company achieved compound
annual growth rates in the mid-double digits over five years
when it implemented ERP systems to manage all its complex
operations. These systems are equivalent to the best used by
midsized Western companies. Jaipur Rug's use of
technology has not only meant more profits, but more work
for contractors, many of whom are women or heads of families
that previously languished in poverty.
Big government support, too
Some of India's largest technology companies, including
Infosys, Wipro (WIT), Genpact, and Tech Mahindra (TECHM),
and financial institutions such as Deutsche Bank (DB) have
since located operation hubs in Rajasthan. The region is
home to a massive new economic development zone called
Mahindra World City that includes companies from an array of
industries, including technology, automotive, financial
services, and light manufacturing. Mahindra World City
opened in 2006, the result of a $2 billion investment by
Mahindra & Mahindra and the Rajasthan government. When fully
functional in eight years, the investors expect that 100,000
people will be employed and companies housed there will
create roughly $3 billion in annual exports.
Of course, to say that all this development was driven
entirely bottom-up is not entirely fair. The government is
in the process of building a 100-kilometer ring road that
will make it much easier to move around Jaipur and a rail
line is in the planning stages. State and national
governments have financed big upgrades to the electrical
grid, as well as big buildouts of bandwidth infrastructure.
But none of this would have been possible without the push
from the bottom showing the way. A regional economic planner
would likely have decided Jaipur should specialize in one
sector, tried to create an ecosystem to support that sector,
and watched the attempt fall flat when central planning
methodology failed to keep up with rapid changes in the
markets.
Great regional development acts like water. It finds its own
path. But it requires people with the insight to tap the
right well. That's where entrepreneurs who know the scene
come in. They can usher in innovation that can even make a
desert dinosaur like Rajasthan flourish.
Wadhwa is senior research associate at the Labor & Worklife
Program at Harvard Law School and executive in residence at
Duke University. He is an entrepreneur who founded two
technology companies. His research can be found at
www.globalizationresearch.com. Follow him on Twitter "@vwadhwa".
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