Categorized | India

The Emergent Indian Entrepreneurs

— IGNATIUS CHITHELEN

THOUSANDS OF GRADUATES OF INDIA’S top engineering, science, medical and management institutes come to the U.S. each year to pursue advanced degrees. On completing their studies, they typically don’t go home, but instead work for businesses in the U.S.

American companies hire these foreigners because they’re relatively cheap to employ and are likely to stay with the employer, irrespective of working conditions, for the five or so years it takes to be sponsored for a permanent work visa. The migrants want higher incomes, a more comfortable lifestyle and better career prospects than they find in India.

And through their work in the U.S., some Indian professionals gain enough confidence to risk setting up their own enterprises — an event far less likely to occur in India due to institutional obstacles to raising capital for new entrepreneurs, despite the robust growth of the Indian stock market in recent years.

The information-technology business has been an especially fertile area. In the Silicon Valley of the late 1990s, more than 1% of professionals of Indian origin were estimated to have started their own companies.

This huge move into entrepreneurship in large part reflected the Internet-fueled frenzy to set up a company, take it public and get rich quickly. But even if the normal figure of entrepreneurship among Indian professionals in the U.S. is assumed to be a third of the Internet bubble figure, or about three out of every thousand, this is still a big number, compared with the total in India.

Often the initial capital used to set up an intellectual-skill-based enterprise is relatively small, in some cases well under $1 million, for, say, compiling and testing a new software or Internet service.

Initial funding may come in several rounds and from several sources, including friends and family, angel investors, venture capitalists and investment banks.

The exit strategy for these financial backers, as well as a key goal for the entrepreneurs, is usually an initial public offering of shares in the budding company. They all expect to make huge gains by exchanging their low-cost private holding for publicly traded stock. So Indian — as well as non-Indian — professionals in the U.S. take the leap from well-paying jobs into the risk of starting an enterprise because they know that, if the business shows signs of initial success, there is a very high probability that they can raise more capital for growth, and also get wealthy through a stock-market listing.

Overall, at least a few thousand Indian professionals in the U.S. have started their own enterprises. The successful major IT companies that they’ve founded include Cascade Communications, Tibco Software, Junglee and Sycamore Networks. As with entrepreneurs anywhere, the Indians in the U.S. are motivated by the business challenge, as well as by the goal of making money. A 2000 study for the Indian government estimated that more than 300 Indian-born entrepreneurs in the U.S. had a personal net worth exceeding $5 million.

A striking thing about Indian immigrant entrepreneurs in the U.S. is that many are first-generation businesspeople who are from nonbusiness families and were not born into the traditional business castes and communities of India. Nevertheless, their advanced skills and strong work habits, coupled with a perceptive understanding of potential demand for a product or service, give them a major edge in starting businesses based on intellectual content in areas such as high technology.

In India itself, there are some notable examples of professionals who have become entrepreneurs, notably the founders of Infosys Technologies, who’ve enjoyed a huge success. But the proportion of professionals starting enterprises in India is far lower than in the U.S. Even in the IT industry, most such companies in India are owned and controlled by established business families and groups and by foreign entities. Some of these foreign concerns are American companies founded by Indian emigrants. Two of the three biggest Indian IT companies — Tata Consultancy Services and Wipro Technologies — are part of family-controlled groups; the third is Infosys.

The biggest hurdle for professionals trying to set up their own enterprises in India has been the difficulty of raising capital because a financing chain — with the stock market as pivot — largely didn’t exist for them there until recently. However, conditions in India have started to improve, spurred by the worldwide boom in demand for outsourcing since the late 1990s.

With financing becoming available in India, the opportunities for entrepreneurs there have greatly increased. For a wide range of businesses, intellectual labor is the key component, and the initial capital required for start-ups is relatively small. In addition to IT, fields in which professionals have a clear advantage in setting up their own businesses include engineering and medical services and research, education, stock brokerage, money management, publishing and other media, plus online information, retailing and financial services.

In many of these businesses, enterprising Indians also can benefit from demand from foreign markets. Their task is to tap into capital, from any source.

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