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'A Lot of Companies Will Go Belly-up'
E-commerce expert Mohanbir Sawhney says successful Indian software companies are heading for trouble
By MASEEH RAHMAN

December 12, 2000
Web posted at 6:55 p.m. Hong Kong time, 5:55 a.m. EDT

Mohanbir Sawhney, who heads the department of electronic commerce and technology at Northwestern University's Kellogg Graduate School of Management, is one of the world's foremost pundits on e-business. In an interview with TIME South Asia contributor Maseeh Rahman during a recent visit to New Delhi, he says India has the potential to become the knowledge storehouse of the world -- but warns that some successful, yet complacent, Indian software companies could be heading for trouble. Edited excerpts:

TIME: You've proposed that India should try and develop world-class educational institutions. How can that be done?
Sawhney: There's this interesting paradox -- India has pretty decent high schools, but not a very good university system, except for the IITs (federally run Indian Institutes of Technology). It's the other way around in the U.S. And if I'm to boil down the success of U.S. universities into two words, it's "free markets."

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TIME: Free markets?
Sawhney: U.S. universities have the ability to import talent from around the world. And it's people that make great institutions. They also admit people based on talent and not on need, and they keep the fees high for students who can afford it so that they can subsidize students who are bright, but can't afford it. Furthermore, U.S. universities have been able to attain financial independence by creating a closer nexus between the institutions and industry. Finally, what makes U.S. universities very competitive is that faculty members remain free agents within the enterprise. They can supplement their work and income outside the university, which helps them economically, and also helps the institution by linking it to an external network.

TIME: So where can India begin?
Sawhney: India has to address systemic problems if it is to create world-class educational institutions. It has to find ways, for instance, of attracting world-class teaching staff, without having to pay astronomical salaries. And these staff should be seen as academic entrepreneurs -- people who go beyond research and teaching and actually do things that impact on industry. There's a vast reservoir of academics of Indian origin in the U.S. Just as in Silicon Valley, in academia, Indians are the backbone -- in business, engineering, medical schools. It is unrealistic to expect that they would migrate back to India, but you have to find ways to engage them, or find a way to get intellectual capital shipped back to India without them being here full-time. Indian institutions also need world-class infrastructure. Therefore you have to improve library facilities, Internet connectivity, and other resources and administrative support. Finally you need a funding model that goes beyond relying on government.

TIME: How was the Indian School of Business, soon to start in Hyderabad, conceived?
Sawhney: The school, which opens next year, has been a unique effort because competitors have gotten together for the first time ever. Harvard, Wharton and Kellogg are collaborating with each other, the industry and academia are working together, and major business houses from India and abroad are supporting the school. The idea was the catalyst of Rajat Gupta and other folks at McKinsey, who have been doing a lot of championing on leadership. We want to first make sure the model works, and once we figure that out, there's no reason why we can't replicate it. India needs similar lighthouse projects in the fields of medicine, engineering, architecture, design, and law. It's not going to be a simple solution. And it's not going to be quick. But the sooner India gets started the better.

TIME: What's been the experience with attracting international faculty to the Hyderabad business school?
Sawhney: It has been quite positive. My colleague Dipak Jain, who is the associate dean at Kellogg and is one of the best-known academics in the U.S., has decided to move to Hyderabad, which is a huge step. [Jain's appointment as the Executive Dean will be announced next week]. The other person who has agreed to get involved [as the founding dean] is Sumantra Ghoshal of the London Business School, who is known worldwide.

TIME: How far will the growth of the web-based learning sector provide opportunities for India?
Sawhney: It's a huge opportunity. For learning, especially higher learning and tutoring, you not only need lots of human capital, but you need high-quality human capital. That's where India has a huge advantage. The country has the opportunity to become an important hub for web-based learning, particularly in the sciences, mathematics and engineering.

TIME: Can you give an example of how this would work?
Sawhney: You could have a web-based tutor network, for instance, which services high school students. So schools in the U.S. could sign a contract with an Indian company to tutor students with homework after hours. These tutoring services would be available to U.S. schools at a much lower cost. At a more advanced level, you could provide instructor-assisted learning over the web to schools and universities, or provide computer-based training for corporations. I like to call these people HSPs, or Human Service Providers.

TIME: There are grave doubts now whether e-business can take off in India.
Sawhney: People who create a venture to service the Indian market have to be realistic about the size of the market. With very, very few exceptions -- I'd say 5% -- most of the dotcom ideas I see in India are deeply flawed. There are hardly any revenue models, not enough margins...and they will never get off the ground. Most of these ideas have failed in the bigger U.S. market. The classic dotcom companies and first-generation venture capitalists are going to get killed.

TIME: What about e-governance in India?
Sawhney: That's a big opportunity, and a real need. Chandrababu Naidu, the Chief Minister of Andhra Pradesh state, put it nicely when he said that "the state of the art can be used to improve the art of the state." Anyone who has worked with the government, though, knows it will be slow. But it is potentially a model that can be exported from India.

TIME: Looking at it from the citizen's point of view, do you see e-governance making a difference in India?
Sawhney: It will in the long run. When somebody doesn't have two square meals a day, subsidized rice is more appealing for him than the ability to scan a computer and get a driver's license. I think delivery of basic services to citizens will be a huge productivity improvement. And I think a big area where the government and the private sector can come together is in agriculture. I.T.- enabled services can play a role in streamlining the production and distribution of agricultural commodities. There are significant opportunities there. For instance, 98% of vegetables don't get processed in India.

TIME: You maintain that Indian I.T. companies might be getting complacent.
Sawhney: When a company gets fat, it often gets lazy. When you see 40% annual growth, good margins and massive market capitalizations, the need to move up to the next level isn't that pressing. There is no fire in one's belly. Unfortunately, some of the leading Indian I.T. companies will have to go through tough times before they rejig their models and start afresh. A prediction I can make with a great degree of certainty is that a lot Indian companies, especially dotcoms, are going to go belly-up in the next six months. But I think that's good. It narrows down the field and it will lead to more mature and robust companies.