Tarun Khanna, Jorge Paulo Lemann Professor at Harvard Business School (HBS), has had the habit of taking the road less travelled in his academic career. At a time when most of his peers preferred to focus on teaching (and researching) topics on the developed market, Khanna, a member of HBS’ faculty since 1993, has zeroed in on developing economies. He works with multinational and indigenous companies and investors operating in the region. “A developing market focus wasn’t the best thing at the time for your academic career,” says Khanna, a science and engineering graduate from Princeton and a Ph.D in Business Economics from Harvard. Despite the perception, the 40-year-old is counted among the respected (and youngest) authorities on emerging economies.Khanna has now suggested that the growth of entrepreneurship in India and China could actually “help both countries get out of the mess they are in and solve problems that governments have failed to over the last 40 years”. His latest book Billions of Entrepreneurs focusses on the rise of China and India in the global economy, and how both countries have used opposing practices to become world beaters.
The book focusses on four areas—China and the world, India and the world, mutual relations between the two neighbours, and the view from the developed world—and examines how their rise could prove profitable over the long term. Khanna believes that entrepreneurs will be beneficial to both the nations as they look at the subject of entrepreneurship very differently. In China, for example, most global success stories (telecom equipment maker Huawei and white goods giant Haier) have strong state connections; in India, there are a lot of meaningful private sector initiatives.
“I would go so far as to say that the government is an integral part of entrepreneurship in China, since companies such as Huawei have relied on buying defunct state-owned assets and even today have substantial state ownership,” Khanna argues.
Part of the reason for the varying approach to entrepreneurship may lie in the attitude towards the government and bureaucracy. “The average IAS official is not attuned to entrepreneurship but to accomplish a set of tasks he is given,” contends Khanna. Conversely, in authoritarian China provinces are given targets and deadlines and have to meet them. This system also comes with its own loopholes; Chinese companies such as Haier may get the first right of state-owned assets, but, equally, they often have to acquire moribund state assets. In contrast, Indian entrepreneurs have much greater freedom to decide their area of business, obtain seed or venture capital funding and are not held back by constraints imposed by the state. “Even then, the funding system is not as developed as the West. There aren’t enough seed funds in India to support this growth,” says Khanna.
While entrepreneurs may have focussed on markets in the West by leveraging cost arbitrage, newer opportunities may be emerging for businesses focussed on the domestic market and for social entrepreneurship. “The market will probably be split evenly between cost leverage initiatives and those focused on the domestic market,” he adds.
According to Khanna, the real innovation may happen in the field of social entrepreneurship, where initiatives such as Janaagraha and Parliamentary Research Services (with entrepreneurship defined as the ability to take risks to get around existing constraints, with or without profits) also playing a key role. One factor that could propel entrepreneurship in India is the growing incidence of NRIs returning home, who bring with them valuable experience in setting up and running businesses. Khanna, however, argues that it is only a recent thaw that has catalysed their return. “The Indian administration historically made a catastrophic decision to shun its diaspora,” Khanna says.