Business India, December 2-15, 1996
Will Vasudhara dry up?
The falling crude production figures from ONGC’s prized discovery Bombay High - brings reservoir management and enhanced oil recovery methods into focus.
Shivanand Kanavi
Jawaharlal Nehru and Keshav Dev Malviya visited Gujarat’s Ankleshwar in 1959, to see the first indigenously explored and drilled oil well. In a burst of enthusiasm, Nehru named it Vasudhara- ‘spring of prosperity.
The latest production figures from Bombay High, the Oil & Natural Gas Commission's (ONGC) prized offshore oil field, however, show that the spring is drying up. In-house technical experts cautioned against the mismanagement of the Bombay High reservoir, but ONGC buckled under pressure from the petroleum ministry, allege oil industry insiders. This was apparently done in an effort to artificially boost the production record in the 1980s.
As things stand, the current situation has led to a financial crisis as the country's already high oil imports, due to an ever-increasing consumption, is rising further with the fall in domestic production. And with the oil price shooting up (currently, it is $24 a barrel), this will exacerbate the balance of payments problem.
What is alarming is that even the present government is acting shortsightedly, putting pressure on ONGC to increase its production targets. In fact, it is seven months since ONGC submitted its already reduced targets, but the government is putting unrelenting pressure on it to increase the same. What was a tragedy in the 1980s will turn out to be a farce in the 1 990s. At the same time, the government, given its management of the oil pool account, has suspended payments ONGC for the crude already pumped last month (the account is normally settled weekly, with a month's 'credit' built in), which does not help matters.
What is the issue of productivity and reserves all about? There are two important indicators of reservoir health the gas-oil ratio (GOR) and the water-oil ratio, or water cut. When these ratios go beyond the norms set according to the geological and physical characteristics of an oil field, alarm bells should start ringing for the producer, as they indicate it is fast getting depleted. The well will then either have to be abandoned or expensive enhanced recovery methods be used. But with water and gas content increasing, the continuity of the oil filament flowing into the well head also gets broken, and the blobs of oil that remain trapped in the reservoir become practically inaccessible.
THE OIL STORY
Millions of years ago, the earth teemed with plant and animal life, much of which was located in or adjacent to rivers, lakes and seas. And as plants and animals died, their remains were covered, in due course, by layer upon layer of organic materials, sand and mud. With oxygen consequently cut off from the organic material, the decomposition process was slowed down, and as these areas were repeatedly covered by rock, volcanic material or other layers of sedimentation thousands feet thick, the underlying organic material was subject to tremendous pressures and high temperatures. The sand and mud were compacted into rock while the organic materials trapped therein got 'cooked' - their long and complicated molecules broken down into lighter, shorter hydrocarbon molecules. Crude oil and natural gas, cocktails of the lighter hydrocarbons thus formed.
The most important point to note is that oil and gas exist in minute pores - the size of a pencil lead or even thinner ¬inside compacted rocks. So, if cracks appear in their upper impermeable layers, the oil and gas ooze out. While the lighter hydrocarbons evaporate away, the heavier ones collect on the surface along with sand and mud, forming the 'tar sands' discovered by ancient man and subsequent coinage of petroleum: 'oil from the rocks'. In fact, in India itself, as the tale goes, 106 years ago, workers at a tea plantation in Assam noticed oil oozing out. And their excited British supervisor exhorted them:
"Dig, boy, dig!" That is how the first oil field in India came to be known as Digboi!
Often, underground water also exists close to petroleum, and the pressure exerted by such water can act like a drive. Similarly under high pressure, natural gas dissolves in crude oil, and when the oil finds an outlet - through an oil well, for instance - this gas boils out, providing additional pressure. Undissolved natural gas, known as free gas, acts as the natural pressure drive.
However, the pressure existing in an oil-bearing rock structure will deplete as oil and gas gush out of an oil well. It is estimated that the natural mechanism provided by reservoir energy can lead to the recovery of only 15-20 per cent of the hydrocarbon reserves, so reservoir energy needs to be carefully nursed; even artificially enhanced. The technology involved here, to save large amounts of precious oil and gas from being lost, is called reservoir management.
This disastrous situation can also arise through 'flogging' oil wells. Producing oil at a rate faster than prudent leads to a sharp drop in reservoir energy - the energy of the oil trapped under pressure deep in the rocks (see box). It is alleged that, under pressure to produce more oil by the government then, this is precisely what ONGC did in the 1980s. And production data available to Business India indicates this charge may well be true.
For instance, the oil output during1987 -91 remained more or less the same from Bombay High North (Layer-II) whereas the GOR nearly doubled. In the larger Bombay High North (Layer-III), oil production remained more or less the same in 981-86, but the GOR shot up five times! At Bombay High South's largest reservoir (Layer-III), production remained more or less the same between 1983 and 1991, but I he GOR increased nearly four times!
Finally, a committee was appointed in 199] under the chairmanship of A.K. Dasgupta, former chairman of Oil India. It determined that nearly 90 Bombay High wells were flogged and so needed to be dosed down immediately to build up reservoir pressure. Ultimately, the government could not ignore its advice, and gave permission.
Consequently, production dropped drastically in 1992-93, but the important point is that, since 1992, the GOR has come down by about 30 per cent. The water cut, however, has been increasing at an alarming rate - it reached close to 1:1 in the rich Bombay High South Layer-III and 4:3 in the Bombay High North Layer-III! Obviously, the reservoirs have aged and might yet become uneconomical.
Reserve challenges
In order to recover more than the 15-20 per cent of the reserves possible with the primary method, a host of technologies called secondary and tertiary recovery methods, or enhanced oil recovery methods, have been developed. The most widely used is water injection, discovered nearly 100 years ago, when it was found that when the brackish water that comes out with oil seeps back into the earth, the surrounding wells produce more oil. Nowadays saline water is forced into injection wells drilled to particular depths around a production well. It then seeps back into the reservoir through cracks artificially created by carefully designed underground explosions, and pushes out any oil contained in the smaller pores of the reservoir.
Water injection can be made more efficient by using micro emulsions or micellar solutions, where certain surfactants (detergents) are dissolved in saline water and injected. This leads to greater cleansing of the oil-bearing pores, hence enhanced recovery.
A similar technique involves re-injection of the associated gas that comes out with oil, and even carbon dioxide has been used in this fashion. Some amount of these gases can dissolve in oil and reduce its viscosity, leading to greater oil flow.
Still, all flooding techniques can lead to the fluid front pushing ahead but bypassing large chunks of oil on finding easier paths of flow. So, one needs to slow down the fluid front and make it move as a near circular wave rather than break into a finger-shaped flow that could bypass oilhearing areas. It can be achieved by mixing certain polymers, like xanthum gum, and polyacrylamides in water and then injecting the solution. These longchain molecules effectively provide an impermeable front for the water flood.
Two other methods quite widely used are steam injection and in situ combust ion. These rely on the fact that heat leads to a remarkable drop in the viscosity of oil, and thereby, greater flow towards the well head. While the steam injection method is self explanatory, in situ combustion involves pumping compressed air into injection wells. Combined with the high underground temperatures that exist, this sudden availability of oxygen leads the combustion of some underground oil and gas and a slowly expanding heat wave in all directions, reducing the viscosity of the trapped oil and causing it to flow towards the well head. These two techniques are, at times, combined by injecting air and water alternately, leading to underground combustion and steam generation pushing the oil out.
Saline water injection is the secondary method most widely used by ONGC at both its onshore and offshore production fields. Micro-emulsion and polymer methods are being tested in its depleted wells, but such sophisticated enhanced recovery methods are expensive. In fact, it is estimated, they can become viable only when oil prices go above $32-34 a barrel
So, it is, indeed, surprising that the Centre has not approved ONGC'S production target for 1996-97 and is, instead, putting pressure on the company to produce more! Should ONGC again buckle under pressure from the government to flog the wells, it will prove disastrous.
What is, instead, required is increased R&D activity in developing economical enhanced oil recovery methods and massive investments in fresh exploration. And lastly, but most importantly, ensuring responsible management of the company, free from political interference.
That ONGC has not paid enough attention to enhanced oil recovery seems clear. The importance of this is indicated by the fact that estimates show that if recoverability improves by 1 percent, total production increases by an amount equivalent to the current annual production of ONGC!
An Indian tale
Inexpensive enhanced oil recovery methods can be found. G.D. Yadav, who holds a doctorate in chemical engineering from UDCT, Bombay, was drawn towards enhanced oil recovery methods while doing post-doctoral work in the UK. His work aroused the interest of a group in the University of Waterloo at Kitchener, Canada, who extended an invitation to him to continue his laboratory studies there. He returned in the 1980s to continue his work at UDCT.
Applying his ideas on enhanced oil recovery in 1991 led Yadav and his doctoral students, S.A. Trailokya and K.N. Subramanian to claim they could recover 90-95 per cent of the oil from a reservoir with their methods! The claim was truly astounding as all the other methods known deliver only 30-35 per cent of the total reserves.
Like all good ideas, Yadav’s idea is remarkably simple. He advocates alternate gas and water injection after placing a semi-permeable membrane at the well head. The membrane, on the one hand, allows only oil to seep through and not water, and on the other, slows down the flood front just as the more expensive polymer method does, only from the reverse direction
It will lead to a more complete flushing of the reservoir as the injected gas and water slowly push the remaining oil from both large and small pores. The membrane can be made of stainless steel and even natural substances like sandstone. Additional advantages will be that no water will be produced at the wellhead and the injected gas will remain inside. Thus, the associated gas being flared today could be stored until it was needed.
Another detailed proposal was submitted, for further laboratory studies and actual field trials in abandoned oil wells at Balol and Kalol in Mehsana, north Gujarat. The project would have cost hardly Rs.15 lakh in 1991, and Yadav offered to share the worldwide patenting rights for the technology with ONGC. Despite numerous reminders, nothing has been heard from ONGC till date.
Yadav has now given up his research on enhanced oil recovery and is applying his knowledge to catalysis. This new preoccupation has already led to six new patents filed in catalysis, and recognition as one of the top three earners in UDCT through consultancy, But he still nurtures the fond hope that, some time in the future, the bureaucracy at ONGC may become permeable to new ideas.
ONGC finds itself bound by chains of administered prices and the government's apathy. Just one example - its Neelam field was discovered in 1984-85 and supposed to be productionised by 1991-92, but the government dithered in awarding the offshore platform construction contract. Finally, after a delay of four years, the contract was given to the very same contractor, Hyundai!
Meanwhile, Bombay High offshore production dipped from 20 million tonnes (MT) to less than 14 MT for two consecutive years (1992-93 and 1993-94). The production returned to 20 MT again only in 1994-95, once Neelam began producing. Hence, the big gap between projections made for the 1990s in ONGC’S Perspective Plan 1985-2005 and its actual production (see graph).
As for oil exploration, ONGC has never received any funds from the Oil Industry Development Board. Despite the government collecting huge sums from the oil industry, hardly any money has been ploughed back. So, now that its big find of Bombay High is about to dry up, there are no new big discoveries. As ONGC gets a measly $12.5 a barrel, and $5 of that goes as royalty to the state and Central Governments, it hardly has any money left liver for serious exploration. One needs between Rs.10-20 crore to dig a single exploratory well! And the oil game calls for a large number of wells and the risk of no oil, despite three-dimensional surveys and sophisticated data-gathering.
Drilling offshore Bombay has been restricted so far to shallow water, about 100-150 metres deep. There could be promising oil fields along the western continental shelf, where survey data advises drilling under 400 metres of seawater, but large investments are needed. Similarly, exploration in the greenfield of Gondwana (MP) will be expensive. Surveys further indicate vast gas reserves at great depths under the Indian plate, where extreme conditions have turned gas into the solid form of hydrates, but all these will remain unreachable if ONGC is not paid the international market price for its crude to enable it to invest in exploration.
Eventually, the Vasudhara at Bombay High will dry up, but will new ones be discovered?
Monday, September 10, 2007
Tech Downturn 2001
Business India, May 14-27, 2001
Clouds over the Valley
The causes and effects of the slowdown in the US economy can be most vividly seen in the frenetic hi-tech industry
Shivanand Kanavi
A new spectre has risen in front of Indian investors, right on the heels of the shenanigans of highflying bulls, highly cooperative banks and the bear cartels. It is called the "downturn in the US". It initially looked a distant phenomenon and many tried to discount its effects on Indian IT industry and economy. However, when the darling of Indian tech investors Infosys - lowered its growth target in the coming year to 30 per cent, after having grown at 100 per cent plus this year, the impact of the US slowdown finally hit the Indian shores. Commentators are now changing the description of the state of US economy from a 'slowdown' to a 'recession'. Many predict a 12-24 month period for recovery. Obviously, it is better to come to grips with the situation than wish it away or panic. A Business India team visited various hi-tech centres in the US in March-April, 2001 and talked to VCS, entrepreneurs, executives and ordinary folks to get a picture of the depth and extent of the clouds over the Valley.
The gloom hits you as soon as you arrive at San Jose airport. Our favourite cab driver in the Valley, Iqbal Singh, lamented that all his plans of growing from one cab to four and starting his own cab company have come to a naught. "Business is down saabji," he says. "Yeh dotcom shotcom, it screwed up everything." Even the Indian grocer in Bharat Bazaar, a department store in Silicon Valley, says that the slowdown and the mass lay-offs of H1-B Visa holders have reduced his sales of pickles, pappadams, sambhar powder and such.
We had visited the Valley in the October of 2000, much after the dotcom meltdown in April 2000, but we saw none of the panic and fear that we saw this time around. People cracked jokes about the dotcom madness and wrote short stories on how smart Indians saw the crazed US market and made a fast buck out of dotcoms. One even claimed that the original dot in the dotcom was the kumkum bindi on an Indian forehead, in spite of the gadzillions being spent by Sun Microsystems too claim the contrary. Everyone made the dotcom mania sound like a black comedy by Monty Python enacted in some distant land. "The real tech companies backed by products, customers, revenues and profits will not be affected," they said. In fact, stocks of companies like Sycamore and Juniper Networks reached their peaks in September 2000 - five months after the Nasdaq crash of April 2000.
Today, however, they are trading at a much lower value (see table). In the first week of April, Sycamore not only lowered its earnings expectation from $165 million in the previous quarter to $50 million in the last quarter, but even laid off 120 people - nearly 10 per cent of its work force. On April 5, Desh Deshpande, chairman Sycamore Networks, was felicitated by an organisation in Cambridge, Massachusetts. The citation read: "The Golden Door Award symbolises the positive influence that immigrants have had on this country by honouring a distinguished American of foreign birth." Despite the fact that he is the first Indian to be honoured thus, he was in no celebratory mood. When congratulated, he said: "I have just had to lay off 120 people who believed in me and came to work for me. Ups and downs are part of business and I have seen them before. But at the moment, it really makes me sad."
BILLION DOLLAR BABIES
Sycamore Networks $ 12.25 billion Market Capitalisation as on 12 Jan’ 2001
$ 3.04 billion Market Capitalisation as on 7May’ 01
Strong in Soft Optics-a fusion of hard optics (DWDM)with software. Strong management team with credibility. A billion dollars in the bank.
Infospace $ 2.85 billion 12 Jan’ 2001 $1.58 billion as on 7May' 01
Early mover into wireless web content (has over80% of the US market). Expertise in merchant services. Entering broadband content. Over $500 million in the bank
Tibco $8.01 billion, (as on 12 Jan 2001) $ 2.64 billion (as on 7 May 2001)
Unrivalled in online data mining and services. A must for all financial markets and financial portals
Juniper Networks $41.76 billion (as on 12 Jan 2001) $18.24 billion (as on 7 May 2001)
Undisputed king of the high-end router market. Vinod Khosla –Scott Kriens team has built excellent relations with carriers and has delivered.
I2 Technologies $19.71 billion (as on 12 Jan 2001) $9.37 billion (as on 7 May 2001)
12 products have much broader applications than the ERP software. Stress on cast savings rather than flashy technology appeals to CEOs and CFOs. Good results achieved in manufacturing, retailing sectors.
Even the ebullient Naveen Jain, chairman, Infospace, is mellow these days. While his company Infospace keeps acquiring new companies and is taking major initiatives in broadband and wireless fields, Infospace's market cap has fallen from about $40 billion in March 2000 to $1.5 billion today. A fall-out of this crash is that in several companies stockholders are blaming the CEOS and founders for the loss in share- holder value. Earlier this year, Jain went out of his way to show his faith in the fundamentals of the company by buying half a million of its shares.
Of course, everything in the US is taken to the extremes. And so is shareholder wrath. According to Ed Hill, a former police officer, who now provides bodyguards to the rich and famous: "There are so many crazies out there, no threat should be taken lightly." As an officer of DEA (Drug Enforcement Agency) he battled drug lords in Columbia, Panama and even South Asia. Today, he provides teams of bodyguards to the CEOs of Internet companies. Obviously, it is a lucrative, and growing, business.
Along with the dotcoms, some of their CEOs have also vanished. When we mentioned the success of Indians in hi-tech and the stockmarket crash, another Indian cab driver, this time in Seattle, waved a copy of Seattle Times in front of us. The newspaper had front-paged the story of Ravi Desai, who promised about '$5 million to the poetry departments of three universities, including the University of Washington, Seattle. Poets and poetry lovers, startled by this munificence of a patron of arts, got an ode composed for Desai by the US poet laureate. Alas, after the initial cheque of $6,700 came in, the dotcoms crashed and the poets are still waiting to hear from the gentleman.
Meanwhile, several entrepreneurs who made money through IPOS, mergers and acquisitions have definitely lost a whole lot of their wealth, as Nasdaq slid from 5,000 in March 2000 to below 2,000 in March 2001. Billionaires have become millionaires and some millionaires have even become paupers. Those who built houses or put the money into fairly unexciting assets like old economy stocks or bonds are relatively better off, whereas most people who recycled their wealth into other tech stocks have lost heavily. "l don't even want to talk about it," says Naveen Jain, shaking his head. He, like many others, holds on to the belief that the tech sector will come back. In any case, they see no point in liquidating their portfolios in the current market.
The months March and April 2001, were nightmares to all those who made money in the tech boom. April 15, being the deadline for filing taxes, most people were scrounging around for money to pay taxes. We found several techies burning the midnight oil to bring their income statements to order and making frequent trips to their CPAS. Since taxes are calculated on the basis of the deals they made earlier and since many of them did not make provision for the taxes when they received the money, it was a double whammy. On the one hand their notional wealth has really come down. And on top of it they are being taxed at the higher levels of paper wealth that existed several months earlier.
Those who ventured to become angel investors with the expectation of their seed money multiplying several fold, are seeing start-ups fold up in front of their eyes. Aware of the problem, a few Valley politicians have begun discussing a scheme whereby taxes can be paid in instalments over the next few years. Obviously, any front-loaded tax cut by the Bush Administration would be most welcome by the normally pro-Democratic techies.
The worst-affected are those who never saw the money but got only stock options. They were taxed on the basis of the value at which the stock was vested with them - though the current value is only a fraction of that. Points out Sashi Pundarika, a financial consultant: "There are many companies where this has happened. Qtera, bought by Nortel for $3.5 billion, was a classic case. On acquisition, VCS got 85 per cent and walked away with the money. The employees and founders could not cash in right away due to the vesting schedule. Many of them are stuck with AMT (alternate minimum tax) greater than the current value of their Nortel stock, which, went down to $15 from about $80".
The tech companies which went public before the crash are well capitalised and have money in the bank. This can be used for acquisitions or for R&D even in this lean period and they can ride out the downturn. "Downturns and upturns are part of business. However, both these get exaggerated in the Valley. We have a billion dollars in the bank and we can ride out the downturn without cutting back on R&D," says Desh Deshpande. Clearly, companies like Sycamore, Infospace, Juniper, Tibco and 12 have no cause to worry on that account (see table). But those companies, which were on the verge of an IPO or were in the pre-IPO stage with one or two rounds of venture financing, are in deep trouble. Suddenly, the valuations they commanded before the crash look ridiculous and new money can come in at much lower valuations. That, of course, will mean squeezing the existing investors' stake. Yet, the only other alternative is death by starvation for these companies. All hype has vanished from technology companies, be they into optical networking, wireless or enterprise software. Naturally, VCS who were chasing deals earlier are looking at all the traditional parameters of customers, revenues, profits and so on.
Darwinism has suddenly become the hot favourite among VCS. "Slowdowns, downturns, recessions are a part and parcel of free market economies. They come with certain regularity, except that this one has been long overdue. They are good for the economy, as they stress every body to squeeze out the silly excesses of the good times. Weaker players crumble, freeing up the resources for strong survivors. This downturn was bound to happen as a whole lot of capital was being misallocated and wasted. I have not seen innovation slowdown. It will come back stronger than ever. I have lived through several of these in my 34 years here and things always come back with great gusto," says Kanwal Rekhi, President, TiE.
Amit Shah built two start-ups earlier and sold them - ZeitNet to Cabletron and. Pipe Links to Cisco. Subsequently, he became part of the high-powered charmed circle around John Chambers, chairman Cisco. Amit resigned recently to become a venture capitalist and has several interesting observations to make on the boom and bust. "Whenever a revolutionary product appears and a 'paradigm shift' occurs, such as introduction of TV, autos, computers, there cannot be a 50-70 per cent growth rate for more than two to three years. The communications and computer industry had been growing at 20-30 per cent year on year for eight straight years (roughly 1990 to 1998) before the dotcoms. Then the dotcoms took this growth rate to 30-50 per cent. At this point everybody began jumping in, which resulted in overbuilding, overcapacity, overspending. This final stage took the growth rates to 50-70 per cent year on year in an industry, which was already spending $500 billion a year. The result is a house of cards".
For instance, nearly 300 start-ups were funded at fantastic valuations in optical networking. Obviously, there is no room for all of them. The plug will be pulled for many. One estimate is that nearly 80 per cent might die due to lack of the next round of funding. Only the real technology innovators who have customers and revenues have any chance of getting acquired. A recent example from the chip sector is Vxtel headed by Atiq Raza. Raza is a chip pioneer in the Valley who earlier founded Nexgen and later headed AMD, a company that is now challenging even the giant Intel. Intel acquired Vxtel for $550 million in cash in February, 2001. ''It shows that if you have technology, if you have the right industry partnerships, then you are highly valued even in these market conditions," says Arjun Gupta of Telesoft Ventures who funded Vxtel.
For the time being, it is curtains for people like Rohit Chandra (founder eCode). Despite it being a good idea, VCS have pulled the plug on eCode, since there was not enough revenue. In the general downturn, even listed companies are filing for bankruptcies, and not all of them are tech companies either. One man's meat is another's poison. According to New York Times' April 19 issue, law firms that specialise in Chapter 11 (a stage in bankruptcy process in US) are recruiting heavily.
"Not many startups are closed yet, though they are having a hard time raising the next round of financing. The next few months will be decisive. Companies are financially distressed though. Lots of those who can't meet expectations will fail, and the survivors will have a good time," says Rajvir Singh of Redwood Ventures and a distinguished entrepreneur who founded Cerent, StratumOne and Sierra Networks.
As for causes in the downturn in networking and telecom sector, Rajvir Singh says: "DSL (Digital Subscriber Line) is the main culprit. Installation costs are high and revenue is low. Equipment vendors did not see that coming and did not factor that into their revenue forecast. Many CLECS (Competitive Local Exchange Carriers), the main service providers, are closed down. They were buying equipment on borrowed money from vendors. There is an over-supply of components and equipment, and buyers have run out of money. This should ease out in a year or so. There will be consolidation at the very top, including major organisational changes. Large companies would buy less of new startups, essentially paying attention to the bottomline."
How did the industry get here? Sanjay Subhedar of Storm Ventures explains: "There were too many service providers - over 1,300 by last count. Cheap capital, both equity and high-yield debt, helped create them. Flush with capital, these new service providers helped create the boom we saw over the last three years, as they bought equipment and software to build out next generation networks to handle the needs of the bandwidth hungry Internet. U.S. TeIco spending grew from $60 billion in 1998 to $115 billion in 2000, changing the revenue ramp profiles for anyone in communications - Corning, Nortel, Lucent, Cisco, as well as their suppliers - JDS Uniphase, Altera, Xilinx and Vitesse. Demand outstripped supply, lead times stretched out, and the equity markets reacted as one would expect. The markets gave huge premiums to the market leaders in the belief that the excess of demand over supply would continue ad infinitum. P/E multiples skyrocketed to over 300 and, as that metric became ridiculous, the industry began using sales multiples as a substitute."
Though the downturn started with the telecom and communication networking sector, but with the loss of shareholder wealth, a large number of ordinary people who had followed the tech pied pipers, saw their savings vanish. The money which was kept for the next car, home, college education was no longer there. "We put all our money in tech stocks after seeing our acquaintances buy a big house with the money they made in the stock market. Today it is not worth the paper," lamented a schoolteacher of Indian origin in California. Similarly, several people who put their 401(k) money (US version of the provident fund) into tech funds, have seen it vapourise. This has led to a drop in sales of old economy goods as well. Clearly, the excessive greed fuelled by a eight-year bull run in tech stocks has led to an aftermath of trillions of dollars lost. This in turn has led to a loss of purchasing power. The oversupply in tech sectors is being compounded by demand contraction in other sectors.
The lay offs in the tech industry have been well publicised as cutbacks in expenditure by big companies. However, others give a different perspective. Rajeev Madhavan of Magma, a start-up creating chip design tools which had been on the verge of an IPO, says: "Some of these lay offs had to happen. When people were hired during the boom, they came with two or three offers in hand. They came to negotiate stock options rather than be interviewed. The downturn has helped companies to get rid of those that did not deliver." Sabeer Bhatia, founder Hotmail and Arzoo, agrees: "The phenomenal growth caused technology companies to hire 'less than ideal' people. Now, forced to become leaner and more profitable, they are shedding this excess weight by laying off people in the thousands. This creates a vicious cycle of rapid decline in consumption, which affects the entire economy - the results of which we are witnessing today."
However, this is more of a Valley phenomenon. In places like Boston or Dallas, it is not getting rid of dross but actual concerns on costs that has led to lay offs. Says a senior executive in Texas Instruments: "It has been the saddest exercise in my career. Having been forced to approve a list of people to be sacked is tortuous. Some of them are going to lose all their options, even though they are hardly six months away from the deadline (employees can carry all their options after 50 years of age in some corporations). It has taken so much out of me emotionally that I am going to take voluntary retirement in a month or two and start teaching, pre-school kids."
Does all this have anything to teach the Indian IT companies? 'Move up the value chain,' has become a cliche. But Amit Shah has a contrarian recipe: "Before moving up the value chain, consolidate your position as the premier outsourcing centre. There is a chance at taking out the EDS, IBM, Arthur Andersens of the world in turnkey outsourcing. This is where Wipro, Infosys, TCS should be headed. The myriad smaller companies, specialise even to get 'bodyshopping' jobs. For venture capital to flow in, intellectual property will have to be created and market partnerships with US and European companies should be formed. No Indian startup, at this stage, can look to develop products for US or European markets, without having these partnerships. As for a longterm prognosis, it is excellent. You need a downturn to create an uptick."
The present gloom in the Valley has naturally led to tremendous stress. Bill Osmer, part of the well-known eco-system in the Valley, tries to reduce the prevalent tension by teaching yoga and pranayam to techies. Osmer learnt yoga from his guru in Mysore and is a regular visitor to India. He currently teaches yoga during lunch hours at several corporations in the Valley -' Cisco, Intel, Applied Materials, Netscape, HewlettPackard, AMD, KLA-Tencore- as well as at many start-ups. There are other yoga teachers in the Valley today, but Bill was one of the first. Today he is a personal yoga trainer to entrepreneurs like Rajvir Singh. "The current slowdown has definitely increased stress but the response is split. Some feel they need yoga more than ever to help and some feel they need to work harder than ever to secure their job and don't have as much time for these things. I have a vantage point, because I was already teaching at these companies during the boom years and am now watching the response during the bust. People, as always, have to find a balance in life," says Bill. However, finding balance is a tall order in the frenetic Silicon Valley.
Meanwhile, companies like 12 which started their marketing campaign several years ago saying, 'We will save our customers $ 50 billion by year 2005', have upped the figure to $75 billion. Sanjiv Sidhu's pitch may be more soothing to CEOs and CFOs in various old and new economy giants than Bill Osmer's yoga.
Vani Kola, who told us in October 2000 after having sold her company RightWorks, that she would be spending her time climbing mountains like Kilimanjaro and helping her children grow up, has once again launched a start-up called Nth Orbit. And so the cycle continues.
Clouds over the Valley
The causes and effects of the slowdown in the US economy can be most vividly seen in the frenetic hi-tech industry
Shivanand Kanavi
A new spectre has risen in front of Indian investors, right on the heels of the shenanigans of highflying bulls, highly cooperative banks and the bear cartels. It is called the "downturn in the US". It initially looked a distant phenomenon and many tried to discount its effects on Indian IT industry and economy. However, when the darling of Indian tech investors Infosys - lowered its growth target in the coming year to 30 per cent, after having grown at 100 per cent plus this year, the impact of the US slowdown finally hit the Indian shores. Commentators are now changing the description of the state of US economy from a 'slowdown' to a 'recession'. Many predict a 12-24 month period for recovery. Obviously, it is better to come to grips with the situation than wish it away or panic. A Business India team visited various hi-tech centres in the US in March-April, 2001 and talked to VCS, entrepreneurs, executives and ordinary folks to get a picture of the depth and extent of the clouds over the Valley.
The gloom hits you as soon as you arrive at San Jose airport. Our favourite cab driver in the Valley, Iqbal Singh, lamented that all his plans of growing from one cab to four and starting his own cab company have come to a naught. "Business is down saabji," he says. "Yeh dotcom shotcom, it screwed up everything." Even the Indian grocer in Bharat Bazaar, a department store in Silicon Valley, says that the slowdown and the mass lay-offs of H1-B Visa holders have reduced his sales of pickles, pappadams, sambhar powder and such.
We had visited the Valley in the October of 2000, much after the dotcom meltdown in April 2000, but we saw none of the panic and fear that we saw this time around. People cracked jokes about the dotcom madness and wrote short stories on how smart Indians saw the crazed US market and made a fast buck out of dotcoms. One even claimed that the original dot in the dotcom was the kumkum bindi on an Indian forehead, in spite of the gadzillions being spent by Sun Microsystems too claim the contrary. Everyone made the dotcom mania sound like a black comedy by Monty Python enacted in some distant land. "The real tech companies backed by products, customers, revenues and profits will not be affected," they said. In fact, stocks of companies like Sycamore and Juniper Networks reached their peaks in September 2000 - five months after the Nasdaq crash of April 2000.
Today, however, they are trading at a much lower value (see table). In the first week of April, Sycamore not only lowered its earnings expectation from $165 million in the previous quarter to $50 million in the last quarter, but even laid off 120 people - nearly 10 per cent of its work force. On April 5, Desh Deshpande, chairman Sycamore Networks, was felicitated by an organisation in Cambridge, Massachusetts. The citation read: "The Golden Door Award symbolises the positive influence that immigrants have had on this country by honouring a distinguished American of foreign birth." Despite the fact that he is the first Indian to be honoured thus, he was in no celebratory mood. When congratulated, he said: "I have just had to lay off 120 people who believed in me and came to work for me. Ups and downs are part of business and I have seen them before. But at the moment, it really makes me sad."
BILLION DOLLAR BABIES
Sycamore Networks $ 12.25 billion Market Capitalisation as on 12 Jan’ 2001
$ 3.04 billion Market Capitalisation as on 7May’ 01
Strong in Soft Optics-a fusion of hard optics (DWDM)with software. Strong management team with credibility. A billion dollars in the bank.
Infospace $ 2.85 billion 12 Jan’ 2001 $1.58 billion as on 7May' 01
Early mover into wireless web content (has over80% of the US market). Expertise in merchant services. Entering broadband content. Over $500 million in the bank
Tibco $8.01 billion, (as on 12 Jan 2001) $ 2.64 billion (as on 7 May 2001)
Unrivalled in online data mining and services. A must for all financial markets and financial portals
Juniper Networks $41.76 billion (as on 12 Jan 2001) $18.24 billion (as on 7 May 2001)
Undisputed king of the high-end router market. Vinod Khosla –Scott Kriens team has built excellent relations with carriers and has delivered.
I2 Technologies $19.71 billion (as on 12 Jan 2001) $9.37 billion (as on 7 May 2001)
12 products have much broader applications than the ERP software. Stress on cast savings rather than flashy technology appeals to CEOs and CFOs. Good results achieved in manufacturing, retailing sectors.
Even the ebullient Naveen Jain, chairman, Infospace, is mellow these days. While his company Infospace keeps acquiring new companies and is taking major initiatives in broadband and wireless fields, Infospace's market cap has fallen from about $40 billion in March 2000 to $1.5 billion today. A fall-out of this crash is that in several companies stockholders are blaming the CEOS and founders for the loss in share- holder value. Earlier this year, Jain went out of his way to show his faith in the fundamentals of the company by buying half a million of its shares.
Of course, everything in the US is taken to the extremes. And so is shareholder wrath. According to Ed Hill, a former police officer, who now provides bodyguards to the rich and famous: "There are so many crazies out there, no threat should be taken lightly." As an officer of DEA (Drug Enforcement Agency) he battled drug lords in Columbia, Panama and even South Asia. Today, he provides teams of bodyguards to the CEOs of Internet companies. Obviously, it is a lucrative, and growing, business.
Along with the dotcoms, some of their CEOs have also vanished. When we mentioned the success of Indians in hi-tech and the stockmarket crash, another Indian cab driver, this time in Seattle, waved a copy of Seattle Times in front of us. The newspaper had front-paged the story of Ravi Desai, who promised about '$5 million to the poetry departments of three universities, including the University of Washington, Seattle. Poets and poetry lovers, startled by this munificence of a patron of arts, got an ode composed for Desai by the US poet laureate. Alas, after the initial cheque of $6,700 came in, the dotcoms crashed and the poets are still waiting to hear from the gentleman.
Meanwhile, several entrepreneurs who made money through IPOS, mergers and acquisitions have definitely lost a whole lot of their wealth, as Nasdaq slid from 5,000 in March 2000 to below 2,000 in March 2001. Billionaires have become millionaires and some millionaires have even become paupers. Those who built houses or put the money into fairly unexciting assets like old economy stocks or bonds are relatively better off, whereas most people who recycled their wealth into other tech stocks have lost heavily. "l don't even want to talk about it," says Naveen Jain, shaking his head. He, like many others, holds on to the belief that the tech sector will come back. In any case, they see no point in liquidating their portfolios in the current market.
The months March and April 2001, were nightmares to all those who made money in the tech boom. April 15, being the deadline for filing taxes, most people were scrounging around for money to pay taxes. We found several techies burning the midnight oil to bring their income statements to order and making frequent trips to their CPAS. Since taxes are calculated on the basis of the deals they made earlier and since many of them did not make provision for the taxes when they received the money, it was a double whammy. On the one hand their notional wealth has really come down. And on top of it they are being taxed at the higher levels of paper wealth that existed several months earlier.
Those who ventured to become angel investors with the expectation of their seed money multiplying several fold, are seeing start-ups fold up in front of their eyes. Aware of the problem, a few Valley politicians have begun discussing a scheme whereby taxes can be paid in instalments over the next few years. Obviously, any front-loaded tax cut by the Bush Administration would be most welcome by the normally pro-Democratic techies.
The worst-affected are those who never saw the money but got only stock options. They were taxed on the basis of the value at which the stock was vested with them - though the current value is only a fraction of that. Points out Sashi Pundarika, a financial consultant: "There are many companies where this has happened. Qtera, bought by Nortel for $3.5 billion, was a classic case. On acquisition, VCS got 85 per cent and walked away with the money. The employees and founders could not cash in right away due to the vesting schedule. Many of them are stuck with AMT (alternate minimum tax) greater than the current value of their Nortel stock, which, went down to $15 from about $80".
The tech companies which went public before the crash are well capitalised and have money in the bank. This can be used for acquisitions or for R&D even in this lean period and they can ride out the downturn. "Downturns and upturns are part of business. However, both these get exaggerated in the Valley. We have a billion dollars in the bank and we can ride out the downturn without cutting back on R&D," says Desh Deshpande. Clearly, companies like Sycamore, Infospace, Juniper, Tibco and 12 have no cause to worry on that account (see table). But those companies, which were on the verge of an IPO or were in the pre-IPO stage with one or two rounds of venture financing, are in deep trouble. Suddenly, the valuations they commanded before the crash look ridiculous and new money can come in at much lower valuations. That, of course, will mean squeezing the existing investors' stake. Yet, the only other alternative is death by starvation for these companies. All hype has vanished from technology companies, be they into optical networking, wireless or enterprise software. Naturally, VCS who were chasing deals earlier are looking at all the traditional parameters of customers, revenues, profits and so on.
Darwinism has suddenly become the hot favourite among VCS. "Slowdowns, downturns, recessions are a part and parcel of free market economies. They come with certain regularity, except that this one has been long overdue. They are good for the economy, as they stress every body to squeeze out the silly excesses of the good times. Weaker players crumble, freeing up the resources for strong survivors. This downturn was bound to happen as a whole lot of capital was being misallocated and wasted. I have not seen innovation slowdown. It will come back stronger than ever. I have lived through several of these in my 34 years here and things always come back with great gusto," says Kanwal Rekhi, President, TiE.
Amit Shah built two start-ups earlier and sold them - ZeitNet to Cabletron and. Pipe Links to Cisco. Subsequently, he became part of the high-powered charmed circle around John Chambers, chairman Cisco. Amit resigned recently to become a venture capitalist and has several interesting observations to make on the boom and bust. "Whenever a revolutionary product appears and a 'paradigm shift' occurs, such as introduction of TV, autos, computers, there cannot be a 50-70 per cent growth rate for more than two to three years. The communications and computer industry had been growing at 20-30 per cent year on year for eight straight years (roughly 1990 to 1998) before the dotcoms. Then the dotcoms took this growth rate to 30-50 per cent. At this point everybody began jumping in, which resulted in overbuilding, overcapacity, overspending. This final stage took the growth rates to 50-70 per cent year on year in an industry, which was already spending $500 billion a year. The result is a house of cards".
For instance, nearly 300 start-ups were funded at fantastic valuations in optical networking. Obviously, there is no room for all of them. The plug will be pulled for many. One estimate is that nearly 80 per cent might die due to lack of the next round of funding. Only the real technology innovators who have customers and revenues have any chance of getting acquired. A recent example from the chip sector is Vxtel headed by Atiq Raza. Raza is a chip pioneer in the Valley who earlier founded Nexgen and later headed AMD, a company that is now challenging even the giant Intel. Intel acquired Vxtel for $550 million in cash in February, 2001. ''It shows that if you have technology, if you have the right industry partnerships, then you are highly valued even in these market conditions," says Arjun Gupta of Telesoft Ventures who funded Vxtel.
For the time being, it is curtains for people like Rohit Chandra (founder eCode). Despite it being a good idea, VCS have pulled the plug on eCode, since there was not enough revenue. In the general downturn, even listed companies are filing for bankruptcies, and not all of them are tech companies either. One man's meat is another's poison. According to New York Times' April 19 issue, law firms that specialise in Chapter 11 (a stage in bankruptcy process in US) are recruiting heavily.
"Not many startups are closed yet, though they are having a hard time raising the next round of financing. The next few months will be decisive. Companies are financially distressed though. Lots of those who can't meet expectations will fail, and the survivors will have a good time," says Rajvir Singh of Redwood Ventures and a distinguished entrepreneur who founded Cerent, StratumOne and Sierra Networks.
As for causes in the downturn in networking and telecom sector, Rajvir Singh says: "DSL (Digital Subscriber Line) is the main culprit. Installation costs are high and revenue is low. Equipment vendors did not see that coming and did not factor that into their revenue forecast. Many CLECS (Competitive Local Exchange Carriers), the main service providers, are closed down. They were buying equipment on borrowed money from vendors. There is an over-supply of components and equipment, and buyers have run out of money. This should ease out in a year or so. There will be consolidation at the very top, including major organisational changes. Large companies would buy less of new startups, essentially paying attention to the bottomline."
How did the industry get here? Sanjay Subhedar of Storm Ventures explains: "There were too many service providers - over 1,300 by last count. Cheap capital, both equity and high-yield debt, helped create them. Flush with capital, these new service providers helped create the boom we saw over the last three years, as they bought equipment and software to build out next generation networks to handle the needs of the bandwidth hungry Internet. U.S. TeIco spending grew from $60 billion in 1998 to $115 billion in 2000, changing the revenue ramp profiles for anyone in communications - Corning, Nortel, Lucent, Cisco, as well as their suppliers - JDS Uniphase, Altera, Xilinx and Vitesse. Demand outstripped supply, lead times stretched out, and the equity markets reacted as one would expect. The markets gave huge premiums to the market leaders in the belief that the excess of demand over supply would continue ad infinitum. P/E multiples skyrocketed to over 300 and, as that metric became ridiculous, the industry began using sales multiples as a substitute."
Though the downturn started with the telecom and communication networking sector, but with the loss of shareholder wealth, a large number of ordinary people who had followed the tech pied pipers, saw their savings vanish. The money which was kept for the next car, home, college education was no longer there. "We put all our money in tech stocks after seeing our acquaintances buy a big house with the money they made in the stock market. Today it is not worth the paper," lamented a schoolteacher of Indian origin in California. Similarly, several people who put their 401(k) money (US version of the provident fund) into tech funds, have seen it vapourise. This has led to a drop in sales of old economy goods as well. Clearly, the excessive greed fuelled by a eight-year bull run in tech stocks has led to an aftermath of trillions of dollars lost. This in turn has led to a loss of purchasing power. The oversupply in tech sectors is being compounded by demand contraction in other sectors.
The lay offs in the tech industry have been well publicised as cutbacks in expenditure by big companies. However, others give a different perspective. Rajeev Madhavan of Magma, a start-up creating chip design tools which had been on the verge of an IPO, says: "Some of these lay offs had to happen. When people were hired during the boom, they came with two or three offers in hand. They came to negotiate stock options rather than be interviewed. The downturn has helped companies to get rid of those that did not deliver." Sabeer Bhatia, founder Hotmail and Arzoo, agrees: "The phenomenal growth caused technology companies to hire 'less than ideal' people. Now, forced to become leaner and more profitable, they are shedding this excess weight by laying off people in the thousands. This creates a vicious cycle of rapid decline in consumption, which affects the entire economy - the results of which we are witnessing today."
However, this is more of a Valley phenomenon. In places like Boston or Dallas, it is not getting rid of dross but actual concerns on costs that has led to lay offs. Says a senior executive in Texas Instruments: "It has been the saddest exercise in my career. Having been forced to approve a list of people to be sacked is tortuous. Some of them are going to lose all their options, even though they are hardly six months away from the deadline (employees can carry all their options after 50 years of age in some corporations). It has taken so much out of me emotionally that I am going to take voluntary retirement in a month or two and start teaching, pre-school kids."
Does all this have anything to teach the Indian IT companies? 'Move up the value chain,' has become a cliche. But Amit Shah has a contrarian recipe: "Before moving up the value chain, consolidate your position as the premier outsourcing centre. There is a chance at taking out the EDS, IBM, Arthur Andersens of the world in turnkey outsourcing. This is where Wipro, Infosys, TCS should be headed. The myriad smaller companies, specialise even to get 'bodyshopping' jobs. For venture capital to flow in, intellectual property will have to be created and market partnerships with US and European companies should be formed. No Indian startup, at this stage, can look to develop products for US or European markets, without having these partnerships. As for a longterm prognosis, it is excellent. You need a downturn to create an uptick."
The present gloom in the Valley has naturally led to tremendous stress. Bill Osmer, part of the well-known eco-system in the Valley, tries to reduce the prevalent tension by teaching yoga and pranayam to techies. Osmer learnt yoga from his guru in Mysore and is a regular visitor to India. He currently teaches yoga during lunch hours at several corporations in the Valley -' Cisco, Intel, Applied Materials, Netscape, HewlettPackard, AMD, KLA-Tencore- as well as at many start-ups. There are other yoga teachers in the Valley today, but Bill was one of the first. Today he is a personal yoga trainer to entrepreneurs like Rajvir Singh. "The current slowdown has definitely increased stress but the response is split. Some feel they need yoga more than ever to help and some feel they need to work harder than ever to secure their job and don't have as much time for these things. I have a vantage point, because I was already teaching at these companies during the boom years and am now watching the response during the bust. People, as always, have to find a balance in life," says Bill. However, finding balance is a tall order in the frenetic Silicon Valley.
Meanwhile, companies like 12 which started their marketing campaign several years ago saying, 'We will save our customers $ 50 billion by year 2005', have upped the figure to $75 billion. Sanjiv Sidhu's pitch may be more soothing to CEOs and CFOs in various old and new economy giants than Bill Osmer's yoga.
Vani Kola, who told us in October 2000 after having sold her company RightWorks, that she would be spending her time climbing mountains like Kilimanjaro and helping her children grow up, has once again launched a start-up called Nth Orbit. And so the cycle continues.
NCL, Pune-- Institutional Profile
Business India, January 2 – 15, 1995
Global chemistry
NCL at Pune has become a source of globally competitive products, processes and technologies.
Shivanand Kanavi
What do General Electric, DuPont, Unilever, Neste OY, Akzo, Ciba-Geigy, Solvay Enzymes, Genencor, FMC and other companies from South Africa, Spain and Germany, besides government agencies from Indonesia, China and Ivory Coast have in common with a host of Indian companies including Reliance, Adarsh Chemicals, Godrej Agrovet, EID Parry, Torrent Pharma, Globe Organics, Tetragen, Hindustan Polymers, GSFC, Excel, Dr. Reddy's Labs, Indian Oil, Indian Organics, GAIL, Voltas, PIL, Astra-IDL, Godrej Soaps, Armour Chemicals, Straw Products, Ficom Organics, Thermax, Hindustan Organics, CETEX Petrochem, Bharat Petroleum, Hindustan Lever and SOL? They have sought technical solutions to their design and manufacturing problems from a CSIR laboratory in Pune, the National Chemical Laboratory.
NCL has long been known as a centre of excellence in chemical research. The tradition established by outstanding chemists who led NCL from 1950 to the late 1980s that included McBain, Finch, K.Venkataraman, B.D.Tilak and L.K.Doraiswamy took it to these heights. Today NCL alone publishes more than 250 research papers in a year in international journals (by comparison Indonesia publishes 60 papers). NCL also holds the maximum number of patents in India, and 50 to 60 patents are filed by it each year. Last year, over 20 US patents were registered. Considering that US patents have the most rigorous procedures to prove novelty and utility, to hold a US patent is a matter of great international prestige.
The remarkable thing about NCL is not that it has changed according to the global technology regime but that it has been able to foresee it. The change started a few years prior to the events in 1991 in Berlin or Moscow or New Delhi. In his address to his 500 -odd colleagues when he took over as NCL’s new director in 1989, Dr. Ramesh Mashelkar said that his aim is to turn the laboratory into an international chemical laboratory. The outlook towards industrial research, technology marketing and consultancy underwent a sea change after that.
NCL’s technology marketing group was set up with well-defined functions. Professionals in law, accountancy and marketing were hired and, using grants from the World Bank, they were trained in internationally well-known technology marketing agencies. People were sent to acquire first-hand knowledge of how the cutthroat game of patenting is played internationally. Training programmes in management, etc, were conducted for the scientific staff by management gurus like Sharu Rangnekar. Special awards were instituted, to be awarded on the foundation day to all those who were successful in registering US patents. Schemes were worked out for providing monetary incentives to scientists by retaining some of the money earned through royalties, international contract research and consultancy. The results were so remarkable that the director general of CSIR formed a committee of CSIR directors chaired by Mashelkar to suggest similar steps in the entire CSIR set-up.
The result was the report produced by the committee in January 1993, entitled "Creating an enabling environment for commercialisation of CSIR knowledge base: A new perspective." Besides what had already been attempted at NCL, the committee had some radical proposals: scientists should be allowed to go on a sabbatical to work in consultancies, financial institutions and industries; scientists should be permitted to function on the board of directors of private sector companies. It was also suggested that CSIR, in lieu of royalty payments, be allowed to take equity in industries which licensed CSIR technologies, and CSIR labs be allowed to set up commercial arms to market their technologies, services and hi-tech products. Immediately a new committee was set up to work out the implications of these recommendations and suggest measures for their implementation. The committee, which was headed by Lovraj Kumar and following his demise by Mashelkar, has just produced its report. An exercise is also on to change the bye-laws and statutes to make them systemic rather than being left to the discretion of individual directors.
But there is some concern that while weaknesses in marketing may be corrected by these changes, it might destroy the atmosphere for basic science in CSIR labs. Mashelkar ably discounts this fear by giving the example of NCL. "Without high science there cannot be high technology and CSIR cannot become CIR," he says. For example, there are people like Dr. B.D. Kulkarni who are doing esoteric work in nonlinear dynamics, fractals and chaos theory and their application to chemical and biological systems. His expertise was used in important work in polymer engineering and catalysis. Similarly, cutting edge work is being done by Dr Ganguly on Langmuir-Blodgett films for developing new materials which will have an effect on the much sought after nano-technology. Top-notch basic work is also being done in organic synthesis which will have an effect on organic synthetic technology, etc.
Mashelkar continues to publish basic papers in chemical engineering science. After receiving his PhD at University Department of Chemical Technology under Prof M.M. Sharma, he went on to set up from scratch a top-notch group at Salford, UK, in polymer engineering starting with the study of non-Newtonian fluid dynamics. Dr Paul Ratnaswamy, head of the catalysis group at NCL, who has a large number of technologies and US patents to his credit, continues to do basic work in catalysis that has received worldwide recognition. There are many other examples. In fact, NCL made the front page of The New York Times in March 1990 - a first for Indian science - for its pioneering work on tissue cul¬ture that allowed bamboo to flower in a few days instead of many years.
This vision of the correct balance between science and industrial research, however, requires R&D management of a very high class, which NCL has been fortunate in having in Mashelkar. In fact, he has been a consultant for Unilever on technology strategy and R&D management and has been repeatedly given assignments by the World Bank to advise on restructuring R&D in China and Indonesia. Another innovation at NCL is the concept of 'kite-flying projects'.
Here projects that are too 'crazy' for any funding agency to consider will be financed by a special fund at NCL. Mashelkar believes that many breakthroughs and new in sights come through such projects. After all, managing science and innovation is like managing creativity, a contradiction in terms, but something that governments and corporations always try to do. There is no formula and there cannot be any extremism and dogmatism.
Another feature of NCL that helps it do good science and even risk-taking in technology development is the research programme. Right now, there are about 200 students carrying out projects for their PhD at NCL. They are registered at other universities but come to NCL for their work. Many senior scientists give PhD students scientific work or risky technology development projects which they cannot do themselves for lack of time or funding. This leads to a lot of basic research papers and even technology advances. Mashelkar proudly points out that out of 21 people who are going to be honoured for acquiring US patents this year, six are PhD students!
One of the major activities of the catalysis group headed by Paul Ratnaswamy is in developing 'green technologies', i.e technologies that involve catalysts and chemicals that are eco-friendly. One such technology has been a new zeolite (a kind of clay) catalyst for Linear-Alkyl-Benzene(LAB). As this story goes to Press, the NCL patented technology is being tried out on a semi¬-commercial scale of 500 tpa at the Reliance Industries complex at Patalganga. The process promises to yield increased LAB production and better product characteristics. The present technology worldwide uses hydrofluoric acid as a catalyst, which is highly corrosive to the plant and dangerous to the environment. Once proven on a commercial scale, there is excellent potential for global export of this NCL-Reliance technology, besides the fact that, by 2000 AD, India itself is projected to be the biggest global player in LAB.
Adarsh Chemicals is putting up a plant at a cost of more than Rs.100 crore to produce the highly valued tetrahydrofuran, gamma-butyrolactone and 1.4 butanediol based on NCL technology. It is superior to the state-of-the-art Davy-Mckee process and is far more versatile. Similar new and more efficient green technologies have also been developed in p-diethyl benzene for Hindustan Polymers, methyl-ethyl ketone for CETEX Petrochem, cyclohexanone oxime for GSFC, diethyl benzene for Polychem, etc.
It is for this reason that new catalyst technology has been contracted to be developed by NCL for GE in speciality chemicals, DuPont in speciality chemicals, FMC for a pesticide intermediate, and catalyst know-how for Neste OY and AKZO. NCL has successfully transferred the technology for commercial production of various catalysts to United Catalysts India, which has been winning hi-tech export awards.
Similarly, the organic synthesis group has developed processes for manufacturing epibatidine, a painkiller with a potency 200 times higher than morphine. The current method involves extracting it from the skin of an Ecuadorian frog - a total of 750 frogs yield only 24 grams of the pure substance. NCL'S process patent application is pending and is being eagerly sought by a South African company. A new process for biotin, one of the B-complex group of vitamins which is of immense importance to animal health and nutrition, has been developed. It does not use the dangerous phosgene gas that is used by other processes and is even better than the one developed by Nobel Laureate Prof Corey of Harvard University. Similarly, ranitidine, an anti-ulcerant, which is the world's largest selling drug, is currently manufactured using nitro methane and alkali which form an explosive combination or using the hazardous methyl isocyanate of Bhopal infamy. A new NCL process using zeolite catalyst has led to a safer manufacture of ranitidine. A complex 17 -step process for brassinosteroids, a plant growth hormone, was developed by NCL. The product is currently being marketed by Godrej Agrovet.
There are many such technology stories in every lab of NCL. For example, there are many new engineering plastics and adhesives being developed by the polymer group headed by Dr Shivram, who left the petrochemical giant IPCL and chose to head the polymer chemistry group in NCL. There is a new additive that will reduce the drag in pumping oil through pipelines and a super absorbent gel called Jal Shakti, which is finding applications in diapers and sanitary napkins, though not in agriculture as expected earlier.
There is a lot of work being done in membrane technology that has led to membranes that can separate oxygen and nitrogen from air without going through liquefaction. For those who wonder how all this hi-tech addresses India's basic problems like providing safe drinking water, the new membrane from NCL that is being tested by Thermax will give virus-free water from the tap - and moreover, at one-fifth the cost of systems based on ultra-violet rays and microfilters now in the market. There are polymers for micro-encapsulation of pesticides that will biodegrade and lead to the controlled release of the pesticides.
CSIR scientists are being enticed by both Indian and foreign companies with fancy pay packets. But Mashelkar believes that the new steps on monetary incentives coupled with research freedom will help retain talent. The embarrassment of riches, however, creates its own problems. So far, royalty payments have not been significant but if crores of rupees soon start flowing into NCL, the apportionment of the money could generate bad blood between different members of the research group. Mashelkar is very conscious of the problem and is proceeding with caution in setting up procedures and detailed log books for the projects.
Mashelkar is very bullish about internationalizing NCL. There are many dimensions to it. Initially he used his reputation as a scientist to get to speak to GE at Schenectady and DuPont at Delaware in the US. Invited for a seminar, he Paul Ratnaswamy is India's catalysis man would arouse so much interest on NCL that by the same afternoon the business development people from these corporations started talking to him, followed by senior vice-presidents. These MNC clients for contract research and joint development have been satisfied enough to keep coming back again and again. Recently, at Mashelkar's initiative NCL bought stall space at the ACHME fair in Germany, the most famous trade fair for the global chemical industry, and marketed NCL as a 'global R&D platform’. He was able to excite so much interest over NCL in Kishan Rana, the Indian ambassador in Bonn, that for once an Indian diplomat is actually carrying out the much talked about economic diplomacy. Rana has been meeting various CEO’s of German companies to tell them about NCL. Half a dozen German companies have already sent queries to NCL.
But one might ask, as some parliamentarians recently did, why infrastructure built with Indian taxpayers' money should be used to do research for multinationals. Mashelkar eloquently convinced them of the benefits of such research. He points out that while dollars are welcome for a fund-starved CSIR, the more important fall-out is that Indian researchers who can do world-class work also become world class in delivery times, quality and documentation, which will raise the overall level of the country's research. Secondly, he points out that with the massive rise in costs in the chemical industry in North America and the subsequent mass retrenchments, many multinationals are interested in actually transferring the technology developed jointly with NCL back to Indian companies to manufacture these chemicals in India with buy-back arrangements.
While receiving the G. D. Birla award for scientific research for 1993 from Prime Minister Narasimha Rao, Mashelkar pointed out that while the government is moving ahead in globalising the Indian economy, it has sadly neglected investing more in science and technology which can make it globally competitive. "We are not afraid of intellectual property rights," he asserts. In fact, he has circulated a well-thought-out note on "Indian S&T in the wake of GATT concerns, challenges and opportunities". He believes that if we learn to play the patent game properly, we can generate wealth by generating path-breaking ideas leading to new processes and products. But we need not necessarily manufacture these products - we can earn considerable sums of money through royalties by selling patent rights. "Indians have a comparative advantage in intellectual activity, we should fully exploit it," he says.
However, this 51-year-old scientist who comes from extremely humble origins in the working class chawls of Bombay and whose saga of struggle and brilliance is inspiring enough to have been included in Marathi school textbooks, has many other dimensions to his personality. He has headed the commission which investigated the Bhopal disaster and which conclusively ruled out sabotage as proposed by Union Car Bide. It demonstrated that poor design of the MIC tank and bad practices led to corrosion of the steel tank, which provided the iron chloride to catalyse an explosive reaction that led to the disaster. He also headed the team that investigated the Nagothane explosion in the Maharashtra Gas Cracker Complex of IPCL. Besides, he was on the scientific advisory group to the Prime Minister during Rajiv Gandhi's tenure and continues to advise the government on a number of issues.
Mashelkar's obsession with globalisation does not limit itself to the economy. In fact, he is a man who does not believe in boundaries. His recent Dankwerts Memorial Lecture in London, the most prestigious lecture in the global chemical engineering circuit, was entitled "Seamless chemical engineering science: the emerging paradigm". The lecture has aroused widespread discussion and enthusiasm in the chemical engineering community the world over. In the lecture, he argued that the boundaries between various scientific and engineering disciplines are vanishing and the more scien¬tists recognise it and use techniques and concepts freely learning from each other, the better science and engineering will develop. In short, Mashelkar was only summing up the basic philosophy that has allowed NCL to become the 'seamless laboratory' it is today.
Global chemistry
NCL at Pune has become a source of globally competitive products, processes and technologies.
Shivanand Kanavi
What do General Electric, DuPont, Unilever, Neste OY, Akzo, Ciba-Geigy, Solvay Enzymes, Genencor, FMC and other companies from South Africa, Spain and Germany, besides government agencies from Indonesia, China and Ivory Coast have in common with a host of Indian companies including Reliance, Adarsh Chemicals, Godrej Agrovet, EID Parry, Torrent Pharma, Globe Organics, Tetragen, Hindustan Polymers, GSFC, Excel, Dr. Reddy's Labs, Indian Oil, Indian Organics, GAIL, Voltas, PIL, Astra-IDL, Godrej Soaps, Armour Chemicals, Straw Products, Ficom Organics, Thermax, Hindustan Organics, CETEX Petrochem, Bharat Petroleum, Hindustan Lever and SOL? They have sought technical solutions to their design and manufacturing problems from a CSIR laboratory in Pune, the National Chemical Laboratory.
NCL has long been known as a centre of excellence in chemical research. The tradition established by outstanding chemists who led NCL from 1950 to the late 1980s that included McBain, Finch, K.Venkataraman, B.D.Tilak and L.K.Doraiswamy took it to these heights. Today NCL alone publishes more than 250 research papers in a year in international journals (by comparison Indonesia publishes 60 papers). NCL also holds the maximum number of patents in India, and 50 to 60 patents are filed by it each year. Last year, over 20 US patents were registered. Considering that US patents have the most rigorous procedures to prove novelty and utility, to hold a US patent is a matter of great international prestige.
The remarkable thing about NCL is not that it has changed according to the global technology regime but that it has been able to foresee it. The change started a few years prior to the events in 1991 in Berlin or Moscow or New Delhi. In his address to his 500 -odd colleagues when he took over as NCL’s new director in 1989, Dr. Ramesh Mashelkar said that his aim is to turn the laboratory into an international chemical laboratory. The outlook towards industrial research, technology marketing and consultancy underwent a sea change after that.
NCL’s technology marketing group was set up with well-defined functions. Professionals in law, accountancy and marketing were hired and, using grants from the World Bank, they were trained in internationally well-known technology marketing agencies. People were sent to acquire first-hand knowledge of how the cutthroat game of patenting is played internationally. Training programmes in management, etc, were conducted for the scientific staff by management gurus like Sharu Rangnekar. Special awards were instituted, to be awarded on the foundation day to all those who were successful in registering US patents. Schemes were worked out for providing monetary incentives to scientists by retaining some of the money earned through royalties, international contract research and consultancy. The results were so remarkable that the director general of CSIR formed a committee of CSIR directors chaired by Mashelkar to suggest similar steps in the entire CSIR set-up.
The result was the report produced by the committee in January 1993, entitled "Creating an enabling environment for commercialisation of CSIR knowledge base: A new perspective." Besides what had already been attempted at NCL, the committee had some radical proposals: scientists should be allowed to go on a sabbatical to work in consultancies, financial institutions and industries; scientists should be permitted to function on the board of directors of private sector companies. It was also suggested that CSIR, in lieu of royalty payments, be allowed to take equity in industries which licensed CSIR technologies, and CSIR labs be allowed to set up commercial arms to market their technologies, services and hi-tech products. Immediately a new committee was set up to work out the implications of these recommendations and suggest measures for their implementation. The committee, which was headed by Lovraj Kumar and following his demise by Mashelkar, has just produced its report. An exercise is also on to change the bye-laws and statutes to make them systemic rather than being left to the discretion of individual directors.
But there is some concern that while weaknesses in marketing may be corrected by these changes, it might destroy the atmosphere for basic science in CSIR labs. Mashelkar ably discounts this fear by giving the example of NCL. "Without high science there cannot be high technology and CSIR cannot become CIR," he says. For example, there are people like Dr. B.D. Kulkarni who are doing esoteric work in nonlinear dynamics, fractals and chaos theory and their application to chemical and biological systems. His expertise was used in important work in polymer engineering and catalysis. Similarly, cutting edge work is being done by Dr Ganguly on Langmuir-Blodgett films for developing new materials which will have an effect on the much sought after nano-technology. Top-notch basic work is also being done in organic synthesis which will have an effect on organic synthetic technology, etc.
Mashelkar continues to publish basic papers in chemical engineering science. After receiving his PhD at University Department of Chemical Technology under Prof M.M. Sharma, he went on to set up from scratch a top-notch group at Salford, UK, in polymer engineering starting with the study of non-Newtonian fluid dynamics. Dr Paul Ratnaswamy, head of the catalysis group at NCL, who has a large number of technologies and US patents to his credit, continues to do basic work in catalysis that has received worldwide recognition. There are many other examples. In fact, NCL made the front page of The New York Times in March 1990 - a first for Indian science - for its pioneering work on tissue cul¬ture that allowed bamboo to flower in a few days instead of many years.
This vision of the correct balance between science and industrial research, however, requires R&D management of a very high class, which NCL has been fortunate in having in Mashelkar. In fact, he has been a consultant for Unilever on technology strategy and R&D management and has been repeatedly given assignments by the World Bank to advise on restructuring R&D in China and Indonesia. Another innovation at NCL is the concept of 'kite-flying projects'.
Here projects that are too 'crazy' for any funding agency to consider will be financed by a special fund at NCL. Mashelkar believes that many breakthroughs and new in sights come through such projects. After all, managing science and innovation is like managing creativity, a contradiction in terms, but something that governments and corporations always try to do. There is no formula and there cannot be any extremism and dogmatism.
Another feature of NCL that helps it do good science and even risk-taking in technology development is the research programme. Right now, there are about 200 students carrying out projects for their PhD at NCL. They are registered at other universities but come to NCL for their work. Many senior scientists give PhD students scientific work or risky technology development projects which they cannot do themselves for lack of time or funding. This leads to a lot of basic research papers and even technology advances. Mashelkar proudly points out that out of 21 people who are going to be honoured for acquiring US patents this year, six are PhD students!
One of the major activities of the catalysis group headed by Paul Ratnaswamy is in developing 'green technologies', i.e technologies that involve catalysts and chemicals that are eco-friendly. One such technology has been a new zeolite (a kind of clay) catalyst for Linear-Alkyl-Benzene(LAB). As this story goes to Press, the NCL patented technology is being tried out on a semi¬-commercial scale of 500 tpa at the Reliance Industries complex at Patalganga. The process promises to yield increased LAB production and better product characteristics. The present technology worldwide uses hydrofluoric acid as a catalyst, which is highly corrosive to the plant and dangerous to the environment. Once proven on a commercial scale, there is excellent potential for global export of this NCL-Reliance technology, besides the fact that, by 2000 AD, India itself is projected to be the biggest global player in LAB.
Adarsh Chemicals is putting up a plant at a cost of more than Rs.100 crore to produce the highly valued tetrahydrofuran, gamma-butyrolactone and 1.4 butanediol based on NCL technology. It is superior to the state-of-the-art Davy-Mckee process and is far more versatile. Similar new and more efficient green technologies have also been developed in p-diethyl benzene for Hindustan Polymers, methyl-ethyl ketone for CETEX Petrochem, cyclohexanone oxime for GSFC, diethyl benzene for Polychem, etc.
It is for this reason that new catalyst technology has been contracted to be developed by NCL for GE in speciality chemicals, DuPont in speciality chemicals, FMC for a pesticide intermediate, and catalyst know-how for Neste OY and AKZO. NCL has successfully transferred the technology for commercial production of various catalysts to United Catalysts India, which has been winning hi-tech export awards.
Similarly, the organic synthesis group has developed processes for manufacturing epibatidine, a painkiller with a potency 200 times higher than morphine. The current method involves extracting it from the skin of an Ecuadorian frog - a total of 750 frogs yield only 24 grams of the pure substance. NCL'S process patent application is pending and is being eagerly sought by a South African company. A new process for biotin, one of the B-complex group of vitamins which is of immense importance to animal health and nutrition, has been developed. It does not use the dangerous phosgene gas that is used by other processes and is even better than the one developed by Nobel Laureate Prof Corey of Harvard University. Similarly, ranitidine, an anti-ulcerant, which is the world's largest selling drug, is currently manufactured using nitro methane and alkali which form an explosive combination or using the hazardous methyl isocyanate of Bhopal infamy. A new NCL process using zeolite catalyst has led to a safer manufacture of ranitidine. A complex 17 -step process for brassinosteroids, a plant growth hormone, was developed by NCL. The product is currently being marketed by Godrej Agrovet.
There are many such technology stories in every lab of NCL. For example, there are many new engineering plastics and adhesives being developed by the polymer group headed by Dr Shivram, who left the petrochemical giant IPCL and chose to head the polymer chemistry group in NCL. There is a new additive that will reduce the drag in pumping oil through pipelines and a super absorbent gel called Jal Shakti, which is finding applications in diapers and sanitary napkins, though not in agriculture as expected earlier.
There is a lot of work being done in membrane technology that has led to membranes that can separate oxygen and nitrogen from air without going through liquefaction. For those who wonder how all this hi-tech addresses India's basic problems like providing safe drinking water, the new membrane from NCL that is being tested by Thermax will give virus-free water from the tap - and moreover, at one-fifth the cost of systems based on ultra-violet rays and microfilters now in the market. There are polymers for micro-encapsulation of pesticides that will biodegrade and lead to the controlled release of the pesticides.
CSIR scientists are being enticed by both Indian and foreign companies with fancy pay packets. But Mashelkar believes that the new steps on monetary incentives coupled with research freedom will help retain talent. The embarrassment of riches, however, creates its own problems. So far, royalty payments have not been significant but if crores of rupees soon start flowing into NCL, the apportionment of the money could generate bad blood between different members of the research group. Mashelkar is very conscious of the problem and is proceeding with caution in setting up procedures and detailed log books for the projects.
Mashelkar is very bullish about internationalizing NCL. There are many dimensions to it. Initially he used his reputation as a scientist to get to speak to GE at Schenectady and DuPont at Delaware in the US. Invited for a seminar, he Paul Ratnaswamy is India's catalysis man would arouse so much interest on NCL that by the same afternoon the business development people from these corporations started talking to him, followed by senior vice-presidents. These MNC clients for contract research and joint development have been satisfied enough to keep coming back again and again. Recently, at Mashelkar's initiative NCL bought stall space at the ACHME fair in Germany, the most famous trade fair for the global chemical industry, and marketed NCL as a 'global R&D platform’. He was able to excite so much interest over NCL in Kishan Rana, the Indian ambassador in Bonn, that for once an Indian diplomat is actually carrying out the much talked about economic diplomacy. Rana has been meeting various CEO’s of German companies to tell them about NCL. Half a dozen German companies have already sent queries to NCL.
But one might ask, as some parliamentarians recently did, why infrastructure built with Indian taxpayers' money should be used to do research for multinationals. Mashelkar eloquently convinced them of the benefits of such research. He points out that while dollars are welcome for a fund-starved CSIR, the more important fall-out is that Indian researchers who can do world-class work also become world class in delivery times, quality and documentation, which will raise the overall level of the country's research. Secondly, he points out that with the massive rise in costs in the chemical industry in North America and the subsequent mass retrenchments, many multinationals are interested in actually transferring the technology developed jointly with NCL back to Indian companies to manufacture these chemicals in India with buy-back arrangements.
While receiving the G. D. Birla award for scientific research for 1993 from Prime Minister Narasimha Rao, Mashelkar pointed out that while the government is moving ahead in globalising the Indian economy, it has sadly neglected investing more in science and technology which can make it globally competitive. "We are not afraid of intellectual property rights," he asserts. In fact, he has circulated a well-thought-out note on "Indian S&T in the wake of GATT concerns, challenges and opportunities". He believes that if we learn to play the patent game properly, we can generate wealth by generating path-breaking ideas leading to new processes and products. But we need not necessarily manufacture these products - we can earn considerable sums of money through royalties by selling patent rights. "Indians have a comparative advantage in intellectual activity, we should fully exploit it," he says.
However, this 51-year-old scientist who comes from extremely humble origins in the working class chawls of Bombay and whose saga of struggle and brilliance is inspiring enough to have been included in Marathi school textbooks, has many other dimensions to his personality. He has headed the commission which investigated the Bhopal disaster and which conclusively ruled out sabotage as proposed by Union Car Bide. It demonstrated that poor design of the MIC tank and bad practices led to corrosion of the steel tank, which provided the iron chloride to catalyse an explosive reaction that led to the disaster. He also headed the team that investigated the Nagothane explosion in the Maharashtra Gas Cracker Complex of IPCL. Besides, he was on the scientific advisory group to the Prime Minister during Rajiv Gandhi's tenure and continues to advise the government on a number of issues.
Mashelkar's obsession with globalisation does not limit itself to the economy. In fact, he is a man who does not believe in boundaries. His recent Dankwerts Memorial Lecture in London, the most prestigious lecture in the global chemical engineering circuit, was entitled "Seamless chemical engineering science: the emerging paradigm". The lecture has aroused widespread discussion and enthusiasm in the chemical engineering community the world over. In the lecture, he argued that the boundaries between various scientific and engineering disciplines are vanishing and the more scien¬tists recognise it and use techniques and concepts freely learning from each other, the better science and engineering will develop. In short, Mashelkar was only summing up the basic philosophy that has allowed NCL to become the 'seamless laboratory' it is today.
Thursday, August 23, 2007
Microsoft's grand plan for India
Business India, July 19-August 1, 2004
Realising potential
Microsoft is rolling out an ambitious and carefully worked out grand plan for India
Shivanand Kanavi
On 10 June, 2004 Microsoft India organized a retreat for its customers, executives, and partners in a hotel on the edge of the picturesque Powai lake.After two days of techie talk, the Microsoft Executive Summit 2004 ended with a presentation by chairman Ravi Venkatesan. It is after all customary for the chief honcho of the hosts to conclude such get-togethers, so what was so special about this one? First, this was the first time Venkatesan faced the various stakeholders in his strategy for India. Second, though the topic of the summit was ‘Realising Potential’, the current ad-line of Microsoft (M S), he carefully titled his talk, ‘Realising potential with India’. And third, he was able to sweep the audience with a rousing presentation that chalked out the six-pronged grand plan for India. In fact the A.R. Rahman Vande Mataram rock video, thrown in for good measure at the end, seemed like overkill.
The first prong is contributing to the success of Indian IT. Microsoft has been at it for nearly 14 years since it first set up shop in the country with Rajiv Nair, who was later succeeded by Sanjay Mirchandani and then Rajiv Kaul. They not only set up the channels to sell M S products like Windows, Office, and Server with various hardware vendors and manufacturers, but also started a training programme. According to Mirchandani, currently president for Asia and the Pacific, this programme of training software professionals in collaboration with NIIT, Aptech, and SSI was a large commitment by Microsoft to Indian IT, since it also meant a subsidy of nearly $25 million over the years. The programme trained over 100,000 programmers as Microsoft Certified Engineers, a globally recognized qualification. Suddenly, India became a country with the second-highest pool of such professionals after the US. Quickly other software companies like
Novell, Oracle, and S A P followed with their own certification programmes. The qualification brought a certain standard and respect for Indian programmers worldwide, which the Indian I T industry amply exploited when the Y 2 K problem presented them with the first big opportunity.
“Over the past 13 years we have established a strong partnership with India through the support of our investments with the government and our relationships with many strategic Indian companies. As a centre of innovation in the global IT industry, we are confident that the commitment the company made when we first started working in India will continue to provide increasing value to customers and make a positive difference toward future innovation and opportunity within India and to customers and partners around the world.”—Bill Gates
Gates’ way to India
The public image of Bill Gates has moved from icon of rebellious new entrepreneurship that disrupted old ways of doing business, to a mixture of envy towards his enormous wealth and cries of dominance and monopoly. However, in India he has had an enviable reception the three times he has visited the country.
Gates was treated like a rock star by the business community in 1997; as we commented in our cover story then, the only other person who got similar response was Michael Jackson, who also visited India the same year. By August 2000, during his second visit, the Internet bubble was still growing and software stocks had astronomical valuations. Every politician in India was more than ready to take credit for the stock market boom, as well as booming software service exports. And then Gates decided to meet the chief ministers. What a melée that was!
This writer was witness to the jockeying that went on among various chief ministers to be seated next to Bill Gates. The late Dewang Mehta, who was being consulted by Microsoft on how to handle the luncheon, had to use all of his considerable charm to assuage the feelings of those who ‘lost out’.
The mystique of Bill Gates has, however decreased over the years for Indian public, as is natural. During his third visit, when he announced a considerable sum of money from his private trust for the Aids campaign and new educational initiatives by Microsoft, there were some who were already derisive. They linked his generosity to the threat of Linux, marketing Windows, and so on.
But Gates seems to have had a balanced strategic interest in India right from the beginning. In fact, all the new initiatives we have described in the main story that make Microsoft finally relevant to India – be it the largest product development centre outside Redmond, or the Indian language software initiative, or digital inclusion, and so on, – were all initiated seven years ago, during his 1997 visit.
The seriousness with which he views India and the respect he has for Indian techies was again reiterated when he gave the keynote address at the golden jubilee celebration of IITs in San Jose, California, on 17 January 2003. Though he gets many invitations to talk at college and alumni functions, which he rejects, he made it a point to address this one. In his speech he acknowledged the role played by IIT alumni within Microsoft, and also raised indirectly issues about giving back to India and participating in its development.
Moreover, its relationships with Indian IT companies TCS, Infosys, Wipro, Satyam, and others also blossomed as Microsoft realised that they could be the best vehicles to promote M S technology by architecting their solutions worldwide on M S products like Windows, Server, SQ L, and so on. These companies in turn set up special labs to learn new MS technologies and implement and test various solutions on them.
The software honchos that Bussiness India spoke to were unanimous about their high appraisal of the relationship with Microsoft. “TCS has a strategic relationship with Microsoft, both as a artner and as a customer. We build solutions on M S technologies to meet the needs of our global customers, ensuring quality and superior service value at all levels,” says S. Ramadorai, CEO of TCS.
“Today we share a multifaceted relationship with Microsoft. A key component of this relationship is our strategic global partnership for developing, promoting, and delivering a comprehensive portfolio of Infosys business solutions and enterprise services on the Microsoft .net platform. We are also a large and key customer for M S technologies. And finally, Microsoft is a very important client for our IT services,” gushes Infosys CEO Nandan Nilekani.
“We have a unique engagement model with Microsoft which best leverages our individual strengths to deliver the best-of-breed technology solutions and services to end customers globally,” says Wipro chairman Azim Premji.
Microsoft has strong relationships with other software companies too. In fact the largest installation of M S’ s technology in a global bank is in Shinsei Bank, Japan, whose systems were built by Indian companies like Nucleus, i-flex, and Polaris.
Microsoft’s other concern is business development among Indian companies, banks, and the government. Not leaving anything to chance, its consultants are helping various corporations and organisations in India to build their systems based on M S technology. Be they ICICI Bank or HDFC Bank or L&T or Titan or Dr Reddy’s Laboratories or Bharat Petroleum, these and others are more than ready to come forward with customer satisfaction certificates for Microsoft.
In fact, Reliance Industries chairman Mukesh Ambani went as far to say, “There is a latent potential for India to strategically use IT as a differentiator and make a mark in the world economy, particularly in the emerging economies, where IT penetration is low. A key parameter for achieving this success is the rate at which IT is used to create an affordable value proposition that has a positive impact on the life of the end consumer. This common vision underlines our partnership with Microsoft, as we align our resources to provide rich, IT-based services for Indian consumers.”
Despite heavy piracy in the home and small business segment, Microsoft’s sales have gone up at a steady clip of about 40 per cent compounded annually. Trade sources estimated its sales in 2002–3 as Rs788 crore and market share (in volume terms) at 60 per cent in the server market, 41 per cent in the database SQL Server, 60 per cent in mail messaging through M S Exchange, 65 per cent in development tools like V S.net and Visual Basic, and of course, an overwhelming 90 per cent in Office and 95 per cent in Windows on desktops.
As for new avenues, Ravi Venkatesan is clear that the small and medium businesses are a targeted segment. “The big growth is going to come from, and jobs are going to be created in, not large corporations but nearly 100,000 small and medium enterprises (SMEs). Of course, having said that, one knows that the road ahead is not easy. The level of IT penetration among them is really low.” Interestingly, Venkatesan is not an IT engineer but a mechanical engineer who was chairman of diesel-engine maker Cummins in India for over 17 years. “When I was at Cummins there were a lot of suppliers who were small, and who were at infancy when it came to IT. Information technology can help them in a big way in terms of market access — letting the world beyond India know about them and so on. In 1997 Telco pushed every vendor to get IT-enabled. It is a big play and a market opportunity. We are quietly going about doing it. We spent $2 billion to acquire two market leaders in ERP for SMEs.”
In fact Microsoft is using a multipronged strategy in this respect. Rajiv Kaul, M D of Microsoft India, heads the SME section of Nasscom, bringing him face-to-face with the problems of SMEs. Meanwhile Rajesh Jain (the most successful dot. commer of India) is collaborating with them in creating new solutions for the special problems SMEs face.
The third prong of the strategy is ‘digital inclusion’, a word with positive connotations coined by Microsoft. It means enabling more and more people to use computers and IT in their daily lives. Of course, cynics would say that ‘digital inclusion’ is little more than a grandiloquent expression for market development. It may be. But none can doubt the benefits of such inclusion, no matter who initiates it.
But as Ravi explains, such a lofty goal requires several components in place, especially when one sees the low levels of PC penetration and even lower levels of Internet penetration. “We have to look at affordability, education, language, and localisation. Affordability is where we come in for a lot of criticism. There are things to be done there, but we have also not communicated what we are already doing. In Windows, our strategy is to add more and more functionality without raising the price. As a result our customers are thrilled, but not our competitors, who are wrongly calling it a monopolistic practice. If the customer is thrilled then it is not anti-consumer, which is the main element of a monopolistic policy.” Moreover, for segments where affordability is an acute issue like government or educational institutions, M S is offering special prices. Plus, like the car manufacturers, there are stripped-down versions without A C, without power steering or power windows, etc. “We are looking at good, better, and the best products increasingly for both O S and Office. It has been successful in some places and not successful in other places. We are now testing it in India,” adds Venkatesan.
Having come in from another industry, Venkatesan is bringing in a lot of lateral thinking into the implementation of the strategy. “Look at the cell phone industry. The median price is Rs6,000. Very few people can afford it but because of monthly instalments or prepaid S I M cards and so on, handsets are proliferating. We are doing some pilot studies on these payment models.”
The final leg is financing. A tool that has clearly worked for white goods, cell phone, and two-wheeler penetration in India. Will Microsoft offer its software along with hardware vendors on monthly installments? One will soon see.
As for education, the company is in a exciting phase. “There is Shiksha, in which we partner state governments and set up teacher training academies. Bring in teachers from government schools and teach them a very good I T curriculum. We have already opened up in Uttaranchal and
Andhra Pradesh and we are in talks with several other states to have more. We plan to have 10 in all. We are going to spend about Rs100 crore in the next five years,” says Kaul, who has won several internal awards within Microsoft for best practices. M S has a plan to train 100,000 teachers and 3.5 million students in the next five years through this programme. It is working with engineering colleges and IITs at the higher end, but not ignoring the more basic phases of education. It offers free software for any old PCs donated to schools by any individual or company, and is also working with the government to facilitate the import of used PCs from developed countries for exclusive use by schools.
Besides, to encourage budding computer geniuses, the company has started a competition for college students called Imagine Cup. “Thousands of students are participating in designing imaginative projects based on MS technologies and winning global recognition,” says Homi Bharda, who mentored two such teams at Vivekananda College, Mumbai. Microsoft is also partnering NGOs like Digital Alternatives, led by Ashok Khosla, to help them bring the benefits of IT to underprivileged communities.
But the most impressive work it has done so far in India is to localise MS products in Indian languages. When Gates announced such an initiative several years ago, none – this writer included – believed it. After all, for a global giant like Microsoft, Korea or Japan or China are much bigger markets than India was then. So, following market logic, why would it spend money to bring out its products in Hindi or other Indian languages? Well, Microsoft has finally proved the sceptics wrong.
Windows XP now supports over 14 Indian languages, MS Office has been produced in Hindi, and there is work in progress for other languages. The journey, however, has not been easy in this respect. To begin with, no standards were being followed by small companies engaged in developing Indian-language fonts and applications. C-D A C was working on an I S C I standard and contributed enormously to the explosion of Indian-language publishing using D T P. But there were lots of small developers who created their own coding standards and sold their packages to customers. These developers were not forced to adopt I S C I. As a result there are even now users whose data cannot be communicated to others due to lack of standardisation.
“In 1997–98, when we got into localisation, before we got into products we decided to adopt Unicode, since that is the only Web standard. To promote the standard (Unicode) we wrote to the Central and state governments and spoke to everyone everywhere to adopt Unicode. We also got a partner, Web Duniya, to create an engine to map non-Unicode into Unicode,” says an enthusiastic Raveesh Gupta. One has to stop this tireless evangelist to understand first of all what Unicode is.
Thinking differently
Microsoft has to reinvent itself to face the challenge from open-source software
Since the mid-1940s, which saw the birth of digital computing at the fag end of World War II, the use of computers has increased in expanding concentric circles to include more and more people who are not necessarily computer engineers. Initially there was no distinction between hardware and software. The engineers who built the computers also knew how to program them. Obviously this number was minuscule. The development of programming languages like Fortran, Basic, and Cobol, which looked like English but were used in laying out the logic of the particular calculation or process to the computing machinery, led to the fast spread of computer usage among engineers and scientists, and programmers who were not necessarily computer engineers. But this was still a small number, probably a few thousands in the 1960s. The quantum jump in computer usage into millions, and eventually hundreds of millions, came with the development of personal computers in the late 1970s and early ’80s.
One of the factors that drove the development of personal computers was the need for interactivity. That is, if you sent a query to the computer you wanted the answer then and there, and not on the next day, as was the case with the old computers.
Bill Gates recalls in his book The Road A h e a d the exhilaration he felt as a 16-yearold, high-school student at Lakeside School, Seattle, where he and Paul Allen were allowed to play with a terminal which was connected to a large computer. Gates was lucky. The Mothers Club at Lakeside had raised some money through a sale and with great foresight used it to install a timesharing terminal in the school, connected to a large computer nearby running a version of Basic. Gates says that it is interactivity that hooked him to computers.
But what led to the P C revolution was not just affordability and interactivity of personal computers but also the development of packaged software or what is called ‘plug and play’ by computer geeks. Now one needn’t know any programming language to use a computer. The computer just provided different functions like letter-writing and communication like email, or writing and publishing, as in word-processing and desktop publishing (D T P), or keeping your accounts in what accountants call a spreadsheet, or storing phone numbers and addresses in an ‘address book’ or ‘databases’ in computerese, and so on.
All this was made possible with the development of packaged software. However, one had to pay a small price for this packaged software. But when the number of users grew exponentially, the small fees for software led to enormous wealth for package developers like Microsoft, whose Office suite is the most widely used package in the world. Bill Gates played a stellar role in the spread of personal computing with his ‘operating system’ M S-D O S and later Windows.
What is an operating system? It is a piece of software that comes into play soon after you ‘boot’ the P C into wakefulness. Nobody communicates directly with a computer like the pioneers of computing in the ’40s. Instead, you communicate with a computer via an operating system. The more user-friendly the operating system the easier it is for people to use the computer. An operating system is a bunch of programs that function as a harmonious whole, acting as a language translator and hard-disk manager with a provision to amend the data and programs on the disk, sending results to the display or printer, etc. Without an operating system a computer is not much more than a lump of plastic and silicon.
In the 1970s Bill Gates and Paul Allen and similar geeks and hackers (amateur computer enthusiasts) were part of an underground movement in computing. Today the spread of personal computing to hundreds of millions has made them multibillionaires and part of the Establishment, and easy targets for today’s geeks and business rivals alike.
As more and more people want to be included in the digital society with less and less money in their pockets, what appeared at one stage to be a small and reasonable fee for packaged software appears prohibitive. Thus, various operating systems and packages that have been developed by software hobbyists in their free time and distributed free on the Internet, which are called freeware or shareware, are becoming the new underground. Moreover, some of the evangelists of the new underground, like Linux creator Linus Torvalds, have put the entire ‘source code’ – that is, the innards of a program – on the Internet for comments and co-development with other enthusiasts. This open source movement has become a ‘new, new thing’ in the technology underground. Companies like IBM, HP, and Novell are developing plans to benefit from the open source movement and create new paradigms in software business where some parts are free but others are sold for a fee.
This new consortium consisting of the muscle of these corporations, along with the talents of thousands of programmers who work freely in the open source movement, pose a big challenge to Microsoft. Some are going to the extent of even predicting the demise of proprietary software companies like Microsoft. However, Novell vice-chairman Chris Stone, considered the architect of its new Linux-based strategy, disagrees. “The history of technology shows that no single technology wipes out other competing technologies. Eventually they coexist with varying proliferation depending on what they bring to the table for users. Moreover, while the Linux operating system is free, the applications developed on it need not be free. At times proprietary applications may be released to the open source community, allowed to evolve there, and then again turned into new proprietary applications, and so on. And with the robustness of open-source software, an application developed on it may command a premium over other products. We are still in the early days of the game.” Bottom line: there’s no free lunch!
While this evolution of business models continues, there is another corner from which a serious push is coming to Linux in opposition to Microsoft and all other proprietary products, and that is security. This has nothing to do with the issue of whether Windows versions are more or less secure than Linux. The contending parties have diametrically opposite claims. There are a number of third-party research reports on the secure nature of Linux and an equal number praising Microsoft Windows. While there are several Websites on the Net extolling the virtues of open-source software, Microsoft too has set up a Website called www.getthefacts.com, which has several reports extolling the virtues of Windows while running down Linux. We leave the judgment to posterity.
But a serious concern towards proprietary software is being expressed by people like President Abdul Kalam, from another angle. If we want our data, especially in the government and defence, to be secure, then the software has to have its own secret security algorithms built by the user. The user can play with the operating system and build these algorithms only if he has the source code. This has led Kalam to promote the development of software skills in Linux in particular and open-source software in general. Every Linux expert and open source guru in the world is making beeline for Rashtrapati Bhavan to share the President’s concerns. Bill Gates made a vain attempt to allay the President’s fears when he visited India in 2002. Abdul Kalam recounted the meeting in a speech in Pune on 28 May 2003. In his own words, “I would like to narrate an event that took place in Rashtrapati Bhavan a few months back when I met Bill Gates, the CEO of Microsoft. While walking in Mughal Garden we were discussing the future challenges in information technology, including issues related to software security.
I made a point that we look for open source codes so that we can easily introduce user-built security algorithms. Our discussions became difficult since our views were different. The most unfortunate thing is that India still seems to believe in proprietary solutions. Further spread of IT, which is influencing the daily life of individuals, would have a devastating effect on the lives of society due to any small shift in business practice involving these proprietary solutions. It is precisely for these reasons that open-source software needs to be built, which would be cost-effective for the entire society. In India, open-source code software will have to come and stay in a big way for the benefit of our billion people.”
Similar concerns are being expressed by the Chinese government as well, which has encouraged the development of a Linux company called Red Flag. Governments in Europe too are raising this issue. Microsoft is obviously concerned about this challenge from the governments (even though Indian government has no official stand on it yet) and has offered to share selected parts of the Windows code with governments under strict confidentiality agreements.
Kalam, in his speeches to the youth round the country, exhorts them to think differently. This, in more than equal measure, applies to Microsoft too.
“Unicode is like an MTNL directory. Every character of every language in the world is represented by an address in Unicode, so when a software or a hardware developer uses this directory to make calls to a character he simply cannot go wrong. If I were using a different directory from others we could never communicate,” Gupta explains.
To achieve a dialogue Gupta & Co set up a portal called Bhasha.com, which has became a showcase of success for Microsoft in its India strategy. In the process they discovered more than 300 companies working on Indian-language software. They conducted several training camps to make the community aware of issues like standards. Now thousands of developers are communicating through Bhasha.com. In fact, Microsoft worldwide is recognizing Bhasha as a great success to be replicated elsewhere. “We are working with many I S Vs — Modulo, Samtech, Web Duniya, Vishwa Kannada, etc. We made sure we get local language expertise from the real experts.”
Microsoft is also doing basic research in Indian languages at the high end to produce software in optical character recognition, translation, digital ink recognition, and so on. Several universities are partnering it in this endeavour, including Banasthali University, Rajasthan and University of Mysore. TCS and CMC have projects in computer-aided functional literacy packages with great potential and Microsoft is collaborating with them as well. “The story not told is how much work is being done in languages today. Other than government and public institutions, mobile service providers, banks and hospitals are getting into language services,” says Gupta.
Microsoft India is collaborating with the government at various levels to bring IT to governance. Over 150 applications – like the celebrated Bhoomi in Karnataka, which provides great relief to farmers by digitising land records – run on MS platforms. “One of the things we are extremely excited about is the rural kiosks developed by Nlogue, e-chaupal, and Drishti. These can catalyse development in rural India. They are innovative, but have not found a sustainable economic model. Out of 1,000 kiosks not many have reached an income of Rs3,000 a month for the operator. Most of them are on the Windows platform. What role can we play? Not a commercial one. In some cases it is technology, and in some cases it is transferring best practices. But we are working with all of them,” says Venkatesan.
Globally the most significant thing Microsoft has started is the development centre in Hyderabad headed by Srini Koppulu. He is an M S veteran of 15 years, who has worked in several basic technologies including Windows and Office. Today the Hyderabad centre, with about 350 engineers, is the only one of its kind outside Microsoft headquarters in Redmond, Washington.
It has come out with several products for M S and Koppulu and Venkatesan have an ambitious plan to do much more to realise its full potential. “Clearly we are not in a numbers game. Obviously there are several MNCs who have set up development centres in India. And other than one or two I wonder who is actually developing their core products here,” says Koppulu.
It has not been easy for Koppulu. Though the suggestion to set up such a centre came from Gates on his 1997 visit, Microsoft had an entrenched view that the centralised way of doing product development in one place, and that too on the Redmond campus, was the only way. Of course this had suited the company for so long, and nobody wanted to fix something that wasn’t broken.
But now five years and several products later, it has earned its spurs and is aiming higher. When Venkatesan says that Hyderabad could probably become the centre of excellence for products aimed at emerging markets, it appears like déjà vu. After all, management gurus like C.K. Prahalad have been popularising this concept of aiming at the bottom of the pyramid with world-class technology. Will Redmond take this seriously? One has to wait and see.
“How do we get different parts of business to work cohesively and how do we get Redmond to understand the opportunity that we have and throw its support in terms of technology and resources behind it? How do we become a benchmark for market innovation for developing economies? We have hired great people, but like the IITs we leave them to sink or swim. Most of them swim because they are good people, but going forward how do we develop them and become a net supplier of talent to Microsoft?” These are some of the questions bothering Venkatesan at the moment as he prepares his presentation for Bill Gates, Steve Ballmer, and other honchos in Redmond.
Bill Gates started his talk at the golden jubilee celebrations of the IITs in Silicon Valley on 17 January 2003 with a remarkable insight into the difference between the IITs and other institutions of technology around the world. He said, “I was careful to do research for this speech, so I went to the IIT Website and browsed around, and then I went to the MIT Website. On the MIT site the hot news was that the coffee house was closing down because people weren’t spending enough money there. On the IIT Bombay site, things were far more interesting. They said they had caught a leopard on the campus recently. And that’s something these US universities just can’t offer in terms of an experience.” This drew a lot of guffaws.
It is only fitting that Ravi Venkatesan, who is an IIT Bombay alumnus, and other Microsoft executives who met in Powai for the summit recently, are acutely aware of other leopards like Linux prowling around the outskirts of Powai and gear themselves up to execute the grand vision they put forward in the safety of the hotel.
Realising potential
Microsoft is rolling out an ambitious and carefully worked out grand plan for India
Shivanand Kanavi
On 10 June, 2004 Microsoft India organized a retreat for its customers, executives, and partners in a hotel on the edge of the picturesque Powai lake.After two days of techie talk, the Microsoft Executive Summit 2004 ended with a presentation by chairman Ravi Venkatesan. It is after all customary for the chief honcho of the hosts to conclude such get-togethers, so what was so special about this one? First, this was the first time Venkatesan faced the various stakeholders in his strategy for India. Second, though the topic of the summit was ‘Realising Potential’, the current ad-line of Microsoft (M S), he carefully titled his talk, ‘Realising potential with India’. And third, he was able to sweep the audience with a rousing presentation that chalked out the six-pronged grand plan for India. In fact the A.R. Rahman Vande Mataram rock video, thrown in for good measure at the end, seemed like overkill.
The first prong is contributing to the success of Indian IT. Microsoft has been at it for nearly 14 years since it first set up shop in the country with Rajiv Nair, who was later succeeded by Sanjay Mirchandani and then Rajiv Kaul. They not only set up the channels to sell M S products like Windows, Office, and Server with various hardware vendors and manufacturers, but also started a training programme. According to Mirchandani, currently president for Asia and the Pacific, this programme of training software professionals in collaboration with NIIT, Aptech, and SSI was a large commitment by Microsoft to Indian IT, since it also meant a subsidy of nearly $25 million over the years. The programme trained over 100,000 programmers as Microsoft Certified Engineers, a globally recognized qualification. Suddenly, India became a country with the second-highest pool of such professionals after the US. Quickly other software companies like
Novell, Oracle, and S A P followed with their own certification programmes. The qualification brought a certain standard and respect for Indian programmers worldwide, which the Indian I T industry amply exploited when the Y 2 K problem presented them with the first big opportunity.
“Over the past 13 years we have established a strong partnership with India through the support of our investments with the government and our relationships with many strategic Indian companies. As a centre of innovation in the global IT industry, we are confident that the commitment the company made when we first started working in India will continue to provide increasing value to customers and make a positive difference toward future innovation and opportunity within India and to customers and partners around the world.”—Bill Gates
Gates’ way to India
The public image of Bill Gates has moved from icon of rebellious new entrepreneurship that disrupted old ways of doing business, to a mixture of envy towards his enormous wealth and cries of dominance and monopoly. However, in India he has had an enviable reception the three times he has visited the country.
Gates was treated like a rock star by the business community in 1997; as we commented in our cover story then, the only other person who got similar response was Michael Jackson, who also visited India the same year. By August 2000, during his second visit, the Internet bubble was still growing and software stocks had astronomical valuations. Every politician in India was more than ready to take credit for the stock market boom, as well as booming software service exports. And then Gates decided to meet the chief ministers. What a melée that was!
This writer was witness to the jockeying that went on among various chief ministers to be seated next to Bill Gates. The late Dewang Mehta, who was being consulted by Microsoft on how to handle the luncheon, had to use all of his considerable charm to assuage the feelings of those who ‘lost out’.
The mystique of Bill Gates has, however decreased over the years for Indian public, as is natural. During his third visit, when he announced a considerable sum of money from his private trust for the Aids campaign and new educational initiatives by Microsoft, there were some who were already derisive. They linked his generosity to the threat of Linux, marketing Windows, and so on.
But Gates seems to have had a balanced strategic interest in India right from the beginning. In fact, all the new initiatives we have described in the main story that make Microsoft finally relevant to India – be it the largest product development centre outside Redmond, or the Indian language software initiative, or digital inclusion, and so on, – were all initiated seven years ago, during his 1997 visit.
The seriousness with which he views India and the respect he has for Indian techies was again reiterated when he gave the keynote address at the golden jubilee celebration of IITs in San Jose, California, on 17 January 2003. Though he gets many invitations to talk at college and alumni functions, which he rejects, he made it a point to address this one. In his speech he acknowledged the role played by IIT alumni within Microsoft, and also raised indirectly issues about giving back to India and participating in its development.
Moreover, its relationships with Indian IT companies TCS, Infosys, Wipro, Satyam, and others also blossomed as Microsoft realised that they could be the best vehicles to promote M S technology by architecting their solutions worldwide on M S products like Windows, Server, SQ L, and so on. These companies in turn set up special labs to learn new MS technologies and implement and test various solutions on them.
The software honchos that Bussiness India spoke to were unanimous about their high appraisal of the relationship with Microsoft. “TCS has a strategic relationship with Microsoft, both as a artner and as a customer. We build solutions on M S technologies to meet the needs of our global customers, ensuring quality and superior service value at all levels,” says S. Ramadorai, CEO of TCS.
“Today we share a multifaceted relationship with Microsoft. A key component of this relationship is our strategic global partnership for developing, promoting, and delivering a comprehensive portfolio of Infosys business solutions and enterprise services on the Microsoft .net platform. We are also a large and key customer for M S technologies. And finally, Microsoft is a very important client for our IT services,” gushes Infosys CEO Nandan Nilekani.
“We have a unique engagement model with Microsoft which best leverages our individual strengths to deliver the best-of-breed technology solutions and services to end customers globally,” says Wipro chairman Azim Premji.
Microsoft has strong relationships with other software companies too. In fact the largest installation of M S’ s technology in a global bank is in Shinsei Bank, Japan, whose systems were built by Indian companies like Nucleus, i-flex, and Polaris.
Microsoft’s other concern is business development among Indian companies, banks, and the government. Not leaving anything to chance, its consultants are helping various corporations and organisations in India to build their systems based on M S technology. Be they ICICI Bank or HDFC Bank or L&T or Titan or Dr Reddy’s Laboratories or Bharat Petroleum, these and others are more than ready to come forward with customer satisfaction certificates for Microsoft.
In fact, Reliance Industries chairman Mukesh Ambani went as far to say, “There is a latent potential for India to strategically use IT as a differentiator and make a mark in the world economy, particularly in the emerging economies, where IT penetration is low. A key parameter for achieving this success is the rate at which IT is used to create an affordable value proposition that has a positive impact on the life of the end consumer. This common vision underlines our partnership with Microsoft, as we align our resources to provide rich, IT-based services for Indian consumers.”
Despite heavy piracy in the home and small business segment, Microsoft’s sales have gone up at a steady clip of about 40 per cent compounded annually. Trade sources estimated its sales in 2002–3 as Rs788 crore and market share (in volume terms) at 60 per cent in the server market, 41 per cent in the database SQL Server, 60 per cent in mail messaging through M S Exchange, 65 per cent in development tools like V S.net and Visual Basic, and of course, an overwhelming 90 per cent in Office and 95 per cent in Windows on desktops.
As for new avenues, Ravi Venkatesan is clear that the small and medium businesses are a targeted segment. “The big growth is going to come from, and jobs are going to be created in, not large corporations but nearly 100,000 small and medium enterprises (SMEs). Of course, having said that, one knows that the road ahead is not easy. The level of IT penetration among them is really low.” Interestingly, Venkatesan is not an IT engineer but a mechanical engineer who was chairman of diesel-engine maker Cummins in India for over 17 years. “When I was at Cummins there were a lot of suppliers who were small, and who were at infancy when it came to IT. Information technology can help them in a big way in terms of market access — letting the world beyond India know about them and so on. In 1997 Telco pushed every vendor to get IT-enabled. It is a big play and a market opportunity. We are quietly going about doing it. We spent $2 billion to acquire two market leaders in ERP for SMEs.”
In fact Microsoft is using a multipronged strategy in this respect. Rajiv Kaul, M D of Microsoft India, heads the SME section of Nasscom, bringing him face-to-face with the problems of SMEs. Meanwhile Rajesh Jain (the most successful dot. commer of India) is collaborating with them in creating new solutions for the special problems SMEs face.
The third prong of the strategy is ‘digital inclusion’, a word with positive connotations coined by Microsoft. It means enabling more and more people to use computers and IT in their daily lives. Of course, cynics would say that ‘digital inclusion’ is little more than a grandiloquent expression for market development. It may be. But none can doubt the benefits of such inclusion, no matter who initiates it.
But as Ravi explains, such a lofty goal requires several components in place, especially when one sees the low levels of PC penetration and even lower levels of Internet penetration. “We have to look at affordability, education, language, and localisation. Affordability is where we come in for a lot of criticism. There are things to be done there, but we have also not communicated what we are already doing. In Windows, our strategy is to add more and more functionality without raising the price. As a result our customers are thrilled, but not our competitors, who are wrongly calling it a monopolistic practice. If the customer is thrilled then it is not anti-consumer, which is the main element of a monopolistic policy.” Moreover, for segments where affordability is an acute issue like government or educational institutions, M S is offering special prices. Plus, like the car manufacturers, there are stripped-down versions without A C, without power steering or power windows, etc. “We are looking at good, better, and the best products increasingly for both O S and Office. It has been successful in some places and not successful in other places. We are now testing it in India,” adds Venkatesan.
Having come in from another industry, Venkatesan is bringing in a lot of lateral thinking into the implementation of the strategy. “Look at the cell phone industry. The median price is Rs6,000. Very few people can afford it but because of monthly instalments or prepaid S I M cards and so on, handsets are proliferating. We are doing some pilot studies on these payment models.”
The final leg is financing. A tool that has clearly worked for white goods, cell phone, and two-wheeler penetration in India. Will Microsoft offer its software along with hardware vendors on monthly installments? One will soon see.
As for education, the company is in a exciting phase. “There is Shiksha, in which we partner state governments and set up teacher training academies. Bring in teachers from government schools and teach them a very good I T curriculum. We have already opened up in Uttaranchal and
Andhra Pradesh and we are in talks with several other states to have more. We plan to have 10 in all. We are going to spend about Rs100 crore in the next five years,” says Kaul, who has won several internal awards within Microsoft for best practices. M S has a plan to train 100,000 teachers and 3.5 million students in the next five years through this programme. It is working with engineering colleges and IITs at the higher end, but not ignoring the more basic phases of education. It offers free software for any old PCs donated to schools by any individual or company, and is also working with the government to facilitate the import of used PCs from developed countries for exclusive use by schools.
Besides, to encourage budding computer geniuses, the company has started a competition for college students called Imagine Cup. “Thousands of students are participating in designing imaginative projects based on MS technologies and winning global recognition,” says Homi Bharda, who mentored two such teams at Vivekananda College, Mumbai. Microsoft is also partnering NGOs like Digital Alternatives, led by Ashok Khosla, to help them bring the benefits of IT to underprivileged communities.
But the most impressive work it has done so far in India is to localise MS products in Indian languages. When Gates announced such an initiative several years ago, none – this writer included – believed it. After all, for a global giant like Microsoft, Korea or Japan or China are much bigger markets than India was then. So, following market logic, why would it spend money to bring out its products in Hindi or other Indian languages? Well, Microsoft has finally proved the sceptics wrong.
Windows XP now supports over 14 Indian languages, MS Office has been produced in Hindi, and there is work in progress for other languages. The journey, however, has not been easy in this respect. To begin with, no standards were being followed by small companies engaged in developing Indian-language fonts and applications. C-D A C was working on an I S C I standard and contributed enormously to the explosion of Indian-language publishing using D T P. But there were lots of small developers who created their own coding standards and sold their packages to customers. These developers were not forced to adopt I S C I. As a result there are even now users whose data cannot be communicated to others due to lack of standardisation.
“In 1997–98, when we got into localisation, before we got into products we decided to adopt Unicode, since that is the only Web standard. To promote the standard (Unicode) we wrote to the Central and state governments and spoke to everyone everywhere to adopt Unicode. We also got a partner, Web Duniya, to create an engine to map non-Unicode into Unicode,” says an enthusiastic Raveesh Gupta. One has to stop this tireless evangelist to understand first of all what Unicode is.
Thinking differently
Microsoft has to reinvent itself to face the challenge from open-source software
Since the mid-1940s, which saw the birth of digital computing at the fag end of World War II, the use of computers has increased in expanding concentric circles to include more and more people who are not necessarily computer engineers. Initially there was no distinction between hardware and software. The engineers who built the computers also knew how to program them. Obviously this number was minuscule. The development of programming languages like Fortran, Basic, and Cobol, which looked like English but were used in laying out the logic of the particular calculation or process to the computing machinery, led to the fast spread of computer usage among engineers and scientists, and programmers who were not necessarily computer engineers. But this was still a small number, probably a few thousands in the 1960s. The quantum jump in computer usage into millions, and eventually hundreds of millions, came with the development of personal computers in the late 1970s and early ’80s.
One of the factors that drove the development of personal computers was the need for interactivity. That is, if you sent a query to the computer you wanted the answer then and there, and not on the next day, as was the case with the old computers.
Bill Gates recalls in his book The Road A h e a d the exhilaration he felt as a 16-yearold, high-school student at Lakeside School, Seattle, where he and Paul Allen were allowed to play with a terminal which was connected to a large computer. Gates was lucky. The Mothers Club at Lakeside had raised some money through a sale and with great foresight used it to install a timesharing terminal in the school, connected to a large computer nearby running a version of Basic. Gates says that it is interactivity that hooked him to computers.
But what led to the P C revolution was not just affordability and interactivity of personal computers but also the development of packaged software or what is called ‘plug and play’ by computer geeks. Now one needn’t know any programming language to use a computer. The computer just provided different functions like letter-writing and communication like email, or writing and publishing, as in word-processing and desktop publishing (D T P), or keeping your accounts in what accountants call a spreadsheet, or storing phone numbers and addresses in an ‘address book’ or ‘databases’ in computerese, and so on.
All this was made possible with the development of packaged software. However, one had to pay a small price for this packaged software. But when the number of users grew exponentially, the small fees for software led to enormous wealth for package developers like Microsoft, whose Office suite is the most widely used package in the world. Bill Gates played a stellar role in the spread of personal computing with his ‘operating system’ M S-D O S and later Windows.
What is an operating system? It is a piece of software that comes into play soon after you ‘boot’ the P C into wakefulness. Nobody communicates directly with a computer like the pioneers of computing in the ’40s. Instead, you communicate with a computer via an operating system. The more user-friendly the operating system the easier it is for people to use the computer. An operating system is a bunch of programs that function as a harmonious whole, acting as a language translator and hard-disk manager with a provision to amend the data and programs on the disk, sending results to the display or printer, etc. Without an operating system a computer is not much more than a lump of plastic and silicon.
In the 1970s Bill Gates and Paul Allen and similar geeks and hackers (amateur computer enthusiasts) were part of an underground movement in computing. Today the spread of personal computing to hundreds of millions has made them multibillionaires and part of the Establishment, and easy targets for today’s geeks and business rivals alike.
As more and more people want to be included in the digital society with less and less money in their pockets, what appeared at one stage to be a small and reasonable fee for packaged software appears prohibitive. Thus, various operating systems and packages that have been developed by software hobbyists in their free time and distributed free on the Internet, which are called freeware or shareware, are becoming the new underground. Moreover, some of the evangelists of the new underground, like Linux creator Linus Torvalds, have put the entire ‘source code’ – that is, the innards of a program – on the Internet for comments and co-development with other enthusiasts. This open source movement has become a ‘new, new thing’ in the technology underground. Companies like IBM, HP, and Novell are developing plans to benefit from the open source movement and create new paradigms in software business where some parts are free but others are sold for a fee.
This new consortium consisting of the muscle of these corporations, along with the talents of thousands of programmers who work freely in the open source movement, pose a big challenge to Microsoft. Some are going to the extent of even predicting the demise of proprietary software companies like Microsoft. However, Novell vice-chairman Chris Stone, considered the architect of its new Linux-based strategy, disagrees. “The history of technology shows that no single technology wipes out other competing technologies. Eventually they coexist with varying proliferation depending on what they bring to the table for users. Moreover, while the Linux operating system is free, the applications developed on it need not be free. At times proprietary applications may be released to the open source community, allowed to evolve there, and then again turned into new proprietary applications, and so on. And with the robustness of open-source software, an application developed on it may command a premium over other products. We are still in the early days of the game.” Bottom line: there’s no free lunch!
While this evolution of business models continues, there is another corner from which a serious push is coming to Linux in opposition to Microsoft and all other proprietary products, and that is security. This has nothing to do with the issue of whether Windows versions are more or less secure than Linux. The contending parties have diametrically opposite claims. There are a number of third-party research reports on the secure nature of Linux and an equal number praising Microsoft Windows. While there are several Websites on the Net extolling the virtues of open-source software, Microsoft too has set up a Website called www.getthefacts.com, which has several reports extolling the virtues of Windows while running down Linux. We leave the judgment to posterity.
But a serious concern towards proprietary software is being expressed by people like President Abdul Kalam, from another angle. If we want our data, especially in the government and defence, to be secure, then the software has to have its own secret security algorithms built by the user. The user can play with the operating system and build these algorithms only if he has the source code. This has led Kalam to promote the development of software skills in Linux in particular and open-source software in general. Every Linux expert and open source guru in the world is making beeline for Rashtrapati Bhavan to share the President’s concerns. Bill Gates made a vain attempt to allay the President’s fears when he visited India in 2002. Abdul Kalam recounted the meeting in a speech in Pune on 28 May 2003. In his own words, “I would like to narrate an event that took place in Rashtrapati Bhavan a few months back when I met Bill Gates, the CEO of Microsoft. While walking in Mughal Garden we were discussing the future challenges in information technology, including issues related to software security.
I made a point that we look for open source codes so that we can easily introduce user-built security algorithms. Our discussions became difficult since our views were different. The most unfortunate thing is that India still seems to believe in proprietary solutions. Further spread of IT, which is influencing the daily life of individuals, would have a devastating effect on the lives of society due to any small shift in business practice involving these proprietary solutions. It is precisely for these reasons that open-source software needs to be built, which would be cost-effective for the entire society. In India, open-source code software will have to come and stay in a big way for the benefit of our billion people.”
Similar concerns are being expressed by the Chinese government as well, which has encouraged the development of a Linux company called Red Flag. Governments in Europe too are raising this issue. Microsoft is obviously concerned about this challenge from the governments (even though Indian government has no official stand on it yet) and has offered to share selected parts of the Windows code with governments under strict confidentiality agreements.
Kalam, in his speeches to the youth round the country, exhorts them to think differently. This, in more than equal measure, applies to Microsoft too.
“Unicode is like an MTNL directory. Every character of every language in the world is represented by an address in Unicode, so when a software or a hardware developer uses this directory to make calls to a character he simply cannot go wrong. If I were using a different directory from others we could never communicate,” Gupta explains.
To achieve a dialogue Gupta & Co set up a portal called Bhasha.com, which has became a showcase of success for Microsoft in its India strategy. In the process they discovered more than 300 companies working on Indian-language software. They conducted several training camps to make the community aware of issues like standards. Now thousands of developers are communicating through Bhasha.com. In fact, Microsoft worldwide is recognizing Bhasha as a great success to be replicated elsewhere. “We are working with many I S Vs — Modulo, Samtech, Web Duniya, Vishwa Kannada, etc. We made sure we get local language expertise from the real experts.”
Microsoft is also doing basic research in Indian languages at the high end to produce software in optical character recognition, translation, digital ink recognition, and so on. Several universities are partnering it in this endeavour, including Banasthali University, Rajasthan and University of Mysore. TCS and CMC have projects in computer-aided functional literacy packages with great potential and Microsoft is collaborating with them as well. “The story not told is how much work is being done in languages today. Other than government and public institutions, mobile service providers, banks and hospitals are getting into language services,” says Gupta.
Microsoft India is collaborating with the government at various levels to bring IT to governance. Over 150 applications – like the celebrated Bhoomi in Karnataka, which provides great relief to farmers by digitising land records – run on MS platforms. “One of the things we are extremely excited about is the rural kiosks developed by Nlogue, e-chaupal, and Drishti. These can catalyse development in rural India. They are innovative, but have not found a sustainable economic model. Out of 1,000 kiosks not many have reached an income of Rs3,000 a month for the operator. Most of them are on the Windows platform. What role can we play? Not a commercial one. In some cases it is technology, and in some cases it is transferring best practices. But we are working with all of them,” says Venkatesan.
Globally the most significant thing Microsoft has started is the development centre in Hyderabad headed by Srini Koppulu. He is an M S veteran of 15 years, who has worked in several basic technologies including Windows and Office. Today the Hyderabad centre, with about 350 engineers, is the only one of its kind outside Microsoft headquarters in Redmond, Washington.
It has come out with several products for M S and Koppulu and Venkatesan have an ambitious plan to do much more to realise its full potential. “Clearly we are not in a numbers game. Obviously there are several MNCs who have set up development centres in India. And other than one or two I wonder who is actually developing their core products here,” says Koppulu.
It has not been easy for Koppulu. Though the suggestion to set up such a centre came from Gates on his 1997 visit, Microsoft had an entrenched view that the centralised way of doing product development in one place, and that too on the Redmond campus, was the only way. Of course this had suited the company for so long, and nobody wanted to fix something that wasn’t broken.
But now five years and several products later, it has earned its spurs and is aiming higher. When Venkatesan says that Hyderabad could probably become the centre of excellence for products aimed at emerging markets, it appears like déjà vu. After all, management gurus like C.K. Prahalad have been popularising this concept of aiming at the bottom of the pyramid with world-class technology. Will Redmond take this seriously? One has to wait and see.
“How do we get different parts of business to work cohesively and how do we get Redmond to understand the opportunity that we have and throw its support in terms of technology and resources behind it? How do we become a benchmark for market innovation for developing economies? We have hired great people, but like the IITs we leave them to sink or swim. Most of them swim because they are good people, but going forward how do we develop them and become a net supplier of talent to Microsoft?” These are some of the questions bothering Venkatesan at the moment as he prepares his presentation for Bill Gates, Steve Ballmer, and other honchos in Redmond.
Bill Gates started his talk at the golden jubilee celebrations of the IITs in Silicon Valley on 17 January 2003 with a remarkable insight into the difference between the IITs and other institutions of technology around the world. He said, “I was careful to do research for this speech, so I went to the IIT Website and browsed around, and then I went to the MIT Website. On the MIT site the hot news was that the coffee house was closing down because people weren’t spending enough money there. On the IIT Bombay site, things were far more interesting. They said they had caught a leopard on the campus recently. And that’s something these US universities just can’t offer in terms of an experience.” This drew a lot of guffaws.
It is only fitting that Ravi Venkatesan, who is an IIT Bombay alumnus, and other Microsoft executives who met in Powai for the summit recently, are acutely aware of other leopards like Linux prowling around the outskirts of Powai and gear themselves up to execute the grand vision they put forward in the safety of the hotel.
Wednesday, August 22, 2007
Dr Anji Reddy--A Profile
Business India, December 10-23, 2001
Size Does Not Matter
Anji Reddy has demonstrated that a highly focused small pharma company can also play in the big league of drug discoverers
Shivanand Kanavi
“Looking at the patents regime that has been accepted by 90 per cent of the nations of the world and the rapidly changing world scenario, the issue before us is not whether to accept the patent regime — it’s a question of when, say 10 years, as suggested by the Dunkel draft. Basic research is an arduous task and is said to be expensive. The statistical data from Western countries are frightening. It is estimated to cost anywhere between $100 and 200 million, but it is my considered opinion that in the Indian context such an endeavour may be accomplished within Rs100 crore or so.Expenditure of this magnitude is within the reach of some companies in India.”
—Dr K. ANJI REDDY in his presidential address to the Indian Pharmaceutical Congress
Interestingly, the year K. Anji Reddy delivered the address was 1992. It is a classic example of the much-touted word “vision”. Dr Reddy’s Laboratories had just crossed Rs100 crore in sales that year and here was its chairman saying he could invest Rs100 crore in the next 10 years and discover new drugs! It was not an empty boast, but contained a clear-cut roadmap of process development, lead molecule discovery, and co-development and co-marketing with global majors. Obviously not many in the audience believed this bluster. Even fewer had similar plans.
But Anji Reddy went about doggedly implementing his own recipe step by step and took the risks. As a result his company, Dr Reddy’s Laboratories, stands tall in the Indian pharma sector in less than 10 years. Although no drug has yet come out in the market from Reddy’s stable, many are in advanced trials all over the world and major pharma companies like Novartis and Novo Nordisk are co-developing the drugs with him. If the molecules pass muster in the trials then they might even become sizable revenue earners. There’s a chance that one of them might even be a blockbuster.
Reddy started with two companies in his group Dr Reddy’s Labs and Cheminor. Recently they were merged. The group has grown from a sales of Rs 103 crore in1991–92 to over 10 times that figure in less than 10 years. In fact this years’ performance is amazing — over 150 per cent growth in the first half. Profits too have grown from Rs10 crore in 1991–92 to over Rs300 crore in the first half this year! Reddy calls them “indecent” profits and one of the main contributors is his exclusive marketing rights to sell the blockbuster Prozac, an antidepressant, for six months in the US market. But don’t let the self-deprecation deceive you; after all, when Reddy listed his company on NYSE in April 2001, it became the first pharmaceutical concern from Asia–Pacific to do so. And amidst crashing markets it has been declared the best-performing IPO on NYSE and Nasdaq this year. According to Naina Lal of Morgan Stanley, one of the main reasons for this performance is the high level of disclosure norms Reddy has adopted. It may be a family-owned business with himself, his son, and son-in-law controlling the management, but it is setting high professional standards.
One of the reasons for Reddy’s spectacular performance is his agility. “He knows when to get into a bulk drug or formulation and when to get out and move on to new ones,” says M.M. Sharma, FRS, former director of UDCT Mumbai and a doyen of Indian chemical engineers. From high-purity bulk drugs Reddy has moved into branded formulations and quickly made his mark. Nise, an anti-inflammatory formulation, has quickly become one of the largest-selling brands in the Indian market. He was a pioneer in exports and has maintained a strong position and increased value by filing Advanced New Drug Applications in the US market, as in the case of Prozac mentioned earlier. To top it all are his molecules for diabetes, which are in advanced trials. Reddy is very much a man on the move now with a $100-million war chest from his ADR issue on NYSE. He has earmarked $30 million for drug discovery and $75 million for acquisitions.
No wonder that when Anji Reddy addressed the recent Ficci CEO conference on ‘Building a research-based pharmaceutical company’, his theme was: “Size does not matter”. This time every one in the audience took this diminutive and feisty technocrat seriously.
“There has been a tradition of innovation in Reddy and other Indian companies even in process chemistry,” says R.A. Mashelkar, a champion for intellectual property rights in India. “That is why they can easily become a high-quality source of off patent generics for the rest of the world. This achievement itself is non-trivial and the oft-used statement ‘Indian companies used the Indian Patent Act 1971 and its non-recognition of product patents and prospered’ does not tell the full story,” he adds.
Clearly if it were so easy and trivial, then why are others not doing it with generics? Secondly, Reddy’s process for Ibuprofen, a popular anti-inflammatory drug, was so advanced that Ethyl Corporation, US, had to accept its superiority in front of the US Trade Representative and ask for tariffs to be put against Reddy to achieve a level playing field! Later Ranbaxy’s process for Cefeclor, an anti-infective, made Eli Lily, the discoverer of the molecule, take India seriously. Similarly, with Cipla’s anti-Aids, anti-asthma and anti-cancer drugs or Lupin’s anti-TB drugs. Naturally, when the anthrax fear psychosis took root in the American psyche, everyone looked at Indian companies to source Ciprofloxacin. One letter by a senator in this regard was enough for Bayer to drop the price per dose from over $4 to less than a dollar overnight.
Executives at Dr Reddy’s Laboratories (DRL) proudly recount an anecdote from the past about Reddy’s drive towards quality and innovation even in the early days. At one time DRL was making Ibuprofen of a higher quality than Boots, the original discoverer of the molecule. When a foreign buyer came and asked if DRL could supply “Boots-quality stuff”, Reddy is supposed to have replied that it would take a little time since it would need to introduce some impurities to achieve that!
That is quintessential Reddy; aggression and pride in the quality of his products. When he started making Methyldopa, a drug for hypertension, for the first time for exports in the 1980s, his goal was to at least achieve Merck’s quality. Today, when his molecular hunt is yielding results, he has provided a new international profile to the Indian pharmaceutical industry, notes Kiran Mazumdar, a biotech pioneer herself.
Reddy himself travels tirelessly. At a recent medical conference in Atlanta at which he was present, his vice-president for research was asked a highly technical question. Before the V-P could compose an answer he had a Reddy cue “tell him about the JAMA article”, referring to a complex medical article published in the Journal of the American Medical Association six months earlier. “He astonished others present by the speed at which he retrieved this highly technical information, considering that his expertise is in chemistry,” says Uday Saxena, who heads Reddy’s biotech research lab in the US.
Reddy is a man obsessed with his research. He looks very laid-back about everything else. “He never asks us about operations. Even when we are hard on ourselves for not achieving some target, he brushes it aside and gives the big picture, but as for research he drives them relentlessly,” says G. Prasad, COO of DRL. “It’s common to receive calls from him at 3 in the morning,” says R. Rajgopal, who should know, since he is president of Dr Reddy’s Research Foundation (DRF). Satish Reddy, MDand CEO of DRL, concurs. “He is extremely focused on research and delegates everything else to others,” he says.
Satish is Reddy’s son and Prasad is his son-in -law. Both joined the firm when it was in trouble in the early 1990s after an exodus of key personnel, but Reddy was planning his magnificent obsession the molecular hunt – right back then and hence sent an SOS to both of them to come and take over operations. The temporary setback bothered him little. His ploy worked. The Reddy group grew at a record 30 per cent year-over-year for the next three years.
Whenever we at Business India have met him in the last seven years there has always been talk about a new molecule. He just assumes that you know the difference between DRF 2725 and DRF 2593. “His excitement about research is childlike. He spends hours with his grandchildren explaining to them what he is doing in the labs,” says daughter Anuradha.
Sweet pain
Dr Reddy’s Research Foundation today is abuzz with research on diabetes. Though it has developed other molecules which have shown anticancer properties, what has brought it fame and confidence, and a few million dollars besides, is diabetes.
Diabetes has been known since 1500 BC (Eber’s papyrus of Egypt). Aretaeus gave it the name ‘diabetes’ in the second century AD. Interestingly, the main symptom of diabetes, namely a high level of sugar in urine, was described by an Indian physician of the 6th century AD who called it honeyed urine (madhu meh). The medical name Diabetes mellitus–meaning honeyed – comes from that.
There are two kinds of diabetes. Type I affects about 5 –10 per cent of diabetics and is characterised by a lack of insulin production in the pancreas (a small organ behind the stomach). This condition is created by the body destroying its own beta cells in the pancreas which produce insulin. People suffering from this disease take human insulin injections. Insulin is a hormone which helps in the absorption of glucose by liver, fat, and muscle cells. The lack of insulin leads to excess glucose in the blood, which is then passed into the urine through the kidneys. There are several dangerous effects of a high level of glucose in the blood. It can lead to deterioration of the kidney, retinal damage, early formation of cataract, and even coma. It has appropriately been called a silent killer.
Type II diabetes is a condition where there is enough insulin produced by the pancreas but the body is able to absorb only a part of that. This affects 90 per cent of diabetics. So one therapy available is to increase the production of insulin in the body. However, if we can make the cells absorb insulin, then glucose oxidation or burning in these cells will increase. It has been discovered that there are some Peroxisone Proliferator Activator Receptors (PPARs) and those molecules that bind to PPAR gamma sensitise the body for insulin absorption. Those that bind to PPAR alpha help in reducing the triglycerides – unwanted fat in the blood –and increase the level of HDL the so-called good cholesterol.
A Japanese company Sankyo discovered a class of compounds called troglitazones that sensitise the body for insulin. However, the molecule was withdrawn after it was found have side-effects on liver enzymes. Dr Reddy, who himself suffers from type II diabetes, was interested when he saw the activity of troglitazones and pushed his team to come up with better molecules. He had a hunch that activity could be increased with some clever substitutions within the molecule.
The result was a new molecule DRF 2593, which was at least 40 times more potent than the existent insulin sensitisers, but it too had a side-effect on liver enzymes. This molecule was licensed to Novo Nordisk, a leading player in diabetes. However, when better drugs by other companies with hardly any effect on the liver came into the market, Novo put DRF 2593 on the backburner.
When Novo representatives came to DRF, again, before making his presentation, Rajgopal asked them to write down a wishlist. The Novo people said, “We would love to have a insulin sensitiser which does not have side effects on the liver and which lowers lipids in the blood.” Rajgopal said “We’ve got it” and presented data about a new compound codenamed DRF 2725!
This new molecule not only sensitized the body to insulin absorption but also reduced the triglycerides in blood, thus hitting two targets with one arrow. It caused a stir and Novo
Nordisk double-checked the data in its labs and signed a licensing agreement forthwith. Today it has passed the first two phases and is in a global Phase-III trials in which nearly 4,000 patients are involved in about 35 centres. If all goes well, this molecule can come out as a drug for diabetes and cholesterol patients by 2003. It has been estimated that this class of dual-active drugs can increase the life expectancy of diabetics by 10–15 years.
Having tasted success once, the DRF team is charged up and has come out with another molecule DRF 4158, which is even more potent than DRF 2725 and is dual-active. This molecule has been licensed to Novartis and is undergoing Phase I trials.
Just a few weeks ago DRF announced a new molecule DRF 4832 at the American Heart Association’s conference and caused quite a flutter since this new molecule is in fact triple-active — that is, it also increases HDL (good cholesterol)! Clearly, world pharma majors are looking at DRF as a possible source of novel molecules and exciting drug candidates. Today the Camelot the DRF team is chasing is a triple-active molecule effective in type II diabetes which elevates good cholesterol and also lowers the bad cholesterol effectively like the statins.
Paradigm shift
The paradigm of secretive pharma research under one roof at a giant company has changed considerably as pharma majors go shopping to shore up their drug pipelines. They want to have several drugs under trial and be sure of the sustainability of revenue growth. The old “not invented here” syndrome is very much in the decline. They are scouring labs, universities, and research-based companies worldwide for new and interesting molecules. One of the reasons for a spate of mergers in global big pharma is this hunt for pipelines and synergies in R&D. Meanwhile, some companies like Sankyo and DRF are showing that small companies can come up with very interesting molecules.
Many molecules of DRF may be ‘me-too’ molecules — that is, they may not have extended the boundaries of medical research and might have followed somebody else’s pioneering work. But that hardly matters. If a me-too is more effective or less toxic or has other beneficial effects, it may turn out to be a bigger hit than the original. For example ranitidine – brand name Zantac – by Glaxo was a me-too after the original cemetidine by another company. But it contributed over $2 billion to Glaxo’s bottom line for several years. Similarly, Enalapril, an ACE inhibitor, and Atenolol, a beta-blocker, were also me-toos that became blockbusters.
Me-too molecules may not get you the Nobel Prize, but the research involved in finding them successfully is non-trivial. Once a molecule is found to be effective, all its analogues – look a likes (siblings and cousins) – are also investigated and patents filed to cover all the flanks and to see that the potential of the whole family of compounds is exhausted. Thus an original discoverer would have already covered all his flanks when another hopeful like DRF starts looking at it.
The good news for 40 million Indian diabetics is that Reddy’s molecules may be available in India at an affordable price when they come into the market despite being the latest patented drugs, since Reddy holds the marketing rights for India.
Today DRF has applied for over 65 patents and is making presentations to several drug majors. Dr Janardhan Reddy, a professor at Northwestern University and one of the leading experts in PPAR, says: “Anji Reddy has a childlike curiosity which is reflected in a twinkle in his eye and a twitch of mischief in his smile. He is a maverick and an iconoclast.” It is this curiosity and iconoclasm that have taken Reddy where he is.
What does a “visionary” mean? Is it that others around him are blind? No, most people can only see what is around them. They cannot see what is not there or what is in the distant future. A visionary can. “My father took me to their farmhouse on the outskirts of Hyderabad one day and said, ‘Here will be a modern research lab for drug discovery’. It was barren land. I also knew as a medicinal chemist at Purdue University, how complex the process of drug discovery is since I myself was involved in some projects. I was sceptical to say the least,” recalls Satish Reddy. Satish was not alone; many in the pharma industry too weren’t willing to believe. But today all he receives is accolades for his vision and drive. A proud M.M.Sharma beams about his distinguished alumnus: “He has made the impossible possible through his R&D.”
His peers in the pharma industry acknowledge his leap. “He has successfully turned his company into a research-based pharma company, says Habil Khorakiwala of Wockhardt.
“Dr Anji Reddy has been a path breaker for the Indian pharma industry in this millennium. He has demonstrated that the Indian pharma industry is capable of holding its own in global markets with high quality revenue streams that can be reinvested for research. I also admire his fortitude in quietly handling risk and uncertainty; and for ably guiding his company in an increasingly exacting international marketplace,” says Dalip Shanghvi of Sun Pharma.
Praise from peers in other sectors too is plentiful. “Dr Reddy’s Laboratories is one of the few companies in India with a strong focus on drug discovery, and a track record of success in global markets,” says Mukesh Ambani of Reliance Industries. “He is passionate about whatever he does and pursues a clear vision,” says Ramalinga Raju of Satyam Computers.
For Andhra Pradesh Chief Minister Chandra babu Naidu, Reddy is a showpiece to promote Hyderabad as a new centre for knowledge-based industries. “It’s a matter of pride for us that Dr Reddy’s Laboratories was the first non-Japanese Asian/Pacific pharma company to be listed on the New York Stock Exchange. Dr Anji Reddy belongs to that rare breed of people who dare to dream and make their dreams come true,” says Naidu.
Reddy showed promise in research long ago. According to his elder sister Rajamma, he used to open up germinating beans when he was four to see how the seedling was coming out. Reddy spent his childhood in a small village across the Krishna river near Vijayawada, where his father was a prosperous farmer growing turmeric. His early education took place in Hindu College and Andhra Christian College, Guntur. He has really fond memories of his days there. When we accompanied him to these places he was distressed to find that his chemistry lab had been shifted from its old premises at Andhra Christian College. A sentimental Reddy told the principal and head of the department there, “I will give you all the modern equipment to build a modern analytical lab. My only request is that you restore my old lab to the same premises.”
After his BSc in Guntur, Reddy joined UDCT in Mumbai to study pharmacy.
He was greatly influenced by the atmosphere at UDCT. “The academia there was very close to industry. I liked it,” recalls the entrepreneur in him. However, he then went to National Chemical Laboratory, Pune, to study for a doctoral degree. This time he decided to switch his field from pharmacy to chemical engineering, since bulk drug manufacture was mostly chemical engineering. Not an easy switch. “In fact I was very hesitant to take him on as a student,” recalls L.K. Doraiswamy, a distinguished chemical engineer who later became the director of NCL and is currently Anson Marston Distinguished Professor in Engineering Emeritus at Iowa State University.
But Reddy did not disappoint him. “Indeed, I have rarely taken a better decision in recruiting students, and even scientists. He not only produced a very fine thesis, but also worked on a side problem to produce a paper in a matter of weeks, which to this day is quoted in practically all books and reviews on Properties Estimation. The Reddy–Doraiswamy equation developed by him (with little assistance from me) for predicting liquid diffusivities has lost none of its original flavour,” he declares.
However Reddy was a very focused man: his eyes were set on industry and not academe. He joined IDPL, the newly established bulk drug manufacturing unit in the public sector in Hyderabad. After a few years there he could not stand the non-entrepreneurial culture and quit to form a company with little seed money called Uniloyds. It made a successful foray into pharma, but his partner wanted control though he had no idea about the business. Reddy quickly cashed his share and joined an old classmate C.R. Reddy to found Standard Organics (SOL). SOL under Reddy’s leadership soon became the largest producer of sulfamethaxazole and even won an R&D award from the Indian Chemical Manufacturers Association. But his partner had other plans on diversification and Reddy came out of it to establish Dr Reddy’s Lab and Cheminor for bulk drug manufacture in the mid-1980s.
The early 1990s, however, saw an upheaval in both DRL and Cheminor. “Probably he is too trusting [in delegating responsibility] for his own good,” says Prasad, who was asked to take over leadership at Cheminor. “It was tough. Leading people had left to start another company and there was a legal battle with Ethyl Corporation. I wish I had some handholding,” recalls Prasad. But Prasad soon brought things under control and the rest is history. “He is a forest man and I am a trees man,” he comments. “Now I see that one needs to see both the forest and the trees.”
Looks like Reddy too knew his weaknesses and that’s why brought in two excellent operational people, Prasad and Satish. Though they happen to be his son-in-law and son, they have built a genuinely professional team around him and there is none of the family business syndrome. Reddy is free to pursue his obsession with research and proving all the Cassandras, who were saying that only big pharma companies with research budgets of a billion dollars could do drug discovery, dead wrong. He’s well on his way to doing it.
Anji is a short form for Anjaneya or Hanuman, who was the village deity of Tadapalle and every family had an Anji in it. According to the epic Ramayan, Anjaneya carried the mountain of gandhamadan to cure the battle- wounded Laxman, since he did not know the taxonomy of the herb sanjeevini that was needed. Anji Reddy, however, does very focused research into molecules and does not bring a mountain. When we visited his village he showed us the railway bridge he used to cross over the Krishna in spate to reach Vijayawada on the other side. The old bridge has vanished and modern bridges are in place. As we walked with him across the bridge he was able to recall many an old story with brief intermissions for conversation with his research teams in Hyderabad and Atlanta on his mobile phone. His executive assistant meanwhile informed him about his appearance in a cover story in Forbes Global, the first Indian businessman to be spotlighted by that magazine.
“The word ‘visionary’ is overused, but if it applies to anyone applies to Dr Reddy. I have little doubt that he will, step by step, build one of the most important international pharmaceutical companies in the world,” says Bruce Carter, formerly of Novo Nordisk and now at Zymo Genetics.
As we walked with him we realized that Reddy is truly crossing a bridge in his career. From a generics manufacturer, to a research - based company, from an Indian footprint to a global one.
Size Does Not Matter
Anji Reddy has demonstrated that a highly focused small pharma company can also play in the big league of drug discoverers
Shivanand Kanavi
“Looking at the patents regime that has been accepted by 90 per cent of the nations of the world and the rapidly changing world scenario, the issue before us is not whether to accept the patent regime — it’s a question of when, say 10 years, as suggested by the Dunkel draft. Basic research is an arduous task and is said to be expensive. The statistical data from Western countries are frightening. It is estimated to cost anywhere between $100 and 200 million, but it is my considered opinion that in the Indian context such an endeavour may be accomplished within Rs100 crore or so.Expenditure of this magnitude is within the reach of some companies in India.”
—Dr K. ANJI REDDY in his presidential address to the Indian Pharmaceutical Congress
Interestingly, the year K. Anji Reddy delivered the address was 1992. It is a classic example of the much-touted word “vision”. Dr Reddy’s Laboratories had just crossed Rs100 crore in sales that year and here was its chairman saying he could invest Rs100 crore in the next 10 years and discover new drugs! It was not an empty boast, but contained a clear-cut roadmap of process development, lead molecule discovery, and co-development and co-marketing with global majors. Obviously not many in the audience believed this bluster. Even fewer had similar plans.
But Anji Reddy went about doggedly implementing his own recipe step by step and took the risks. As a result his company, Dr Reddy’s Laboratories, stands tall in the Indian pharma sector in less than 10 years. Although no drug has yet come out in the market from Reddy’s stable, many are in advanced trials all over the world and major pharma companies like Novartis and Novo Nordisk are co-developing the drugs with him. If the molecules pass muster in the trials then they might even become sizable revenue earners. There’s a chance that one of them might even be a blockbuster.
Reddy started with two companies in his group Dr Reddy’s Labs and Cheminor. Recently they were merged. The group has grown from a sales of Rs 103 crore in1991–92 to over 10 times that figure in less than 10 years. In fact this years’ performance is amazing — over 150 per cent growth in the first half. Profits too have grown from Rs10 crore in 1991–92 to over Rs300 crore in the first half this year! Reddy calls them “indecent” profits and one of the main contributors is his exclusive marketing rights to sell the blockbuster Prozac, an antidepressant, for six months in the US market. But don’t let the self-deprecation deceive you; after all, when Reddy listed his company on NYSE in April 2001, it became the first pharmaceutical concern from Asia–Pacific to do so. And amidst crashing markets it has been declared the best-performing IPO on NYSE and Nasdaq this year. According to Naina Lal of Morgan Stanley, one of the main reasons for this performance is the high level of disclosure norms Reddy has adopted. It may be a family-owned business with himself, his son, and son-in-law controlling the management, but it is setting high professional standards.
One of the reasons for Reddy’s spectacular performance is his agility. “He knows when to get into a bulk drug or formulation and when to get out and move on to new ones,” says M.M. Sharma, FRS, former director of UDCT Mumbai and a doyen of Indian chemical engineers. From high-purity bulk drugs Reddy has moved into branded formulations and quickly made his mark. Nise, an anti-inflammatory formulation, has quickly become one of the largest-selling brands in the Indian market. He was a pioneer in exports and has maintained a strong position and increased value by filing Advanced New Drug Applications in the US market, as in the case of Prozac mentioned earlier. To top it all are his molecules for diabetes, which are in advanced trials. Reddy is very much a man on the move now with a $100-million war chest from his ADR issue on NYSE. He has earmarked $30 million for drug discovery and $75 million for acquisitions.
No wonder that when Anji Reddy addressed the recent Ficci CEO conference on ‘Building a research-based pharmaceutical company’, his theme was: “Size does not matter”. This time every one in the audience took this diminutive and feisty technocrat seriously.
“There has been a tradition of innovation in Reddy and other Indian companies even in process chemistry,” says R.A. Mashelkar, a champion for intellectual property rights in India. “That is why they can easily become a high-quality source of off patent generics for the rest of the world. This achievement itself is non-trivial and the oft-used statement ‘Indian companies used the Indian Patent Act 1971 and its non-recognition of product patents and prospered’ does not tell the full story,” he adds.
Clearly if it were so easy and trivial, then why are others not doing it with generics? Secondly, Reddy’s process for Ibuprofen, a popular anti-inflammatory drug, was so advanced that Ethyl Corporation, US, had to accept its superiority in front of the US Trade Representative and ask for tariffs to be put against Reddy to achieve a level playing field! Later Ranbaxy’s process for Cefeclor, an anti-infective, made Eli Lily, the discoverer of the molecule, take India seriously. Similarly, with Cipla’s anti-Aids, anti-asthma and anti-cancer drugs or Lupin’s anti-TB drugs. Naturally, when the anthrax fear psychosis took root in the American psyche, everyone looked at Indian companies to source Ciprofloxacin. One letter by a senator in this regard was enough for Bayer to drop the price per dose from over $4 to less than a dollar overnight.
Executives at Dr Reddy’s Laboratories (DRL) proudly recount an anecdote from the past about Reddy’s drive towards quality and innovation even in the early days. At one time DRL was making Ibuprofen of a higher quality than Boots, the original discoverer of the molecule. When a foreign buyer came and asked if DRL could supply “Boots-quality stuff”, Reddy is supposed to have replied that it would take a little time since it would need to introduce some impurities to achieve that!
That is quintessential Reddy; aggression and pride in the quality of his products. When he started making Methyldopa, a drug for hypertension, for the first time for exports in the 1980s, his goal was to at least achieve Merck’s quality. Today, when his molecular hunt is yielding results, he has provided a new international profile to the Indian pharmaceutical industry, notes Kiran Mazumdar, a biotech pioneer herself.
Reddy himself travels tirelessly. At a recent medical conference in Atlanta at which he was present, his vice-president for research was asked a highly technical question. Before the V-P could compose an answer he had a Reddy cue “tell him about the JAMA article”, referring to a complex medical article published in the Journal of the American Medical Association six months earlier. “He astonished others present by the speed at which he retrieved this highly technical information, considering that his expertise is in chemistry,” says Uday Saxena, who heads Reddy’s biotech research lab in the US.
Reddy is a man obsessed with his research. He looks very laid-back about everything else. “He never asks us about operations. Even when we are hard on ourselves for not achieving some target, he brushes it aside and gives the big picture, but as for research he drives them relentlessly,” says G. Prasad, COO of DRL. “It’s common to receive calls from him at 3 in the morning,” says R. Rajgopal, who should know, since he is president of Dr Reddy’s Research Foundation (DRF). Satish Reddy, MDand CEO of DRL, concurs. “He is extremely focused on research and delegates everything else to others,” he says.
Satish is Reddy’s son and Prasad is his son-in -law. Both joined the firm when it was in trouble in the early 1990s after an exodus of key personnel, but Reddy was planning his magnificent obsession the molecular hunt – right back then and hence sent an SOS to both of them to come and take over operations. The temporary setback bothered him little. His ploy worked. The Reddy group grew at a record 30 per cent year-over-year for the next three years.
Whenever we at Business India have met him in the last seven years there has always been talk about a new molecule. He just assumes that you know the difference between DRF 2725 and DRF 2593. “His excitement about research is childlike. He spends hours with his grandchildren explaining to them what he is doing in the labs,” says daughter Anuradha.
Sweet pain
Dr Reddy’s Research Foundation today is abuzz with research on diabetes. Though it has developed other molecules which have shown anticancer properties, what has brought it fame and confidence, and a few million dollars besides, is diabetes.
Diabetes has been known since 1500 BC (Eber’s papyrus of Egypt). Aretaeus gave it the name ‘diabetes’ in the second century AD. Interestingly, the main symptom of diabetes, namely a high level of sugar in urine, was described by an Indian physician of the 6th century AD who called it honeyed urine (madhu meh). The medical name Diabetes mellitus–meaning honeyed – comes from that.
There are two kinds of diabetes. Type I affects about 5 –10 per cent of diabetics and is characterised by a lack of insulin production in the pancreas (a small organ behind the stomach). This condition is created by the body destroying its own beta cells in the pancreas which produce insulin. People suffering from this disease take human insulin injections. Insulin is a hormone which helps in the absorption of glucose by liver, fat, and muscle cells. The lack of insulin leads to excess glucose in the blood, which is then passed into the urine through the kidneys. There are several dangerous effects of a high level of glucose in the blood. It can lead to deterioration of the kidney, retinal damage, early formation of cataract, and even coma. It has appropriately been called a silent killer.
Type II diabetes is a condition where there is enough insulin produced by the pancreas but the body is able to absorb only a part of that. This affects 90 per cent of diabetics. So one therapy available is to increase the production of insulin in the body. However, if we can make the cells absorb insulin, then glucose oxidation or burning in these cells will increase. It has been discovered that there are some Peroxisone Proliferator Activator Receptors (PPARs) and those molecules that bind to PPAR gamma sensitise the body for insulin absorption. Those that bind to PPAR alpha help in reducing the triglycerides – unwanted fat in the blood –and increase the level of HDL the so-called good cholesterol.
A Japanese company Sankyo discovered a class of compounds called troglitazones that sensitise the body for insulin. However, the molecule was withdrawn after it was found have side-effects on liver enzymes. Dr Reddy, who himself suffers from type II diabetes, was interested when he saw the activity of troglitazones and pushed his team to come up with better molecules. He had a hunch that activity could be increased with some clever substitutions within the molecule.
The result was a new molecule DRF 2593, which was at least 40 times more potent than the existent insulin sensitisers, but it too had a side-effect on liver enzymes. This molecule was licensed to Novo Nordisk, a leading player in diabetes. However, when better drugs by other companies with hardly any effect on the liver came into the market, Novo put DRF 2593 on the backburner.
When Novo representatives came to DRF, again, before making his presentation, Rajgopal asked them to write down a wishlist. The Novo people said, “We would love to have a insulin sensitiser which does not have side effects on the liver and which lowers lipids in the blood.” Rajgopal said “We’ve got it” and presented data about a new compound codenamed DRF 2725!
This new molecule not only sensitized the body to insulin absorption but also reduced the triglycerides in blood, thus hitting two targets with one arrow. It caused a stir and Novo
Nordisk double-checked the data in its labs and signed a licensing agreement forthwith. Today it has passed the first two phases and is in a global Phase-III trials in which nearly 4,000 patients are involved in about 35 centres. If all goes well, this molecule can come out as a drug for diabetes and cholesterol patients by 2003. It has been estimated that this class of dual-active drugs can increase the life expectancy of diabetics by 10–15 years.
Having tasted success once, the DRF team is charged up and has come out with another molecule DRF 4158, which is even more potent than DRF 2725 and is dual-active. This molecule has been licensed to Novartis and is undergoing Phase I trials.
Just a few weeks ago DRF announced a new molecule DRF 4832 at the American Heart Association’s conference and caused quite a flutter since this new molecule is in fact triple-active — that is, it also increases HDL (good cholesterol)! Clearly, world pharma majors are looking at DRF as a possible source of novel molecules and exciting drug candidates. Today the Camelot the DRF team is chasing is a triple-active molecule effective in type II diabetes which elevates good cholesterol and also lowers the bad cholesterol effectively like the statins.
Paradigm shift
The paradigm of secretive pharma research under one roof at a giant company has changed considerably as pharma majors go shopping to shore up their drug pipelines. They want to have several drugs under trial and be sure of the sustainability of revenue growth. The old “not invented here” syndrome is very much in the decline. They are scouring labs, universities, and research-based companies worldwide for new and interesting molecules. One of the reasons for a spate of mergers in global big pharma is this hunt for pipelines and synergies in R&D. Meanwhile, some companies like Sankyo and DRF are showing that small companies can come up with very interesting molecules.
Many molecules of DRF may be ‘me-too’ molecules — that is, they may not have extended the boundaries of medical research and might have followed somebody else’s pioneering work. But that hardly matters. If a me-too is more effective or less toxic or has other beneficial effects, it may turn out to be a bigger hit than the original. For example ranitidine – brand name Zantac – by Glaxo was a me-too after the original cemetidine by another company. But it contributed over $2 billion to Glaxo’s bottom line for several years. Similarly, Enalapril, an ACE inhibitor, and Atenolol, a beta-blocker, were also me-toos that became blockbusters.
Me-too molecules may not get you the Nobel Prize, but the research involved in finding them successfully is non-trivial. Once a molecule is found to be effective, all its analogues – look a likes (siblings and cousins) – are also investigated and patents filed to cover all the flanks and to see that the potential of the whole family of compounds is exhausted. Thus an original discoverer would have already covered all his flanks when another hopeful like DRF starts looking at it.
The good news for 40 million Indian diabetics is that Reddy’s molecules may be available in India at an affordable price when they come into the market despite being the latest patented drugs, since Reddy holds the marketing rights for India.
Today DRF has applied for over 65 patents and is making presentations to several drug majors. Dr Janardhan Reddy, a professor at Northwestern University and one of the leading experts in PPAR, says: “Anji Reddy has a childlike curiosity which is reflected in a twinkle in his eye and a twitch of mischief in his smile. He is a maverick and an iconoclast.” It is this curiosity and iconoclasm that have taken Reddy where he is.
What does a “visionary” mean? Is it that others around him are blind? No, most people can only see what is around them. They cannot see what is not there or what is in the distant future. A visionary can. “My father took me to their farmhouse on the outskirts of Hyderabad one day and said, ‘Here will be a modern research lab for drug discovery’. It was barren land. I also knew as a medicinal chemist at Purdue University, how complex the process of drug discovery is since I myself was involved in some projects. I was sceptical to say the least,” recalls Satish Reddy. Satish was not alone; many in the pharma industry too weren’t willing to believe. But today all he receives is accolades for his vision and drive. A proud M.M.Sharma beams about his distinguished alumnus: “He has made the impossible possible through his R&D.”
His peers in the pharma industry acknowledge his leap. “He has successfully turned his company into a research-based pharma company, says Habil Khorakiwala of Wockhardt.
“Dr Anji Reddy has been a path breaker for the Indian pharma industry in this millennium. He has demonstrated that the Indian pharma industry is capable of holding its own in global markets with high quality revenue streams that can be reinvested for research. I also admire his fortitude in quietly handling risk and uncertainty; and for ably guiding his company in an increasingly exacting international marketplace,” says Dalip Shanghvi of Sun Pharma.
Praise from peers in other sectors too is plentiful. “Dr Reddy’s Laboratories is one of the few companies in India with a strong focus on drug discovery, and a track record of success in global markets,” says Mukesh Ambani of Reliance Industries. “He is passionate about whatever he does and pursues a clear vision,” says Ramalinga Raju of Satyam Computers.
For Andhra Pradesh Chief Minister Chandra babu Naidu, Reddy is a showpiece to promote Hyderabad as a new centre for knowledge-based industries. “It’s a matter of pride for us that Dr Reddy’s Laboratories was the first non-Japanese Asian/Pacific pharma company to be listed on the New York Stock Exchange. Dr Anji Reddy belongs to that rare breed of people who dare to dream and make their dreams come true,” says Naidu.
Reddy showed promise in research long ago. According to his elder sister Rajamma, he used to open up germinating beans when he was four to see how the seedling was coming out. Reddy spent his childhood in a small village across the Krishna river near Vijayawada, where his father was a prosperous farmer growing turmeric. His early education took place in Hindu College and Andhra Christian College, Guntur. He has really fond memories of his days there. When we accompanied him to these places he was distressed to find that his chemistry lab had been shifted from its old premises at Andhra Christian College. A sentimental Reddy told the principal and head of the department there, “I will give you all the modern equipment to build a modern analytical lab. My only request is that you restore my old lab to the same premises.”
After his BSc in Guntur, Reddy joined UDCT in Mumbai to study pharmacy.
He was greatly influenced by the atmosphere at UDCT. “The academia there was very close to industry. I liked it,” recalls the entrepreneur in him. However, he then went to National Chemical Laboratory, Pune, to study for a doctoral degree. This time he decided to switch his field from pharmacy to chemical engineering, since bulk drug manufacture was mostly chemical engineering. Not an easy switch. “In fact I was very hesitant to take him on as a student,” recalls L.K. Doraiswamy, a distinguished chemical engineer who later became the director of NCL and is currently Anson Marston Distinguished Professor in Engineering Emeritus at Iowa State University.
But Reddy did not disappoint him. “Indeed, I have rarely taken a better decision in recruiting students, and even scientists. He not only produced a very fine thesis, but also worked on a side problem to produce a paper in a matter of weeks, which to this day is quoted in practically all books and reviews on Properties Estimation. The Reddy–Doraiswamy equation developed by him (with little assistance from me) for predicting liquid diffusivities has lost none of its original flavour,” he declares.
However Reddy was a very focused man: his eyes were set on industry and not academe. He joined IDPL, the newly established bulk drug manufacturing unit in the public sector in Hyderabad. After a few years there he could not stand the non-entrepreneurial culture and quit to form a company with little seed money called Uniloyds. It made a successful foray into pharma, but his partner wanted control though he had no idea about the business. Reddy quickly cashed his share and joined an old classmate C.R. Reddy to found Standard Organics (SOL). SOL under Reddy’s leadership soon became the largest producer of sulfamethaxazole and even won an R&D award from the Indian Chemical Manufacturers Association. But his partner had other plans on diversification and Reddy came out of it to establish Dr Reddy’s Lab and Cheminor for bulk drug manufacture in the mid-1980s.
The early 1990s, however, saw an upheaval in both DRL and Cheminor. “Probably he is too trusting [in delegating responsibility] for his own good,” says Prasad, who was asked to take over leadership at Cheminor. “It was tough. Leading people had left to start another company and there was a legal battle with Ethyl Corporation. I wish I had some handholding,” recalls Prasad. But Prasad soon brought things under control and the rest is history. “He is a forest man and I am a trees man,” he comments. “Now I see that one needs to see both the forest and the trees.”
Looks like Reddy too knew his weaknesses and that’s why brought in two excellent operational people, Prasad and Satish. Though they happen to be his son-in-law and son, they have built a genuinely professional team around him and there is none of the family business syndrome. Reddy is free to pursue his obsession with research and proving all the Cassandras, who were saying that only big pharma companies with research budgets of a billion dollars could do drug discovery, dead wrong. He’s well on his way to doing it.
Anji is a short form for Anjaneya or Hanuman, who was the village deity of Tadapalle and every family had an Anji in it. According to the epic Ramayan, Anjaneya carried the mountain of gandhamadan to cure the battle- wounded Laxman, since he did not know the taxonomy of the herb sanjeevini that was needed. Anji Reddy, however, does very focused research into molecules and does not bring a mountain. When we visited his village he showed us the railway bridge he used to cross over the Krishna in spate to reach Vijayawada on the other side. The old bridge has vanished and modern bridges are in place. As we walked with him across the bridge he was able to recall many an old story with brief intermissions for conversation with his research teams in Hyderabad and Atlanta on his mobile phone. His executive assistant meanwhile informed him about his appearance in a cover story in Forbes Global, the first Indian businessman to be spotlighted by that magazine.
“The word ‘visionary’ is overused, but if it applies to anyone applies to Dr Reddy. I have little doubt that he will, step by step, build one of the most important international pharmaceutical companies in the world,” says Bruce Carter, formerly of Novo Nordisk and now at Zymo Genetics.
As we walked with him we realized that Reddy is truly crossing a bridge in his career. From a generics manufacturer, to a research - based company, from an Indian footprint to a global one.
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