Only with R&D can you escape the trap and go to the next level: Sridhar Vembu, Cofounder and CEO, Zoho

The world has got into the twin problems of debt and demographics. We have 20 years of runway, but we have to capitalize on it for India2047 to succeed. For that R&D will play a key role. On the sidelines of a ManageEngine CIO meet in Chennai, we caught up with Zoho Co-founder & CEO Sridhar Vembu and got him to gaze into the future to check out India’s chances. 

Can we do a Make in India for the world? Can we make world-champion companies and products? 

It ultimately comes down to investing in R&D. We’re investing just 0.7% of our GDP. We have to invest a lot more. It’s as basic as that. It’s about the private sector because this cannot be done by the government. It’s not like a policy that can be formed tomorrow to spend the money. It has to be every company. Why are Chinese companies spending on R&D and Indian companies not? The government’s role is just to be a catalyst, to keep on prodding companies to invest in R&D. 

We have to have a national catch-up phase. Japan, (South) Korea, Taiwan and China all had that catch-up phase. China said: We must master every technology. I think most business leaders recognize it, but we have to build an R&D culture. 

Back in the 1980s, we were producing PCs. Those of us who are old enough remember that we were producing hardware in India. By the 1990s, it all went away. Why did they go? Because we lost critical talent. We lost talent because we don’t have an R&D commitment to retain that talent. In fact, in 1990, India was way ahead of China in terms of PC hardware. It is very sad to realize now that even in networking hardware India was ahead. Now look at Huawei which as a company is larger than Cisco. 

In 1990 there were companies in India that could have been competitive with Cisco. Today we have no company in India that can do so. In every sector, you can find examples like that. India produced a Unix operating system in the late 1980s, almost on par with Solaris and Sun. But all of that R&D, or essentially the people, left India. It was a whole layer of talent we exported. Those people today will be found in companies like Microsoft or Google. We cannot afford to keep doing this. Our organizations have to first build up R&D, retain the talent and nurture them for the long term. 

What about the future and our Mission India2047? 

When you are at the first stage of GDP, you can reach the middle level by improving production standards and setting up more factories. But there is a well-known thing called the middle-income trap. I talked about it in the context of a region like Coimbatore. If you look at the Coimbatore-Tiruppur region, it’s actually richer than Chennai in terms of per capita GDP. Visibly, you can see that prosperity is there in that region. 

They are already at a level where they’ll say: We can’t compete with Bangladesh on labour costs. Bangladeshi labour will be much cheaper than Tiruppur labour. You’re talking about ₹20,000 versus ₹5000 rupees. That’s a stark difference: 4x. I tell them: You are in the classic middle-income scenario. If you look at the Coimbatore-Tiruppur economy in isolation, it’s like a middle-income nation. To go to the next step, they have to invest in R&D. 

For India, the middle-income trap may be roughly $7-8,000 per capita GDP, or less than $10,000. We are at about $2500-$3,000 now. To get to $8-10,000, it could be done by purely focusing on production, investment infrastructure, etc. But there’s a trap if we don’t invest in R&D. 

Unit labour costs in Malaysia 25 years ago were much higher than in China. Today, Chinese labour costs are much higher than in Malaysia. What is the difference? Malaysia could not invest in R&D, while China did. China is caught up in critical technology. Critical technology does not come from Malaysia. A product or factory might be in Malaysia, but the technology is owned by somebody else. 

We have to plan to avoid that trap. Already our regions like Tirrupur-Coimbatore, Gujarat, the Pune belt, Bangalore, the Chennai corridor… are all richer than average. But to reach the next level we have to invest in R&D. So that’s a critical observation. 

Recently India became the world’s most populous nation. Can we make good on our demographic dividend? 

The world, particularly the developed world, has the twin problems of debt and demographics. That is, declining demographics (birth rate) combined with heavy debt. If you look at it by GDP, it’s probably 70% of the world, whether it’s Europe, Japan and even China. This problem is not easily solvable. The US is kind of bucking the trend with extensive immigration. But whether they will integrate all of them into the society remains to be seen, just look at France. 

India is seeing a major growth. We are in a relatively favourable demographic. We will hit these problems only 20 years later. So have 20 years of runway. But we have to capitalize it for India2047. We cannot waste our youth and our demographic dividend.