India is the fourth largest start-up ecosystem in the world. We have 25 unicorns up there. These are trends that are likely to sustain for time to come because trillion dollars of value that is going to be created is not going to be just owned by the existing incumbents, says Gautam Kumra, Managing Partner – India, McKinsey India.
The word disruption has been overused in the last couple of months. How have some companies used technology, digitisation to not only disrupt the space but also by doing business differently, making the space climb the value curve faster, changing the rules of the game?
Firstly I will say that it sounds like a cliché but digitisation is one of the biggest disruptions that is facing the world and also India. Some work we did recently suggests that the full scope of digitisation could add about a trillion dollars to India’s GDP by 2025.
The reason part of that is happening is most people do not realise but India is arguably one of the fastest digitising countries in the world when you put all of what is happening together. You look at number of people on the internet, the smartphone penetration, the data usage all of that when you put together we are actually literally bar none I think right up there. Now it is disrupting sector after sector.
Take construction for example. The large construction companies we are serving, they are using sensors, they are using one of the massive deployment of IOT and they are using data from all their projects sites to better control cost and time for execution of the projects. They have saved a couple of hundred million dollars on cost in the way they deliver projects.
Another pharmaceutical company is using machine learning and algorithms to figure out how to improve yield for an active pharmaceutical ingredient by looking at what process parameters will go best together.
Another pharmaceutical company is looking at again how do we use data and insights to figure out which sites to enrol patients at to reduce the cost of clinical trial to develop a drug and so on and so forth. I can talk about logistics. You have seen the birth of so many new companies that are creating transparency for the first time around freight rates. Frankly that can bring India’s logistics cost down by 20% to 30%.
And this will also add to productivity.
Huge. Logistic today is 14% of India’s GDP. It should be close to 8-9% and how will that happen? I think through for example tools and technologies like that. So there are massive disruption opportunities. It is a massive opportunity and varies by sector. If today you are a bank, you are born digital. So, it depends.
How is the investor community looking at both the side of corporate India? One is the start-up ecosystem and one is the traditional businesses. There is a clear differentiation in the way capital is flowing into the unlisted space while the listed space has been starved of capital for last 18 months.
We think the private space is an exciting space and I am not going to comment on some of policy changes that have taken place recently. But we all know India is the fourth largest start-up ecosystem in the world. We have 25 unicorns up there. These are trends that are likely to sustain for time to come because this trillion dollars of value that is going to be created is not going to be just owned by the existing incumbents.
A host of new companies are likely to be born in agriculture, logistics, consumer etc. The way brands get built is totally changing. The way Amazon, Reliance and Walmart are working, soon the entire retailing ecosystem configured in India will change. The way brands get built will change. Today one can think of building a brand much faster than what we could do 20 years ago because we did not have access to channels and markets, but now we will. There will be a lot of activity in this space and I remain excited that there will be a lot more capital flowing into the private markets.
How do newer companies contribute versus the traditional larger companies which up till now have had larger share in contribution terms?
Let’s take the case of China. Today, 90% of the revenues are driven by large companies. But if you just go back 15-20 years ago, a lot of it was actually driven by MSMEs and medium companies. For any healthy economy, you need to see this pyramid of companies but they have to have the enabling environment to keep moving up. We should not avoid the rigidities and the inefficiencies that keep small companies small.
What is on your reading list nowadays?
Well I read a lot less about business since that is what I do every day. I read a lot about personal leadership and spirituality actually. And I think India has a lot to contribute on that. I am a student of Vedanta and so I read a lot about that. I read a lot about leadership because one of the things that intrigues me is the difference that leaders can make. I have enjoyed reading Ray Dalio’s book on Principles. I read a lot of Tal Ben-Shahar. He is a very popular professor at Harvard who talks a lot about happiness and what makes life fulfilling. So I read a lot about leadership and spirituality in my personal time.
(An Excerpt from ETNOW)