Can we build IP-based Product Businesses from India?

My interest in knowledge management has always been from the perspective of knowledge creation. So, I readily agreed to participate in the CII Knowledge Management Summit this year in a session that focused on this dimension. Ganesh Natarajan, Sharad Sharma and I were together on a panel to explore the potential of, and challenges in, the creation of intellectual property (IP)-based businesses from India.

I began my talk with a historical perspective. For the first four decades after independence, India tried to build core industrial capabilities. The focus was on understanding, assimilating and improving on manufacturing processes. It’s only in the last two decades that we have seen some momentum building up in the arena of new product development.

IP-based Successes from India: Bajaj, Vigyanlabs, Praj & NCL

We have several examples of this trend. My favourite one is of Bajaj Auto. As a scooter maker, Bajaj restricted itself to making cosmetic changes to the Chetak. But after it entered the much more competitive motorcycle space, it came up against powerful competitors like Honda (at that time in the Hero Honda JV). After several unsuccessful attempts to adapt Kawasaki’s bikes to the Indian market, Bajaj was finally successful when it developed and launched the Pulsar around 2001. The Pulsar offered power and style at a reasonable price and operating cost to a new young generation of bike riders who wanted something more than the efficiency of Hero Honda’s Splendor. At the heart of the Pulsar’s engine, was Digital Twin Spark Ignition (DTSi) technology, a patented method of overcoming the traditional trade-off between power and fuel-efficiency. The DTSi patent itself has been the subject of litigation over questions of novelty and non-obviousness, but the Bajaj Pulsar is certainly a landmark in terms of a successful Indian product riding on IP covered by a patent.

In some of my earlier posts, I wrote about other companies that are doing a good job of IP-based innovation. Vigyanlabs, winner of the 2013 Nasscom award for technology innovation, has a novel solution to reduce power consumption in data centers – the core of this is covered by a US patent. Praj Industries started by developing improved continuous process technologies for fermentation of cane molasses, but is today doing research at the molecular level so that it can convert different types of waste into next generation biofuels. Praj already has patents covering processes to produce ethanol from lignocellulosic material, and I presume more patent applications will follow.

Our public research institutions have also been successful in creating core IP that is at the heart of commercial products. To give just one example, Dr. Sivaram and his team at the National Chemical Laboratory (NCL) created a microencapsulation technology covered by 6 US patents that is today being used by Procter & Gamble in their high end Downy fabric softeners for controlled release of perfume that lasts many days after the clothes have been washed.

Yet, Challenges Remain…

I recently met Anjan Mukherjee, co-founder of HyCa Technologies. HyCa has been a pioneer in the development of hydrodynamic cavitation, a technology that has applications in areas as diverse as treatment of effluents and ballast water. Anjan and his team have won several awards, and been invited as guests of different countries. But, commercialization on a big enough scale has eluded HyCa so far. One of the main reasons for this is the absence of an effective public procurement system for new technologies. While in most countries public procurement helps in certifying and establishing locally-developed technologies, in India the rules of public procurement are loaded against the purchase of novel technologies developed in India.

The Indian pharmaceutical industry graphically portrays some of the other challenges in building IP-based product businesses from India. While the leading Indian pharmaceutical companies were already strong in process innovation, they invested in new drug development when India decided to sign the GATT/WTO agreement in the mid-1990s. But, after some early success in out-licensing molecules at early stages of the drug development process, they have found the big wins hard to come by. As a result, some of them either sold out or cut back on new drug development.

Why is it so tough to develop new drugs out of India? The combination of large upfront investments, a long gestation period (trials and approval can take 10+ years) and uncertain outcomes (a drug can fail in advanced trials, rendering several years of effort infructuous) make drug development challenging anywhere. But, in India, this is compounded by the absence of knowledgeable and patient capital, and a lack of deep expertise in biotechnology and disease mechanisms. Recent curbs on clinical trials in India have made the trial process more expensive and cumbersome. Local regulators lack the sophistication and expertise to make a rigorous assessment of a new drug. IP protection is also an issue with Indian IP laws perceived as being against new drug development.

Many Challenges are Ubiquitous

But, in fairness to the Indian environment, some challenges in IP-based product development exist everywhere. Even in the US, the assumed Shangri La for new product development. I often relate the story of Robert Kearns, who invented the first intermittent windshield wiper. He applied for a patent, and then offered his technology to the automotive majors. They didn’t license his technology, but introduced similar products of their own some years later. Kearns sued Ford and Chrysler, but won a pyrrhic victory– by the time he won in the courts, he suffered several personal losses. If this David vs. Goliath battle can play out in the US, one can only imagine the challenges of defending one’s patents in India.

Apart from the IP itself, there is the importance of the possession of complementary assets in getting value out of IP. In many industries including biotech-based Pharma, in order to make money you need to have a good understanding of the regulatory process, staying power and resources to complete trials and the ability to market your product if you want to capture a major part of the value created by your IP.

Conclusions

India has the potential to build IP-based, product businesses. We have people with ideas, in many areas we have people who have gained deep expertise, and access to funding is improving.

But there are serious weaknesses as well including the absence of support from public procurement, regulatory gaps, absence of specialised funders, and shortages of talent, and infrastructure that can be used on a shared, chargeable basis.

The keys to success include the ability to stay the course (for a much longer time than in developed markets), internationalization, and getting the business/commercialization model right. I can’t over-emphasize the internationalization dimension – other countries can be much more accepting of new, cutting-edge technologies; you get a large enough market to amortise the cost of your development; and Indian customers are more positive once you have proven yourself elsewhere.