Lessons from a New Industry Cluster in India

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In 2002, they started a chapter of an international networking group for entrepreneurs called TiE to expand their networks in India and abroad.

Rajastan's entrepreneurship boom

The results of this bottom-up economic development strategy have been impressive. Over a short period of time, Jaipur rose from nowhere to contend for technology companies looking for a home in India. Top Indian executives such as Anand Mahindra (vice chairman of Mahindra & Mahindra (MAHDY)) and Narayan Murthy (co-founder of Infosys (INFY) got involved and helped educate the state government on how to make itself friendlier to technology companies and to technology in general. Officials, eager to improve the economic lot of Rajasthan, listened closely and made changes quickly. The state sent delegations to Silicon Valley to learn from the "gurus" of technology. The law I mentioned earlier forbidding women to work after sunset was altered at the request of Genpact (G), a business-process outsourcer that needed its employees to work 24/7 to service a global clientele. Rajasthan's government also started a campaign to train its senior bureaucrats on the use of technology.

On a recent trip to Rajasthan I witnessed an entrepreneurship boom. At a TiE-Rajasthan networking conference this December, attendance topped 750, including more than 100 tech companies—many of which employed hundreds of workers. Over 200 college students skipped classes to attend. All the students I spoke with wanted to become entrepreneurs. They talked about tech companies they wanted to start, solving problems of infrastructure, developing new methods for agriculture, renewable energy, and so on. Everyone wanted to change the world.

It wasn't just tech entrepreneurs and students who shared the dream. Many traditional industries are now employing modern IT practices in their operations. This has allowed them not only to compete globally, but to create innovative new business models. Consider Jaipur Rugs. In 2008, the company had annual revenues of $21 million and became one of the largest handmade rug fabrication companies in India. Jaipur Rugs comprises six business units serviced by a huge workforce of 40,000 independent contractors who weave rugs in their homes but tap into the company's supply chain networks for wool, as well as quality-control methodologies. The company achieved compound annual growth rates in the mid-double digits over five years when it implemented ERP systems to manage all its complex operations. These systems are equivalent to the best used by midsized Western companies. Jaipur Rug's use of technology has not only meant more profits, but more work for contractors, many of whom are women or heads of families that previously languished in poverty.

big government support, too

Some of India's largest technology companies, including Infosys, Wipro (WIT), Genpact, and Tech Mahindra (TECHM), and financial institutions such as Deutsche Bank (DB) have since located operation hubs in Rajasthan. The region is home to a massive new economic development zone called Mahindra World City that includes companies from an array of industries, including technology, automotive, financial services, and light manufacturing. Mahindra World City opened in 2006, the result of a $2 billion investment by Mahindra & Mahindra and the Rajasthan government. When fully functional in eight years, the investors expect that 100,000 people will be employed and companies housed there will create roughly $3 billion in annual exports.

Of course, to say that all this development was driven entirely bottom-up is not entirely fair. The government is in the process of building a 100-kilometer ring road that will make it much easier to move around Jaipur, and a rail line is in the planning stages. State and national governments have financed big upgrades to the electrical grid, as well as big buildouts of bandwidth infrastructure. But none of this would have been possible without the push from the bottom showing the way. A regional economic planner would likely have decided Jaipur should specialize in one sector, tried to create an ecosystem to support that sector, and watched the attempt fall flat when central planning methodology failed to keep up with rapid changes in the markets.

Great regional development acts like water. It finds its own path. But it requires people with the insight to tap the right well. That's where entrepreneurs who know the scene come in. They can usher in innovation that can even make a desert dinosaur like Rajasthan flourish.

Wadhwa is senior research associate at the Labor & Worklife Program at Harvard Law School and executive in residence at Duke University. He is an entrepreneur who founded two technology companies. His research can be found at www.globalizationresearch.com. Follow him on Twitter "@vwadhwa".

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