6 AM Pacific

New Bombay or Renew Bombay

A couple of weeks back I spent a day in Navi Mumbai with a friend. Every time I go there I am elated by what I see there - a great city in the making. But I am also saddened. Is the only hope of urban India to build new cities? Are today’s cities doomed?

For those not familiar with it, Navi Mumbai is a 344 sq. km area on the mainland next to Mumbai. It was developed with the objective of decongesting Mumbai, which was (and still is) the land of promise in India - a cross between LA and New York with its Bollywood and Dalal Street. Unfortunately, it is a strip of land largely surrounded by the sea and its growing population had no room to expand.

CIDCO (’we make cities’), the organization that was entrusted with the task of developing Navi Mumbai has done an all around fantastic job. It not only planned and developed the land, it also undertook much of the housing construction there, when no builders thought it would be worth their while. CIDCO continues to plan and develop and run civic services in Navi Mumbai. The results are fantastic and are noteworthy in three seminal ways.

One, Navi Mumbai is a planned city. It is laid out with what I am sure is a Master Plan behind it. It reminds one of the Chandigarh in my school days with numbered sectors and roads intersecting at right angles. Two, the infrastructure is remarkably good - roads, bridges, rail, optic fiber…it’s all there and well maintained. The administration actually runs a surplus and at this time the sale of land must be so profitable for it that investing in very good infrastructure is feasible.

But the most visible difference between Navi Mumbai and Mumbai itself is the almost complete absence of illegal construction and slums. Enforcement of property rights is complete. And that is what is amazing.

I see a great future for Navi Mumbai. There are big corporates like Reliance that are making big bets on Navi Mumbai. I think that is good for Navi Mumbai and for Mumbai itself. Mumbai can’t handle its urban crisis itself, so a helping hand from a satellite city should be welcome.

Cities like Mumbai and Bangalore are crumbling under the pressure of rapid growth. But growth is really a handy excuse. Its not like you couldn’t see it coming. Its just that it was nobody’s  problem. Unfortunately, urban development is a long cycle endeavor. Developing urban infrastructure with foresight is a waste of time for an elected government. Its benefits are not seen by the electorate in time for the next elections. On the other hand urban development is a most lucrative opportunity for corrupt politicians and bureaucrats. Planned development that benefits future administrations versus builder driven development that lines ones pockets today - the choice is easy. Even if one is an honest administrator, doing the right thing will require you to fight so many vested interests, why not let sleeping dogs lie?

Which is what saddens me. Is the difference between Navi Mumbai’s rise and Mumbai’s meltdown a matter of new versus old? Or is it the difference between governance by an elected government and a state corporation (CIDCO)? Either way, the odds are stacked against today’s Indian metros. We need strong leaders and able adminstrators. And citizens who care.

Paperbacks in India

Every trip to India, I bring back half a suitcase full of books. My wife is a voracious reader of fiction and she reads a lot of Indian fiction too. Also, we want our children to read Indian mythology and other Indian stories and it’s impossible to get Indian childrens’ books in the US (there’s eBay retail opportunity for someone out there).

Of all the reasons why I buy books in India, cost is not one of them (unlike for Hindi film music and DVDs where there is a cost arb opportunity). But I think I may have to reconsider. I had just bought The Argumentative Indian’ by Amartya Sen in the US before going to India. It was the hardcover edition and cost about $25. In India the same book was available in paperback for less than half that price.

I know what’s going on of course. A book is an information product (like music, magazines, software and cinema). All of them are digitizable and the medium that carries them is immaterial (more or less) to the enjoyment of the product. All information products have a similar business problem. The marginal cost of producing the next copy is minimal and so variable cost has no bearing on the pricing of the product. For instance, the cost of a blank CD disc is insignificant compared to the price of the CD. So how does one price such a product?

In the case of books, the cost is not insignificant but it is much less than the price of the book (20% of the cost of a hardcover). So how does one price a book? The main technique is what I will loosely call ‘windowing’, though this is a term more widely used in the movie business. Publishers first come out with hardcover editions for (in the US) a $20+ price. With this they cover the well informed, price insensitive crowd. After a year or so comes the paperback with a price of around $10 that caters to the more price sensitive crowd.

However, there is another problem that publishers must deal with. Readers in different countries have vastly different purchasing power. How do they preserve their pricing model in the developed world without losing readers in developing countries like India? In the past they would just delay the launch of the book in India. However, in today’s global village, the media buzz around the launch of a new book creates demand everywhere at the same time. Postponing the book launch in India could mean lost sales.

So the solution is to launch relevant books in India simultaneously (or closely after) with the US market, but go straight to paperback. The different covers in a way justifies the different prices. For me, this is great news. I hate buying hardcovers because I do most of my reading on long flights and that is just extra weight to lug around. But many times, I just can’t wait. Paperbacks in India are like having your cake and eating it too.

Pricing of information products is one of the most fascinating subjects in business. My own company sells an information product. Many an hour has already been spent on how to price it. I’m sure this is not the last time I’ll be talking about this subject on this blog.

The Competitive Indian

Last week I did some travel within India while on my trip here. On the Mumbai to Bangalore trip I saw something really fascinating. The flight was more or less on time. When it landed in Bangalore, the airplane had barely steadied itself after landing (still taxiing) when about a quarter of the passengers on board stood up and started taking their things out of the overhead compartments. The plane was still taxiing when there had formed a line at the door. The stewardesses repeatedly announced that the plane had not reached the gate and that passengers were required to be in their seats, but to no avail. These were people in a hurry.

On the next leg of my journey from Bangalore to Delhi I did not see this rush for the exit. Which is surprising if you know Dilliwallahs. So I wondered a little about it.

Later, I came to this conclusion - the people who formed the line knew that there was an aerobridge at the Bangalore airport. Therefore, if they got off the plane first they would actually get out of the airport first if they didn’t have checked baggage. In Delhi there was a bus to ferry us to the terminal and so there was no advantage in trampling over old women and children to be first off the plane. If my conclusion is correct, we are in for more stampedes as our airports modernize and have more aerobridges. Sobering thought, that.

In a more serious vein, is all this competitiveness good or bad for us as a nation? (Some of you may contest this conclusion that we are ultra competitive simply by pointing to our cricketing performance). I think that on balance it is good for us. While we do have to put up with the occasional dent in our Honda Accords from aggressive SUVs, it still has its advantages. It is Darwinism at its best. The students coming out of colleges today are tough. They know that if they don’t make it in the job market there is no social security safety net to break their fall. They also know that in the growing private sector the only thing that matters is merit. Hard work will pay. And when they do start making the big bucks, the marginal rate of tax is a moderate 30-35%. Compare this with the European social states where you can maintain a pretty good lifestyle on dole but if you make the mistake of working hard for a decent income, the state can take more than half of that away from you in taxes.

So the next time someone cuts into the check-in line at the airport in front of me, I’m going to think calm thoughts. Here’s someone who wants to get ahead in life, I’ll tell myself. May his tribe increase.

Back to school

I am on a trip to India. We just closed our funding. Now the action in India is going to be thick as we build our team in Mumbai. The quality of people we hire is going to be the single most important determinant of our success. And so the opportunity to go talk to students at the premier business school in the country was almost impossible to turn down.

One of us was invited to go talk to a forum at IIM Ahmedabad that comprises of students interested in startups. Either doing a startup or joining one. Since I was in Mumbai and this was over the weekend, I decided to go as well. I hadn’t been there for over 10 years (I graduated in 1989) and needed just an excuse to visit the alma mater.

I went there with some trepidation. IIM A is not known to produce your entrepreneurial sort. Most students have little or no work experience, and perhaps rightly so, seek to get some. And there are all kinds obscenely high-paying jobs in India and abroad in investment banking, management consulting and other spheres that are just waiting to be landed.

I was pleasantly surprised by the turn-out. There were about 40 students from both PGP I and II (first year and second year). They were engaged and had good questions. In the break I learnt that many of them were choosing not to take up jobs but instead start a new venture immediately. I thought that was just great.

I also caught up with Prof. Arvind Sahay who teaches Marketing at IIM A. Arvind and I were in the same graduating class from IIM A. Since then he had done a Ph.D from UT Austin and had taught for a while at London Business School. Next stop - Ahmedabad. It seems many Indians abroad who are doing well in academia are heading back to quality institutions like IIM A. Arvind reeled off an impressive list of recent hires. This is great news. The 1990s weren’t the most exciting times for IIM A. Now a new generation of faculty is injecting much needed change. There are new courses, new programs (like the PGP Ex on the lines of ISB) and a lot of investment in the right things. The new campus is still not done but it looks quite impressive. Different architectural theme from the old campus, but retains some of the old flavour.

It felt good to go down memory lane a bit too. For those in the know, the magic of Louis Kahn Plaza at night does not diminish with time.