Full transcript (Edited version) of Capt. Raghu Raman’s talk: The 32-Minute MBA From Indian Streets at Josh Talks Mumbai 2018.
NOTABLE QUOTE FROM THIS TALK:
“Now if this raw energy which is coming in to the streets is not channelized, and we don’t fight the right way to leverage it, the right way to find them employment, give them what they need, meet their aspiration, then this youth dividend that we keep talking about and you belong to it, can actually start turning into a youth nightmare.”
Capt. Raghu Raman
I’m going to talk to you about a part of India that usually we don’t sort of recognize as a formal industry or a formal business and usually it’s referred to in various different reports and documents and Management studies and business schools as the informal industry, the marginalized industry.
But you will see some glimpses of it, I’ll play a short movie for you as an introduction of this unorganized India, an Inc. I call it India an Inc; this term is not coined by me. It’s a term that’s been coined many years ago.
But it gives you a glimpse of that part of India that we kind of — Indian business that we kind of take for granted. And we oftentimes don’t even look at them, so let’s begin by just watching a very brief montage of India an INC.
So in this 30-second clipping you saw a whole series of activities that happens around us. I mean newspapers arrive at home and coconut water comes, flower delivery, vadda pav in the streets. And we forget that this entire infrastructure and framework which pretty much runs our life on a daily basis is also a formal business. And we label them as marginalized informal unorganized sectors.
Over the next 10-15 minutes I actually want to show you how much of injustice we do by labeling this industry as marginalized informal unorganized, because in every parameter of business metric they very often exceed what we consider to be the tier 1 companies, the ones that are listed in Sensex, Nifty, the big giants, the unicorns and the branded organizations.
I don’t know how many of you are aware that close to 50% of India’s GDP is contributed by the unorganized industry. Not by the organized industry, by the unorganized industry and those of you think that FDI, you know there’s a big celebration that happens whenever FDI inflows come in.
FDI inflows have never exceeded more than 7% of India’s GDP ever. 50% comes from the unorganized industry. The unorganized industry employs close to 90% of our workforce.
India has a workforce of about almost 500 million and 90% of that is employed by the informal industry, by the unorganized industry. And as I’ll show to you with one example after the other, they also perform pretty much in every metric better than Tier 1 businesses or businesses that we normally consider to be the benchmarks or in many cases the aspirational companies that we want to join.
I’m sure many of you must have seen these stores, these bookstores, these food counters. Here you see an example of a bookstore on a pavement. You can actually measure that the per square footage revenue and return of investment that happens in a pavement exceeds by several multiples the return of investment that happens in these big malls that you see, the shiny malls, the the chrome and glass and the branded stores.
The pavement actually delivers a much better rate of return for every rupee that is invested in a business over there. These books that you see stacked in the pavement, you would have also noticed that many vendors carry these books in their hand.
Now those of you who are marketing students or who are studying FMCG businesses, you’d be taught that there is a whole science in placement of products in the shelf space. Actually the self place is very actively contested and fought for and there’s a whole design principles that go into it.
My sense is that the shelf space that you see, this old man carrying, he has to carry the set of books and certify it by his sweat equity. He has to make sure that every book that he adds on, which is another 200 grams, and every three to four kilos that he carries on a daily basis — and by the way when you carry 3 or 4 kilos for more than a couple of hours it doesn’t feel like 3 or 4 kilos; it feels much much heavier.
Matter of fact I tell a lot of my author friends that if you want to know that you have arrived, then you need to find your book in this stack. If it is there in this stack, then this old man has certified that your book is going to become a best-seller.
Right now you see a salesman and he is a sales boy; he’s a salesman, sales boy who is selling flowers in — and you would have seen them in traffic lights and so many other places. This sales boy who has a 30% margin, the flower that he sells to you for 10 rupees it costs him 7 rupees to acquire that and he’s got a 30% margin.
More importantly he can give you a 50% discount on the spot if he likes your face. If you try to get even a 5% discount in an organised business, if you are trying to implement a 5% discount that decision has to travel all the way up to the CxO, in some cases the board level and then come down from there, and by the time that decision comes the opportunity has already been lost.
This is an example I want to illustrate to show you how the distribution of wealth in the informal sector is far more equitable than the formal sector. So suppose you eat a plate of idli from a vendor in a footpath, and he charges you 12 rupees for that plate, he keeps only three rupees of that 12 rupees. The remaining 9 rupees goes into the entire supply chain, the people who wash the utensil, the people who grind the dough, the people who bring it in an auto rickshaw, they are the ones who get it.
If you eat the same plate of idli in a five-star hotel, which costs you about 400 rupees, the bulk of that money is kept by the establishment and a very miniscule percentage of that actually reaches into the ecosystem.
The third example I want to show you is the fluidity with which these businesses operate.
What you’re seeing over here is a street vendor. Any idea what he is selling? He’s selling something for a festival.
What festival would that be? Holy. This street vendor and millions of vendors like him, they have to change their entire inventory, their supply chain, their target segmentation, their pitch, the method by which they sell, every month, month and a half.
So they actually change their entire supply chain, their entire business model, more than twelve times in a year.
Now compare that with the business transformation on an organizational realignment that big organizations try to do and I’m given to understand from management gurus that it takes anywhere between five to seven years to implement organizational transformation, which this market does twelve times in a year.
That’s the kind of fluidity that they have, that’s the kind of agility with which they can operate.
If you look at this marketplace, my sense is I can see more entrepreneurship happening in this crowded marketplace than you will find in the Silicon Valley or in incubation centers and let me explain this to you.
You might have noticed that when you go to these marketplaces, or these red lights, suddenly a new product will emerge. Sometimes it will be a toy; sometimes it will be a head massager; sometimes it’ll be a kind of a fountain to clean car. Sometimes it’s the national flag on 15th of August or 26th of January or is this Christmas hatch that you saw a few days ago.