Why Flipkart’s move to Palo Alto vindicates a 200-year old economic theory

The three phases of technology development in Indian startups

Comparative advantage — the long and short of it!

In 1817, David Ricardo, the English economist first proposed the theory of comparative advantage. In a nutshell, it proves that any country should produce the goods that it has a comparative advantage in producing while purchase those goods in which it does not. This theory was turned on its head during the period of import-substitution policies formulated in the Soviet and carried across most socialist countries. The argument frequently posed was that this enabled a country’s eventual progress up the technological chain and was sustained through strong protectionist policies.

So how does this fit in with Flipkart’s move to Palo Alto. It is because once one has moved past click-bait articles such as Flipkart planning to take on Amazon in its backyard, this is the third phase of the eventual technology development story within the Indian startup ecosystem.

Phase 1: Jai Jawan, Jai Kisan

Jai Jawan, Jai Kisan, Chalta-hai vigyaan

In this phase, Indian startups decided to develop tech teams (jawans) with completely homegrown talent. With an army of kisan-rate techies and labour workforce, these startups tried to change the basis of competition. While keeping technology “chalta-hai”, they tried to move the basis of competition to operationally intensive labour. The problem: scaling that low-cost labour proved to be much harder compared to the tech-focussed competition.

Phase 2: Ghar aaja pardesi

Ghar aaja pardesi, tera desh bulaaye re!

In the second phase, Indian startups realized that “chalta-hai” technology would not be good enough and the gulf needed to be closed. They lured NRIs who had built a career in Silicon Valley with plum product/engineering roles. Flipkart itself, most notably, hired Punit Soni from Google to head its product division. The problem: culture, such a key component of any organization was ignored. These hires were all used to a fair degree of autonomy with no one breathing down their necks on weekends. Moreover, hiring a marquee name at the top was like applying a band-aid to a gaping wound. Entire tech teams needed to get up to speed to the capabilities of their Bay Area counterparts, something that is not going to happen overnight.

In both phases, the other issue was that the Indian government did not set up any sort of protectionist policy on the use of technology by foreign entrants that might have allowed Indian startups to develop quality in-house tech talent over time. To be absolutely clear, I not support import-substitution but rather suggest that the necessary condition for it to occur was not even there in the first place.

Phase 3: Ricardo’s world

I hope that the current decision by Flipkart, Snapdeal and others to base at least part of their technology and data teams in the Bay Area is a long-term decision. After all, an ecosystem for attracting talent and developing top-notch tech teams is in place. Sure, it costs a few more dollars (compared to rupees) from the pocket upfront, but the gulf in technological prowess can now be bridged. And thus by leaving technology to the Bay Area, Indian startups can focus on where their comparative advantage should lie: better understanding of local markets and shaping of the regulatory regime in their favour.