Take a slightly complicated case of the textbook market that I have been observing over here, for primary schooling in parts of Andhra Pradesh. Please add on to it if my hypothesis or conclusions are incorrectly framed. Each class has, say, 7 subjects. Each subject probably has 5-15 companies vying to have their brand of textbook chosen. I have included workbooks under the genre of textbooks here. The school decides the list of textbooks to be bought by parents. However, in most cases, the school also supplies the particular set of textbooks. The incentives of the school (the Chooser in this case) are necessarily not that of the parents. Textbook suppliers compete to be on the textbook list.

However the schools have competition in the area of distribution from other textbook shops and second-hand book suppliers. Schools get around the second-hand book suppliers by not repeating the book chosen, maybe for atleast 2-3 years. The textbooks chosen by a school are often not found in the open market (especially in small towns) for two possible reasons, none of which are yet generalisable. Distributors dont supply to textbook shops in the area based on an “understanding” with the school or probably the shop doesnt keep those textbooks because they hold limited sale value. In sum, this hugely raises the search cost for parents in towns and villages. Of course, the textbook manufacturer may be passing on a bulk discount to the school, but whether the school passes it on to the parent (the final Beneficiary) is anybody’s guess. Another interesting hypothesis that I have come across here is that schools compete to have their textbooks different from other schools so that the switching costs to another school are effectively raised.

What this may imply is the prices of textbooks in this case is much higher because of lack of competition/ choice at the Payer/ Beneficiary level. The incentives for price-competition are much weaker for the school but only the school has the information/ decision power to make the textbook list.

I wonder to what extent is it mandatory to buy textbooks from the schools itself.

This situation is worse in the US. The profs there (the Chooser) have every incentive to focus on the quality of the textbook. But the burden of price falls on the student (the Payer and the Beneficiary). That coupled with lack of arbitrage opportunities (importing textbooks from other countries) and copyright issues (xerox ;-) has led to huge prices.

I remember one very smart textbook manufacturer in Bangalore who exploited a situation in this micro-market quite well. We had a new syllabus for all the engineering students that year. He was the one of the only two suppliers fast enough to come up with textbooks for the course. But the second-hand book market in Bangalore is huge. If you buy a brand new textbook in Bangalore, you are assured 40% of the book’s sale price in cash if you sell it. Buying second hand books is usually 70% of the sale price. So in the first year, the prices of the textbooks had a huge premium due to relatively near-monopoly status. In the second year, facing competition from the second hand book market he crashed the prices of his textbooks, to around 50% of their price in the first year which is probably closer to the real price). This virtually assured him of little competition from the second-hand book market. I am sure he must have made quite a killing. Given the non-perishability and replicability of the product, it is understandable why textbook manufacturers have utilised the decision-making power of schools at the primary school level. And joined hands with them.

This implies relatively little price competition at the final beneficiary’s end. And consequently higher prices. However the counter-argument may be that he is extracting the true rent in a situation of weak intellectual property rights and the entrepreneurial costs of providing such a non-perishable and replicable product in the first place.

Enterpreneurship is a critical element of a growth economy, and India is poised to unlock a Silicon Valley like entrepreneurial boom through the next 10 years. The beginnings are already in place, steps have been taken in the right direction.

I have written extensively on the topic of entrepreneurship and venture capital in India, and thought it would be a good time to summarize the various pieces.

Last summer, I started digging into the topic, and came up with my first nugget: Too Much Money, Too Few Deals, highlighting the excess capital chasing Indian startups, and the lack of fundable deals.

Around the same time, I also wrote my popular Concept Arbitrage series, which led up to the widely read Venture Capital in India article. In these, I explored what kinds of deals have been getting funded, and why. Consumer Internet turned out to be a big trend from last year, for India, while non-tech sectors like retail and real estate are also big money-making opportunities. In fact, I highlighted the retail trend in my piece about Oak Investment Partners’ India Retail Fund.

This year, as we have explored the issue of seed capital for entrepreneurship in India, the situation has got more dire, with more money going into India. This has led me to the conclusion that India Needs More Incubator Funds. I continued an exploration of the incubator fund requirements, while entrepreneur Sujai Karampuri wrote some passionate pieces on why we need technology product companies in India, and why we don’t have any.

Finally, I suggested some areas for technology entrepreneurs in India to explore as segments where new companies can be formed: SaaS, Enterprise 3.0 and web 3.0.

In summary, I am optimistic about India’s entrepeneurial potential, and look forward to tracing its developments over the coming months and years.

All you entrepreneurs and wannabes — comments are open.

India is rapidly evolving into Asia’s innovation center, leaving China in the dust. Its secret weapon? Intellectual property-rights protection. In recent years, New Delhi has taken big steps to protect these rights, and the results have been dramatic.
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… copyright-based industries such as the Indian IT sector have enjoyed rapid growth. The annual average rate of growth of Indian software exports from 1994 to 2002 was 48%, marking a drastic surge from the preceding five years, when the average annual growth was about 35%. If New Delhi keeps up its commitment to rights protection, the numbers will continue to grow. Within the next few years, annual revenues from Indian software exports are expected to reach $50 billion.

Furthermore, Indian entrepreneurs, business and government labs are filing for patents at rapidly increasing rates. The number of Indian patent applications filed has increased 400% over the past 15 years. Nearly 800 Indian companies submitted international patent applications to the World Intellectual Property Organization in 2004. This number may be fairly small by international standards, but is still more than double the number of Indian patents applied for in 2000.

Question: Is India’s IPR regime, on paper & on the ground, as tough as Wilder & Anand claim?

India has long enjoyed a reputation as a destination for IT and business process outsourcing. Now, the country is fast emerging as a major center for cutting-edge research and development (R&D) projects for global multinationals such as Microsoft and Motorola as well as Indian firms. More and more companies in industries ranging from IT and telecommunications through pharmaceuticals and biotech are setting up ambitious R&D projects, in part to serve the Indian market, but also with an eye to delivering new generations of products faster to the global market. What forces are shaping these trends? What does the future hold?

The stories in the special issue are:

R&D in India: The Curtain Rises, The Play Has Begun…

How R&D Is Changing Indian Pharma and Auto Companies

Anatomy of a Deal: Using Venture Capital to Fund Pharma R&D

Contract Research for Global Firms Creates Hotspots for IT, Telecom and Biotech

“In the End, R&D Has to Get Products to Market”

Human Capital: Can India Bridge the Knowledge Gaps Needed for Research?

Confessions of an Aspiring Venture Capitalist