When a pair of Harvard-educated Indians returned home to start a financial services company they knew the risks were high - but they have reaped significant rewards.
Start of big things in India
In 2006, when Kartik Varma and Dhruv Agarwala, both 2002 Harvard Business School graduates, decided to leave their high-paying corporate jobs in the West to pursue a less travelled path - to launch a start-up in India - it was not an easy decision.
Both grew up in India, but after spending more than a decade working for multinationals in Europe and the US, the proposition of returning to India to found a financial services company in a developing economy was fraught with risks. But they were buoyed by the "opportunity of India". They saw an enormous potential in tapping India's vast emerging middle class who, according to the pair, "are clueless about what to do with their money" because the frugal generations before them were not as well off.
Thus iTrust Financial Advisers was born, in Mr Varma's basement, before it moved into a gleaming glass tower in Gurgaon, in northern India. It offers a range of services covering mutual funds, insurance, tax and financial planning. Profits quadrupled in the first year and have more than doubled in subsequent years despite the economic slowdown. "There is a growing realisation that emerging markets like India and China are the place to be. More MBAs will gravitate towards these lands with opportunities," says Mr Agarwala, who left General Electric to launch iTrust. His co-founder Mr Varma left a similarly plush position at the Children's Investment Fund in London. In recent years, robust economic growth, rising salaries and the opportunity to make an impact fast is helping emerging Asian economies become the new "promised land" for business school graduates.
Until a few years ago, most Indians educated at foreign business schools chose to pursue their careers in hotspots such as New York or London, the undisputed capitals of global finance. But recently, a large crop of new MBAs, even ones from Ivy League B-schools, are trading in their dreams of conquering Wall Street or Silicon Valley for working in Gurgaon or Pudong. According to Vivek Wadhwa, a senior associate at Harvard Law School, 100,000 Indians who once looked to the US in search of jobs will move back to India in the next five years. He foresees a similar trend among Chinese graduates of US universities.
This trend, called "reverse brain drain", has accelerated in the wake of the recent economic slowdown in recession-wracked developed economies. "During the recent tech boom, 52 per cent of Silicon Valley start-ups were founded by people who were foreign born," Mr Wadhwa said. "Now some of these companies will be started in Beijing or Bangalore. That is great for India and China, but a big loss for Silicon Valley."
Asian economies are emerging as a favourite destination not just for top western-educated Indian-born talent, but also for foreigners. At premier American B-schools such as the University of Pennsylvania's Wharton School, and Northwestern University's Kellogg school of management, the percentage of graduates taking up jobs in Asia has grown from 5 per cent in 2005 to more than 10 per cent now. Analysts say India was less dented by the global recession given its fortunes are less coupled with global markets, and more on internal domestic consumption. Even as western economies are struggling to emerge from the shadow of the recession, recovery in India has been more fast-paced.
"It is possible for India to move into double-digit growth and even become the fastest-growing economy in the world within next four years," Pranab Mukherjee, India's finance minister said as part of an economic survey released last month. Thanks to an economic boom, Indians have enjoyed one of the highest salary hikes in the world and it looks set to continue. In the coming financial year, Indian companies are expected to give pay rises in the range of 9 per cent to 12 per cent to retain talent as the job market revives, says the consultancy company Ernst and Young.
Growing incomes have spawned an "earn-and-burn" generation of high-paid, high-spending middle-class Indians. "You drive down a road in Gurgaon and you will find a three-storey Allen Solly [men's clothing] showroom," said Mr Varma. "Such choices did not even exist when my parents were growing up." iTrust estimates that out of a population of 1.1 billion people, there are more than 20 million affluent households, a number that is growing at 15 per cent annually, with disposable incomes ranging between US$10,000 (Dh36,729) and US$60,000. This class of Indian society forms a bulk of iTrust's clientele.
But starting a business in India is fraught with challenges. Registering the company is a long, draining process. Government red tape makes it worse. India ranks a dismal 133 out of 183 nations, even below Pakistan, according to the World Bank's annual report on global business regulation, Doing Business 2010. Last summer, iTrust co-sponsored an online petition drive - www.e2i2.in - to coax Indian policymakers to purge regulatory barriers that impede the potential of start-ups.
Corruption is endemic and greasing the palms of business associates is the norm. An estimate by CK Prahalad, a management expert from the Ross School of Business at the University of Michigan, puts the cost of corruption to the Indian economy at up to 2.5 trillion rupees (Dh203.55 billion) a year. According to Transparency International, an international anti-corruption organisation, India ranks 84th out of 180 countries in terms of commercial corruption.
But iTrust decided it would never compromise. "Under no circumstance will iTrust give any of its customers a kickback or a rebate," says a terse disclaimer on its website. India has one of the world's youngest populations, often called its "demographic dividend". But hiring a professional, reliable workforce is another key challenge. "Our business is all about people," said Mr Agarwala. "It will take years for India's young workforce to be corporate-ready."
Also, India does not have a start-up culture, unlike Silicon Valley, which has a history of college leavers and smart but unknown professionals launching innovative products. "That kind of aspirational value does not exist here," says Mr Agarwala. "There is a lack of willingness to throw yourself to the deep end, to expose yourself to risk." He says that when iTrust was launched, an employee refused to show up for work after his first day because working for a lesser-known company might "put off" the parents of prospective brides who put a premium on working for top companies.
Although India is now increasingly attracting top western-educated talent, the number of those interested in start-ups is significantly small. Despite the difficulties, it has been worth the effort for iTrust. "It can be challenging to be an entrepreneur in India," said Mr Varma. "But the bulk of challenges weighs far less than the quantum of opportunity that exists here." firstname.lastname@example.org