Thursday 23 August 2007

Microsoft's grand plan for India

Business India, July 19-August 1, 2004

Realising potential

Microsoft is rolling out an ambitious and carefully worked out grand plan for India

Shivanand Kanavi

On 10 June, 2004 Microsoft India organized a retreat for its customers, executives, and partners in a hotel on the edge of the picturesque Powai lake.After two days of techie talk, the Microsoft Executive Summit 2004 ended with a presentation by chairman Ravi Venkatesan. It is after all customary for the chief honcho of the hosts to conclude such get-togethers, so what was so special about this one? First, this was the first time Venkatesan faced the various stakeholders in his strategy for India. Second, though the topic of the summit was ‘Realising Potential’, the current ad-line of Microsoft (M S), he carefully titled his talk, ‘Realising potential with India’. And third, he was able to sweep the audience with a rousing presentation that chalked out the six-pronged grand plan for India. In fact the A.R. Rahman Vande Mataram rock video, thrown in for good measure at the end, seemed like overkill.

The first prong is contributing to the success of Indian IT. Microsoft has been at it for nearly 14 years since it first set up shop in the country with Rajiv Nair, who was later succeeded by Sanjay Mirchandani and then Rajiv Kaul. They not only set up the channels to sell M S products like Windows, Office, and Server with various hardware vendors and manufacturers, but also started a training programme. According to Mirchandani, currently president for Asia and the Pacific, this programme of training software professionals in collaboration with NIIT, Aptech, and SSI was a large commitment by Microsoft to Indian IT, since it also meant a subsidy of nearly $25 million over the years. The programme trained over 100,000 programmers as Microsoft Certified Engineers, a globally recognized qualification. Suddenly, India became a country with the second-highest pool of such professionals after the US. Quickly other software companies like
Novell, Oracle, and S A P followed with their own certification programmes. The qualification brought a certain standard and respect for Indian programmers worldwide, which the Indian I T industry amply exploited when the Y 2 K problem presented them with the first big opportunity.

“Over the past 13 years we have established a strong partnership with India through the support of our investments with the government and our relationships with many strategic Indian companies. As a centre of innovation in the global IT industry, we are confident that the commitment the company made when we first started working in India will continue to provide increasing value to customers and make a positive difference toward future innovation and opportunity within India and to customers and partners around the world.”—Bill Gates

Gates’ way to India
The public image of Bill Gates has moved from icon of rebellious new entrepreneurship that disrupted old ways of doing business, to a mixture of envy towards his enormous wealth and cries of dominance and monopoly. However, in India he has had an enviable reception the three times he has visited the country.

Gates was treated like a rock star by the business community in 1997; as we commented in our cover story then, the only other person who got similar response was Michael Jackson, who also visited India the same year. By August 2000, during his second visit, the Internet bubble was still growing and software stocks had astronomical valuations. Every politician in India was more than ready to take credit for the stock market boom, as well as booming software service exports. And then Gates decided to meet the chief ministers. What a melée that was!

This writer was witness to the jockeying that went on among various chief ministers to be seated next to Bill Gates. The late Dewang Mehta, who was being consulted by Microsoft on how to handle the luncheon, had to use all of his considerable charm to assuage the feelings of those who ‘lost out’.

The mystique of Bill Gates has, however decreased over the years for Indian public, as is natural. During his third visit, when he announced a considerable sum of money from his private trust for the Aids campaign and new educational initiatives by Microsoft, there were some who were already derisive. They linked his generosity to the threat of Linux, marketing Windows, and so on.

But Gates seems to have had a balanced strategic interest in India right from the beginning. In fact, all the new initiatives we have described in the main story that make Microsoft finally relevant to India – be it the largest product development centre outside Redmond, or the Indian language software initiative, or digital inclusion, and so on, – were all initiated seven years ago, during his 1997 visit.

The seriousness with which he views India and the respect he has for Indian techies was again reiterated when he gave the keynote address at the golden jubilee celebration of IITs in San Jose, California, on 17 January 2003. Though he gets many invitations to talk at college and alumni functions, which he rejects, he made it a point to address this one. In his speech he acknowledged the role played by IIT alumni within Microsoft, and also raised indirectly issues about giving back to India and participating in its development.

Moreover, its relationships with Indian IT companies TCS, Infosys, Wipro, Satyam, and others also blossomed as Microsoft realised that they could be the best vehicles to promote M S technology by architecting their solutions worldwide on M S products like Windows, Server, SQ L, and so on. These companies in turn set up special labs to learn new MS technologies and implement and test various solutions on them.

The software honchos that Bussiness India spoke to were unanimous about their high appraisal of the relationship with Microsoft. “TCS has a strategic relationship with Microsoft, both as a artner and as a customer. We build solutions on M S technologies to meet the needs of our global customers, ensuring quality and superior service value at all levels,” says S. Ramadorai, CEO of TCS.

“Today we share a multifaceted relationship with Microsoft. A key component of this relationship is our strategic global partnership for developing, promoting, and delivering a comprehensive portfolio of Infosys business solutions and enterprise services on the Microsoft .net platform. We are also a large and key customer for M S technologies. And finally, Microsoft is a very important client for our IT services,” gushes Infosys CEO Nandan Nilekani.

“We have a unique engagement model with Microsoft which best leverages our individual strengths to deliver the best-of-breed technology solutions and services to end customers globally,” says Wipro chairman Azim Premji.

Microsoft has strong relationships with other software companies too. In fact the largest installation of M S’ s technology in a global bank is in Shinsei Bank, Japan, whose systems were built by Indian companies like Nucleus, i-flex, and Polaris.

Microsoft’s other concern is business development among Indian companies, banks, and the government. Not leaving anything to chance, its consultants are helping various corporations and organisations in India to build their systems based on M S technology. Be they ICICI Bank or HDFC Bank or L&T or Titan or Dr Reddy’s Laboratories or Bharat Petroleum, these and others are more than ready to come forward with customer satisfaction certificates for Microsoft.

In fact, Reliance Industries chairman Mukesh Ambani went as far to say, “There is a latent potential for India to strategically use IT as a differentiator and make a mark in the world economy, particularly in the emerging economies, where IT penetration is low. A key parameter for achieving this success is the rate at which IT is used to create an affordable value proposition that has a positive impact on the life of the end consumer. This common vision underlines our partnership with Microsoft, as we align our resources to provide rich, IT-based services for Indian consumers.”

Despite heavy piracy in the home and small business segment, Microsoft’s sales have gone up at a steady clip of about 40 per cent compounded annually. Trade sources estimated its sales in 2002–3 as Rs788 crore and market share (in volume terms) at 60 per cent in the server market, 41 per cent in the database SQL Server, 60 per cent in mail messaging through M S Exchange, 65 per cent in development tools like V S.net and Visual Basic, and of course, an overwhelming 90 per cent in Office and 95 per cent in Windows on desktops.

As for new avenues, Ravi Venkatesan is clear that the small and medium businesses are a targeted segment. “The big growth is going to come from, and jobs are going to be created in, not large corporations but nearly 100,000 small and medium enterprises (SMEs). Of course, having said that, one knows that the road ahead is not easy. The level of IT penetration among them is really low.” Interestingly, Venkatesan is not an IT engineer but a mechanical engineer who was chairman of diesel-engine maker Cummins in India for over 17 years. “When I was at Cummins there were a lot of suppliers who were small, and who were at infancy when it came to IT. Information technology can help them in a big way in terms of market access — letting the world beyond India know about them and so on. In 1997 Telco pushed every vendor to get IT-enabled. It is a big play and a market opportunity. We are quietly going about doing it. We spent $2 billion to acquire two market leaders in ERP for SMEs.”

In fact Microsoft is using a multipronged strategy in this respect. Rajiv Kaul, M D of Microsoft India, heads the SME section of Nasscom, bringing him face-to-face with the problems of SMEs. Meanwhile Rajesh Jain (the most successful dot. commer of India) is collaborating with them in creating new solutions for the special problems SMEs face.

The third prong of the strategy is ‘digital inclusion’, a word with positive connotations coined by Microsoft. It means enabling more and more people to use computers and IT in their daily lives. Of course, cynics would say that ‘digital inclusion’ is little more than a grandiloquent expression for market development. It may be. But none can doubt the benefits of such inclusion, no matter who initiates it.

But as Ravi explains, such a lofty goal requires several components in place, especially when one sees the low levels of PC penetration and even lower levels of Internet penetration. “We have to look at affordability, education, language, and localisation. Affordability is where we come in for a lot of criticism. There are things to be done there, but we have also not communicated what we are already doing. In Windows, our strategy is to add more and more functionality without raising the price. As a result our customers are thrilled, but not our competitors, who are wrongly calling it a monopolistic practice. If the customer is thrilled then it is not anti-consumer, which is the main element of a monopolistic policy.” Moreover, for segments where affordability is an acute issue like government or educational institutions, M S is offering special prices. Plus, like the car manufacturers, there are stripped-down versions without A C, without power steering or power windows, etc. “We are looking at good, better, and the best products increasingly for both O S and Office. It has been successful in some places and not successful in other places. We are now testing it in India,” adds Venkatesan.

Having come in from another industry, Venkatesan is bringing in a lot of lateral thinking into the implementation of the strategy. “Look at the cell phone industry. The median price is Rs6,000. Very few people can afford it but because of monthly instalments or prepaid S I M cards and so on, handsets are proliferating. We are doing some pilot studies on these payment models.”

The final leg is financing. A tool that has clearly worked for white goods, cell phone, and two-wheeler penetration in India. Will Microsoft offer its software along with hardware vendors on monthly installments? One will soon see.

As for education, the company is in a exciting phase. “There is Shiksha, in which we partner state governments and set up teacher training academies. Bring in teachers from government schools and teach them a very good I T curriculum. We have already opened up in Uttaranchal and
Andhra Pradesh and we are in talks with several other states to have more. We plan to have 10 in all. We are going to spend about Rs100 crore in the next five years,” says Kaul, who has won several internal awards within Microsoft for best practices. M S has a plan to train 100,000 teachers and 3.5 million students in the next five years through this programme. It is working with engineering colleges and IITs at the higher end, but not ignoring the more basic phases of education. It offers free software for any old PCs donated to schools by any individual or company, and is also working with the government to facilitate the import of used PCs from developed countries for exclusive use by schools.

Besides, to encourage budding computer geniuses, the company has started a competition for college students called Imagine Cup. “Thousands of students are participating in designing imaginative projects based on MS technologies and winning global recognition,” says Homi Bharda, who mentored two such teams at Vivekananda College, Mumbai. Microsoft is also partnering NGOs like Digital Alternatives, led by Ashok Khosla, to help them bring the benefits of IT to underprivileged communities.

But the most impressive work it has done so far in India is to localise MS products in Indian languages. When Gates announced such an initiative several years ago, none – this writer included – believed it. After all, for a global giant like Microsoft, Korea or Japan or China are much bigger markets than India was then. So, following market logic, why would it spend money to bring out its products in Hindi or other Indian languages? Well, Microsoft has finally proved the sceptics wrong.

Windows XP now supports over 14 Indian languages, MS Office has been produced in Hindi, and there is work in progress for other languages. The journey, however, has not been easy in this respect. To begin with, no standards were being followed by small companies engaged in developing Indian-language fonts and applications. C-D A C was working on an I S C I standard and contributed enormously to the explosion of Indian-language publishing using D T P. But there were lots of small developers who created their own coding standards and sold their packages to customers. These developers were not forced to adopt I S C I. As a result there are even now users whose data cannot be communicated to others due to lack of standardisation.

“In 1997–98, when we got into localisation, before we got into products we decided to adopt Unicode, since that is the only Web standard. To promote the standard (Unicode) we wrote to the Central and state governments and spoke to everyone everywhere to adopt Unicode. We also got a partner, Web Duniya, to create an engine to map non-Unicode into Unicode,” says an enthusiastic Raveesh Gupta. One has to stop this tireless evangelist to understand first of all what Unicode is.


Thinking differently
Microsoft has to reinvent itself to face the challenge from open-source software

Since the mid-1940s, which saw the birth of digital computing at the fag end of World War II, the use of computers has increased in expanding concentric circles to include more and more people who are not necessarily computer engineers. Initially there was no distinction between hardware and software. The engineers who built the computers also knew how to program them. Obviously this number was minuscule. The development of programming languages like Fortran, Basic, and Cobol, which looked like English but were used in laying out the logic of the particular calculation or process to the computing machinery, led to the fast spread of computer usage among engineers and scientists, and programmers who were not necessarily computer engineers. But this was still a small number, probably a few thousands in the 1960s. The quantum jump in computer usage into millions, and eventually hundreds of millions, came with the development of personal computers in the late 1970s and early ’80s.

One of the factors that drove the development of personal computers was the need for interactivity. That is, if you sent a query to the computer you wanted the answer then and there, and not on the next day, as was the case with the old computers.

Bill Gates recalls in his book The Road A h e a d the exhilaration he felt as a 16-yearold, high-school student at Lakeside School, Seattle, where he and Paul Allen were allowed to play with a terminal which was connected to a large computer. Gates was lucky. The Mothers Club at Lakeside had raised some money through a sale and with great foresight used it to install a timesharing terminal in the school, connected to a large computer nearby running a version of Basic. Gates says that it is interactivity that hooked him to computers.

But what led to the P C revolution was not just affordability and interactivity of personal computers but also the development of packaged software or what is called ‘plug and play’ by computer geeks. Now one needn’t know any programming language to use a computer. The computer just provided different functions like letter-writing and communication like email, or writing and publishing, as in word-processing and desktop publishing (D T P), or keeping your accounts in what accountants call a spreadsheet, or storing phone numbers and addresses in an ‘address book’ or ‘databases’ in computerese, and so on.

All this was made possible with the development of packaged software. However, one had to pay a small price for this packaged software. But when the number of users grew exponentially, the small fees for software led to enormous wealth for package developers like Microsoft, whose Office suite is the most widely used package in the world. Bill Gates played a stellar role in the spread of personal computing with his ‘operating system’ M S-D O S and later Windows.

What is an operating system? It is a piece of software that comes into play soon after you ‘boot’ the P C into wakefulness. Nobody communicates directly with a computer like the pioneers of computing in the ’40s. Instead, you communicate with a computer via an operating system. The more user-friendly the operating system the easier it is for people to use the computer. An operating system is a bunch of programs that function as a harmonious whole, acting as a language translator and hard-disk manager with a provision to amend the data and programs on the disk, sending results to the display or printer, etc. Without an operating system a computer is not much more than a lump of plastic and silicon.

In the 1970s Bill Gates and Paul Allen and similar geeks and hackers (amateur computer enthusiasts) were part of an underground movement in computing. Today the spread of personal computing to hundreds of millions has made them multibillionaires and part of the Establishment, and easy targets for today’s geeks and business rivals alike.

As more and more people want to be included in the digital society with less and less money in their pockets, what appeared at one stage to be a small and reasonable fee for packaged software appears prohibitive. Thus, various operating systems and packages that have been developed by software hobbyists in their free time and distributed free on the Internet, which are called freeware or shareware, are becoming the new underground. Moreover, some of the evangelists of the new underground, like Linux creator Linus Torvalds, have put the entire ‘source code’ – that is, the innards of a program – on the Internet for comments and co-development with other enthusiasts. This open source movement has become a ‘new, new thing’ in the technology underground. Companies like IBM, HP, and Novell are developing plans to benefit from the open source movement and create new paradigms in software business where some parts are free but others are sold for a fee.

This new consortium consisting of the muscle of these corporations, along with the talents of thousands of programmers who work freely in the open source movement, pose a big challenge to Microsoft. Some are going to the extent of even predicting the demise of proprietary software companies like Microsoft. However, Novell vice-chairman Chris Stone, considered the architect of its new Linux-based strategy, disagrees. “The history of technology shows that no single technology wipes out other competing technologies. Eventually they coexist with varying proliferation depending on what they bring to the table for users. Moreover, while the Linux operating system is free, the applications developed on it need not be free. At times proprietary applications may be released to the open source community, allowed to evolve there, and then again turned into new proprietary applications, and so on. And with the robustness of open-source software, an application developed on it may command a premium over other products. We are still in the early days of the game.” Bottom line: there’s no free lunch!

While this evolution of business models continues, there is another corner from which a serious push is coming to Linux in opposition to Microsoft and all other proprietary products, and that is security. This has nothing to do with the issue of whether Windows versions are more or less secure than Linux. The contending parties have diametrically opposite claims. There are a number of third-party research reports on the secure nature of Linux and an equal number praising Microsoft Windows. While there are several Websites on the Net extolling the virtues of open-source software, Microsoft too has set up a Website called www.getthefacts.com, which has several reports extolling the virtues of Windows while running down Linux. We leave the judgment to posterity.

But a serious concern towards proprietary software is being expressed by people like President Abdul Kalam, from another angle. If we want our data, especially in the government and defence, to be secure, then the software has to have its own secret security algorithms built by the user. The user can play with the operating system and build these algorithms only if he has the source code. This has led Kalam to promote the development of software skills in Linux in particular and open-source software in general. Every Linux expert and open source guru in the world is making beeline for Rashtrapati Bhavan to share the President’s concerns. Bill Gates made a vain attempt to allay the President’s fears when he visited India in 2002. Abdul Kalam recounted the meeting in a speech in Pune on 28 May 2003. In his own words, “I would like to narrate an event that took place in Rashtrapati Bhavan a few months back when I met Bill Gates, the CEO of Microsoft. While walking in Mughal Garden we were discussing the future challenges in information technology, including issues related to software security.
I made a point that we look for open source codes so that we can easily introduce user-built security algorithms. Our discussions became difficult since our views were different. The most unfortunate thing is that India still seems to believe in proprietary solutions. Further spread of IT, which is influencing the daily life of individuals, would have a devastating effect on the lives of society due to any small shift in business practice involving these proprietary solutions. It is precisely for these reasons that open-source software needs to be built, which would be cost-effective for the entire society. In India, open-source code software will have to come and stay in a big way for the benefit of our billion people.”

Similar concerns are being expressed by the Chinese government as well, which has encouraged the development of a Linux company called Red Flag. Governments in Europe too are raising this issue. Microsoft is obviously concerned about this challenge from the governments (even though Indian government has no official stand on it yet) and has offered to share selected parts of the Windows code with governments under strict confidentiality agreements.

Kalam, in his speeches to the youth round the country, exhorts them to think differently. This, in more than equal measure, applies to Microsoft too.



“Unicode is like an MTNL directory. Every character of every language in the world is represented by an address in Unicode, so when a software or a hardware developer uses this directory to make calls to a character he simply cannot go wrong. If I were using a different directory from others we could never communicate,” Gupta explains.

To achieve a dialogue Gupta & Co set up a portal called Bhasha.com, which has became a showcase of success for Microsoft in its India strategy. In the process they discovered more than 300 companies working on Indian-language software. They conducted several training camps to make the community aware of issues like standards. Now thousands of developers are communicating through Bhasha.com. In fact, Microsoft worldwide is recognizing Bhasha as a great success to be replicated elsewhere. “We are working with many I S Vs — Modulo, Samtech, Web Duniya, Vishwa Kannada, etc. We made sure we get local language expertise from the real experts.”

Microsoft is also doing basic research in Indian languages at the high end to produce software in optical character recognition, translation, digital ink recognition, and so on. Several universities are partnering it in this endeavour, including Banasthali University, Rajasthan and University of Mysore. TCS and CMC have projects in computer-aided functional literacy packages with great potential and Microsoft is collaborating with them as well. “The story not told is how much work is being done in languages today. Other than government and public institutions, mobile service providers, banks and hospitals are getting into language services,” says Gupta.

Microsoft India is collaborating with the government at various levels to bring IT to governance. Over 150 applications – like the celebrated Bhoomi in Karnataka, which provides great relief to farmers by digitising land records – run on MS platforms. “One of the things we are extremely excited about is the rural kiosks developed by Nlogue, e-chaupal, and Drishti. These can catalyse development in rural India. They are innovative, but have not found a sustainable economic model. Out of 1,000 kiosks not many have reached an income of Rs3,000 a month for the operator. Most of them are on the Windows platform. What role can we play? Not a commercial one. In some cases it is technology, and in some cases it is transferring best practices. But we are working with all of them,” says Venkatesan.

Globally the most significant thing Microsoft has started is the development centre in Hyderabad headed by Srini Koppulu. He is an M S veteran of 15 years, who has worked in several basic technologies including Windows and Office. Today the Hyderabad centre, with about 350 engineers, is the only one of its kind outside Microsoft headquarters in Redmond, Washington.

It has come out with several products for M S and Koppulu and Venkatesan have an ambitious plan to do much more to realise its full potential. “Clearly we are not in a numbers game. Obviously there are several MNCs who have set up development centres in India. And other than one or two I wonder who is actually developing their core products here,” says Koppulu.

It has not been easy for Koppulu. Though the suggestion to set up such a centre came from Gates on his 1997 visit, Microsoft had an entrenched view that the centralised way of doing product development in one place, and that too on the Redmond campus, was the only way. Of course this had suited the company for so long, and nobody wanted to fix something that wasn’t broken.

But now five years and several products later, it has earned its spurs and is aiming higher. When Venkatesan says that Hyderabad could probably become the centre of excellence for products aimed at emerging markets, it appears like déjà vu. After all, management gurus like C.K. Prahalad have been popularising this concept of aiming at the bottom of the pyramid with world-class technology. Will Redmond take this seriously? One has to wait and see.

“How do we get different parts of business to work cohesively and how do we get Redmond to understand the opportunity that we have and throw its support in terms of technology and resources behind it? How do we become a benchmark for market innovation for developing economies? We have hired great people, but like the IITs we leave them to sink or swim. Most of them swim because they are good people, but going forward how do we develop them and become a net supplier of talent to Microsoft?” These are some of the questions bothering Venkatesan at the moment as he prepares his presentation for Bill Gates, Steve Ballmer, and other honchos in Redmond.

Bill Gates started his talk at the golden jubilee celebrations of the IITs in Silicon Valley on 17 January 2003 with a remarkable insight into the difference between the IITs and other institutions of technology around the world. He said, “I was careful to do research for this speech, so I went to the IIT Website and browsed around, and then I went to the MIT Website. On the MIT site the hot news was that the coffee house was closing down because people weren’t spending enough money there. On the IIT Bombay site, things were far more interesting. They said they had caught a leopard on the campus recently. And that’s something these US universities just can’t offer in terms of an experience.” This drew a lot of guffaws.

It is only fitting that Ravi Venkatesan, who is an IIT Bombay alumnus, and other Microsoft executives who met in Powai for the summit recently, are acutely aware of other leopards like Linux prowling around the outskirts of Powai and gear themselves up to execute the grand vision they put forward in the safety of the hotel.

Wednesday 22 August 2007

Dr Anji Reddy--A Profile

Business India, December 10-23, 2001

Size Does Not Matter

Anji Reddy has demonstrated that a highly focused small pharma company can also play in the big league of drug discoverers

Shivanand Kanavi

“Looking at the patents regime that has been accepted by 90 per cent of the nations of the world and the rapidly changing world scenario, the issue before us is not whether to accept the patent regime — it’s a question of when, say 10 years, as suggested by the Dunkel draft. Basic research is an arduous task and is said to be expensive. The statistical data from Western countries are frightening. It is estimated to cost anywhere between $100 and 200 million, but it is my considered opinion that in the Indian context such an endeavour may be accomplished within Rs100 crore or so.Expenditure of this magnitude is within the reach of some companies in India.”
Dr K. ANJI REDDY in his presidential address to the Indian Pharmaceutical Congress

Interestingly, the year K. Anji Reddy delivered the address was 1992. It is a classic example of the much-touted word “vision”. Dr Reddy’s Laboratories had just crossed Rs100 crore in sales that year and here was its chairman saying he could invest Rs100 crore in the next 10 years and discover new drugs! It was not an empty boast, but contained a clear-cut roadmap of process development, lead molecule discovery, and co-development and co-marketing with global majors. Obviously not many in the audience believed this bluster. Even fewer had similar plans.

But Anji Reddy went about doggedly implementing his own recipe step by step and took the risks. As a result his company, Dr Reddy’s Laboratories, stands tall in the Indian pharma sector in less than 10 years. Although no drug has yet come out in the market from Reddy’s stable, many are in advanced trials all over the world and major pharma companies like Novartis and Novo Nordisk are co-developing the drugs with him. If the molecules pass muster in the trials then they might even become sizable revenue earners. There’s a chance that one of them might even be a blockbuster.

Reddy started with two companies in his group Dr Reddy’s Labs and Cheminor. Recently they were merged. The group has grown from a sales of Rs 103 crore in1991–92 to over 10 times that figure in less than 10 years. In fact this years’ performance is amazing — over 150 per cent growth in the first half. Profits too have grown from Rs10 crore in 1991–92 to over Rs300 crore in the first half this year! Reddy calls them “indecent” profits and one of the main contributors is his exclusive marketing rights to sell the blockbuster Prozac, an antidepressant, for six months in the US market. But don’t let the self-deprecation deceive you; after all, when Reddy listed his company on NYSE in April 2001, it became the first pharmaceutical concern from Asia–Pacific to do so. And amidst crashing markets it has been declared the best-performing IPO on NYSE and Nasdaq this year. According to Naina Lal of Morgan Stanley, one of the main reasons for this performance is the high level of disclosure norms Reddy has adopted. It may be a family-owned business with himself, his son, and son-in-law controlling the management, but it is setting high professional standards.

One of the reasons for Reddy’s spectacular performance is his agility. “He knows when to get into a bulk drug or formulation and when to get out and move on to new ones,” says M.M. Sharma, FRS, former director of UDCT Mumbai and a doyen of Indian chemical engineers. From high-purity bulk drugs Reddy has moved into branded formulations and quickly made his mark. Nise, an anti-inflammatory formulation, has quickly become one of the largest-selling brands in the Indian market. He was a pioneer in exports and has maintained a strong position and increased value by filing Advanced New Drug Applications in the US market, as in the case of Prozac mentioned earlier. To top it all are his molecules for diabetes, which are in advanced trials. Reddy is very much a man on the move now with a $100-million war chest from his ADR issue on NYSE. He has earmarked $30 million for drug discovery and $75 million for acquisitions.

No wonder that when Anji Reddy addressed the recent Ficci CEO conference on ‘Building a research-based pharmaceutical company’, his theme was: “Size does not matter”. This time every one in the audience took this diminutive and feisty technocrat seriously.

“There has been a tradition of innovation in Reddy and other Indian companies even in process chemistry,” says R.A. Mashelkar, a champion for intellectual property rights in India. “That is why they can easily become a high-quality source of off patent generics for the rest of the world. This achievement itself is non-trivial and the oft-used statement ‘Indian companies used the Indian Patent Act 1971 and its non-recognition of product patents and prospered’ does not tell the full story,” he adds.

Clearly if it were so easy and trivial, then why are others not doing it with generics? Secondly, Reddy’s process for Ibuprofen, a popular anti-inflammatory drug, was so advanced that Ethyl Corporation, US, had to accept its superiority in front of the US Trade Representative and ask for tariffs to be put against Reddy to achieve a level playing field! Later Ranbaxy’s process for Cefeclor, an anti-infective, made Eli Lily, the discoverer of the molecule, take India seriously. Similarly, with Cipla’s anti-Aids, anti-asthma and anti-cancer drugs or Lupin’s anti-TB drugs. Naturally, when the anthrax fear psychosis took root in the American psyche, everyone looked at Indian companies to source Ciprofloxacin. One letter by a senator in this regard was enough for Bayer to drop the price per dose from over $4 to less than a dollar overnight.

Executives at Dr Reddy’s Laboratories (DRL) proudly recount an anecdote from the past about Reddy’s drive towards quality and innovation even in the early days. At one time DRL was making Ibuprofen of a higher quality than Boots, the original discoverer of the molecule. When a foreign buyer came and asked if DRL could supply “Boots-quality stuff”, Reddy is supposed to have replied that it would take a little time since it would need to introduce some impurities to achieve that!

That is quintessential Reddy; aggression and pride in the quality of his products. When he started making Methyldopa, a drug for hypertension, for the first time for exports in the 1980s, his goal was to at least achieve Merck’s quality. Today, when his molecular hunt is yielding results, he has provided a new international profile to the Indian pharmaceutical industry, notes Kiran Mazumdar, a biotech pioneer herself.

Reddy himself travels tirelessly. At a recent medical conference in Atlanta at which he was present, his vice-president for research was asked a highly technical question. Before the V-P could compose an answer he had a Reddy cue “tell him about the JAMA article”, referring to a complex medical article published in the Journal of the American Medical Association six months earlier. “He astonished others present by the speed at which he retrieved this highly technical information, considering that his expertise is in chemistry,” says Uday Saxena, who heads Reddy’s biotech research lab in the US.

Reddy is a man obsessed with his research. He looks very laid-back about everything else. “He never asks us about operations. Even when we are hard on ourselves for not achieving some target, he brushes it aside and gives the big picture, but as for research he drives them relentlessly,” says G. Prasad, COO of DRL. “It’s common to receive calls from him at 3 in the morning,” says R. Rajgopal, who should know, since he is president of Dr Reddy’s Research Foundation (DRF). Satish Reddy, MDand CEO of DRL, concurs. “He is extremely focused on research and delegates everything else to others,” he says.

Satish is Reddy’s son and Prasad is his son-in -law. Both joined the firm when it was in trouble in the early 1990s after an exodus of key personnel, but Reddy was planning his magnificent obsession the molecular hunt – right back then and hence sent an SOS to both of them to come and take over operations. The temporary setback bothered him little. His ploy worked. The Reddy group grew at a record 30 per cent year-over-year for the next three years.

Whenever we at Business India have met him in the last seven years there has always been talk about a new molecule. He just assumes that you know the difference between DRF 2725 and DRF 2593. “His excitement about research is childlike. He spends hours with his grandchildren explaining to them what he is doing in the labs,” says daughter Anuradha.

Sweet pain
Dr Reddy’s Research Foundation today is abuzz with research on diabetes. Though it has developed other molecules which have shown anticancer properties, what has brought it fame and confidence, and a few million dollars besides, is diabetes.

Diabetes has been known since 1500 BC (Eber’s papyrus of Egypt). Aretaeus gave it the name ‘diabetes’ in the second century AD. Interestingly, the main symptom of diabetes, namely a high level of sugar in urine, was described by an Indian physician of the 6th century AD who called it honeyed urine (madhu meh). The medical name Diabetes mellitus–meaning honeyed – comes from that.
There are two kinds of diabetes. Type I affects about 5 –10 per cent of diabetics and is characterised by a lack of insulin production in the pancreas (a small organ behind the stomach). This condition is created by the body destroying its own beta cells in the pancreas which produce insulin. People suffering from this disease take human insulin injections. Insulin is a hormone which helps in the absorption of glucose by liver, fat, and muscle cells. The lack of insulin leads to excess glucose in the blood, which is then passed into the urine through the kidneys. There are several dangerous effects of a high level of glucose in the blood. It can lead to deterioration of the kidney, retinal damage, early formation of cataract, and even coma. It has appropriately been called a silent killer.

Type II diabetes is a condition where there is enough insulin produced by the pancreas but the body is able to absorb only a part of that. This affects 90 per cent of diabetics. So one therapy available is to increase the production of insulin in the body. However, if we can make the cells absorb insulin, then glucose oxidation or burning in these cells will increase. It has been discovered that there are some Peroxisone Proliferator Activator Receptors (PPARs) and those molecules that bind to PPAR gamma sensitise the body for insulin absorption. Those that bind to PPAR alpha help in reducing the triglycerides – unwanted fat in the blood –and increase the level of HDL the so-called good cholesterol.

A Japanese company Sankyo discovered a class of compounds called troglitazones that sensitise the body for insulin. However, the molecule was withdrawn after it was found have side-effects on liver enzymes. Dr Reddy, who himself suffers from type II diabetes, was interested when he saw the activity of troglitazones and pushed his team to come up with better molecules. He had a hunch that activity could be increased with some clever substitutions within the molecule.

The result was a new molecule DRF 2593, which was at least 40 times more potent than the existent insulin sensitisers, but it too had a side-effect on liver enzymes. This molecule was licensed to Novo Nordisk, a leading player in diabetes. However, when better drugs by other companies with hardly any effect on the liver came into the market, Novo put DRF 2593 on the backburner.

When Novo representatives came to DRF, again, before making his presentation, Rajgopal asked them to write down a wishlist. The Novo people said, “We would love to have a insulin sensitiser which does not have side effects on the liver and which lowers lipids in the blood.” Rajgopal said “We’ve got it” and presented data about a new compound codenamed DRF 2725!

This new molecule not only sensitized the body to insulin absorption but also reduced the triglycerides in blood, thus hitting two targets with one arrow. It caused a stir and Novo
Nordisk double-checked the data in its labs and signed a licensing agreement forthwith. Today it has passed the first two phases and is in a global Phase-III trials in which nearly 4,000 patients are involved in about 35 centres. If all goes well, this molecule can come out as a drug for diabetes and cholesterol patients by 2003. It has been estimated that this class of dual-active drugs can increase the life expectancy of diabetics by 10–15 years.

Having tasted success once, the DRF team is charged up and has come out with another molecule DRF 4158, which is even more potent than DRF 2725 and is dual-active. This molecule has been licensed to Novartis and is undergoing Phase I trials.

Just a few weeks ago DRF announced a new molecule DRF 4832 at the American Heart Association’s conference and caused quite a flutter since this new molecule is in fact triple-active — that is, it also increases HDL (good cholesterol)! Clearly, world pharma majors are looking at DRF as a possible source of novel molecules and exciting drug candidates. Today the Camelot the DRF team is chasing is a triple-active molecule effective in type II diabetes which elevates good cholesterol and also lowers the bad cholesterol effectively like the statins.

Paradigm shift
The paradigm of secretive pharma research under one roof at a giant company has changed considerably as pharma majors go shopping to shore up their drug pipelines. They want to have several drugs under trial and be sure of the sustainability of revenue growth. The old “not invented here” syndrome is very much in the decline. They are scouring labs, universities, and research-based companies worldwide for new and interesting molecules. One of the reasons for a spate of mergers in global big pharma is this hunt for pipelines and synergies in R&D. Meanwhile, some companies like Sankyo and DRF are showing that small companies can come up with very interesting molecules.

Many molecules of DRF may be ‘me-too’ molecules — that is, they may not have extended the boundaries of medical research and might have followed somebody else’s pioneering work. But that hardly matters. If a me-too is more effective or less toxic or has other beneficial effects, it may turn out to be a bigger hit than the original. For example ranitidine – brand name Zantac – by Glaxo was a me-too after the original cemetidine by another company. But it contributed over $2 billion to Glaxo’s bottom line for several years. Similarly, Enalapril, an ACE inhibitor, and Atenolol, a beta-blocker, were also me-toos that became blockbusters.

Me-too molecules may not get you the Nobel Prize, but the research involved in finding them successfully is non-trivial. Once a molecule is found to be effective, all its analogues – look a likes (siblings and cousins) – are also investigated and patents filed to cover all the flanks and to see that the potential of the whole family of compounds is exhausted. Thus an original discoverer would have already covered all his flanks when another hopeful like DRF starts looking at it.

The good news for 40 million Indian diabetics is that Reddy’s molecules may be available in India at an affordable price when they come into the market despite being the latest patented drugs, since Reddy holds the marketing rights for India.

Today DRF has applied for over 65 patents and is making presentations to several drug majors. Dr Janardhan Reddy, a professor at Northwestern University and one of the leading experts in PPAR, says: “Anji Reddy has a childlike curiosity which is reflected in a twinkle in his eye and a twitch of mischief in his smile. He is a maverick and an iconoclast.” It is this curiosity and iconoclasm that have taken Reddy where he is.

What does a “visionary” mean? Is it that others around him are blind? No, most people can only see what is around them. They cannot see what is not there or what is in the distant future. A visionary can. “My father took me to their farmhouse on the outskirts of Hyderabad one day and said, ‘Here will be a modern research lab for drug discovery’. It was barren land. I also knew as a medicinal chemist at Purdue University, how complex the process of drug discovery is since I myself was involved in some projects. I was sceptical to say the least,” recalls Satish Reddy. Satish was not alone; many in the pharma industry too weren’t willing to believe. But today all he receives is accolades for his vision and drive. A proud M.M.Sharma beams about his distinguished alumnus: “He has made the impossible possible through his R&D.”

His peers in the pharma industry acknowledge his leap. “He has successfully turned his company into a research-based pharma company, says Habil Khorakiwala of Wockhardt.
“Dr Anji Reddy has been a path breaker for the Indian pharma industry in this millennium. He has demonstrated that the Indian pharma industry is capable of holding its own in global markets with high quality revenue streams that can be reinvested for research. I also admire his fortitude in quietly handling risk and uncertainty; and for ably guiding his company in an increasingly exacting international marketplace,” says Dalip Shanghvi of Sun Pharma.

Praise from peers in other sectors too is plentiful. “Dr Reddy’s Laboratories is one of the few companies in India with a strong focus on drug discovery, and a track record of success in global markets,” says Mukesh Ambani of Reliance Industries. “He is passionate about whatever he does and pursues a clear vision,” says Ramalinga Raju of Satyam Computers.

For Andhra Pradesh Chief Minister Chandra babu Naidu, Reddy is a showpiece to promote Hyderabad as a new centre for knowledge-based industries. “It’s a matter of pride for us that Dr Reddy’s Laboratories was the first non-Japanese Asian/Pacific pharma company to be listed on the New York Stock Exchange. Dr Anji Reddy belongs to that rare breed of people who dare to dream and make their dreams come true,” says Naidu.

Reddy showed promise in research long ago. According to his elder sister Rajamma, he used to open up germinating beans when he was four to see how the seedling was coming out. Reddy spent his childhood in a small village across the Krishna river near Vijayawada, where his father was a prosperous farmer growing turmeric. His early education took place in Hindu College and Andhra Christian College, Guntur. He has really fond memories of his days there. When we accompanied him to these places he was distressed to find that his chemistry lab had been shifted from its old premises at Andhra Christian College. A sentimental Reddy told the principal and head of the department there, “I will give you all the modern equipment to build a modern analytical lab. My only request is that you restore my old lab to the same premises.”

After his BSc in Guntur, Reddy joined UDCT in Mumbai to study pharmacy.
He was greatly influenced by the atmosphere at UDCT. “The academia there was very close to industry. I liked it,” recalls the entrepreneur in him. However, he then went to National Chemical Laboratory, Pune, to study for a doctoral degree. This time he decided to switch his field from pharmacy to chemical engineering, since bulk drug manufacture was mostly chemical engineering. Not an easy switch. “In fact I was very hesitant to take him on as a student,” recalls L.K. Doraiswamy, a distinguished chemical engineer who later became the director of NCL and is currently Anson Marston Distinguished Professor in Engineering Emeritus at Iowa State University.

But Reddy did not disappoint him. “Indeed, I have rarely taken a better decision in recruiting students, and even scientists. He not only produced a very fine thesis, but also worked on a side problem to produce a paper in a matter of weeks, which to this day is quoted in practically all books and reviews on Properties Estimation. The Reddy–Doraiswamy equation developed by him (with little assistance from me) for predicting liquid diffusivities has lost none of its original flavour,” he declares.

However Reddy was a very focused man: his eyes were set on industry and not academe. He joined IDPL, the newly established bulk drug manufacturing unit in the public sector in Hyderabad. After a few years there he could not stand the non-entrepreneurial culture and quit to form a company with little seed money called Uniloyds. It made a successful foray into pharma, but his partner wanted control though he had no idea about the business. Reddy quickly cashed his share and joined an old classmate C.R. Reddy to found Standard Organics (SOL). SOL under Reddy’s leadership soon became the largest producer of sulfamethaxazole and even won an R&D award from the Indian Chemical Manufacturers Association. But his partner had other plans on diversification and Reddy came out of it to establish Dr Reddy’s Lab and Cheminor for bulk drug manufacture in the mid-1980s.

The early 1990s, however, saw an upheaval in both DRL and Cheminor. “Probably he is too trusting [in delegating responsibility] for his own good,” says Prasad, who was asked to take over leadership at Cheminor. “It was tough. Leading people had left to start another company and there was a legal battle with Ethyl Corporation. I wish I had some handholding,” recalls Prasad. But Prasad soon brought things under control and the rest is history. “He is a forest man and I am a trees man,” he comments. “Now I see that one needs to see both the forest and the trees.”

Looks like Reddy too knew his weaknesses and that’s why brought in two excellent operational people, Prasad and Satish. Though they happen to be his son-in-law and son, they have built a genuinely professional team around him and there is none of the family business syndrome. Reddy is free to pursue his obsession with research and proving all the Cassandras, who were saying that only big pharma companies with research budgets of a billion dollars could do drug discovery, dead wrong. He’s well on his way to doing it.

Anji is a short form for Anjaneya or Hanuman, who was the village deity of Tadapalle and every family had an Anji in it. According to the epic Ramayan, Anjaneya carried the mountain of gandhamadan to cure the battle- wounded Laxman, since he did not know the taxonomy of the herb sanjeevini that was needed. Anji Reddy, however, does very focused research into molecules and does not bring a mountain. When we visited his village he showed us the railway bridge he used to cross over the Krishna in spate to reach Vijayawada on the other side. The old bridge has vanished and modern bridges are in place. As we walked with him across the bridge he was able to recall many an old story with brief intermissions for conversation with his research teams in Hyderabad and Atlanta on his mobile phone. His executive assistant meanwhile informed him about his appearance in a cover story in Forbes Global, the first Indian businessman to be spotlighted by that magazine.

“The word ‘visionary’ is overused, but if it applies to anyone applies to Dr Reddy. I have little doubt that he will, step by step, build one of the most important international pharmaceutical companies in the world,” says Bruce Carter, formerly of Novo Nordisk and now at Zymo Genetics.

As we walked with him we realized that Reddy is truly crossing a bridge in his career. From a generics manufacturer, to a research - based company, from an Indian footprint to a global one.

Tuesday 21 August 2007

TIFR-A Tribute

Business India, September 1-14, 2003
Reinventing a jewel

Can we fix something that isn’t broken? Director Shobo Bhattacharya and his colleagues are setting an ambitious agenda for TIFR in the 21st century

Shivanand Kanavi


Can we build a world-class scientific research institution in India? The question was posed nearly 60 years ago by Homi Bhabha in 1943, in a letter to J.R.D. Tata. He himself answered it in the affirmative and demonstrated it by building Tata Institute of Fundamental Research.

Today we have several world-class institutions: Indian Institute of Science, Bangalore; National Chemical Laboratory, Pune; Central Leather Research Institute, Chennai; National Aerospace Laboratories, Bangalore; Central Food Technology Research Institute, Mysore; Centre for Cellular and Molecular Biology, Hyderabad; Inter-University Centre for Astronomy and Astrophysics, Pune; Physical Research Laboratory, Ahmedabad; National Geophysical Research Institute, Hyderabad; Indian Agricultural Research Institute, Pusa; National Institute of Immunology, Delhi; Bhabha Atomic Research Centre, Mumbai; and a few others. As for undergraduate education, in engineering and science the IITs and the University Institute of Chemical Technology, Mumbai, are among a dozen élite institutions renowned the world over.

And where does TIFR stand today, we asked R.A. Mashelkar, directorgeneral of CSIR and India’s most eloquent scientist- manager. “TIFR is already the best centre of excellence in scientific research that we have in the country. I monitor average impact factor per research paper as an indicator of quality within CSIR and the data show (see table below) sustained quality as well as leadership from TIFR,” he said.

The ‘impact factor’ is calculated based on number of times a particular paper is referred to by peers.

Mashelkar adds, “But our expectations from TIFR are higher. We would expect Nobel Prizewinners, FRSs and Foreign Associates of US National Academy of Sciences to emerge from TIFR”

What needs to be done for this? “Ambience and ambition are two essential ingredients for excellence of an institution. TIFR has the ambience, like no other institute in India has. Raising the ambition to a much higher level is what is required,” he adds.

Clearly the situation has changed a lot in the 1990s. Ambition and confidence are not lacking in the new generation of scientists that TIFR continues to attract. This correspondent spoke to several young scientists at TIFR like neurobiologist Vidita Vaidya, optoelectronics expert Arnab Bhattacharya, laser physicist Ravindra Kumar, and mathematician Arvind Nair, and found a confident ‘can-do’ attitude.

“The success of Indian IT and the changes in the Indian and global economy seem to have impacted us too. There is definitely impatience and a new spring in the step of youngsters here”, says Ravindra Kumar.

“In a sense we are thrown in at the deep end of the pool quite early in the day — we must get external funding for our research proposals. Today more than 50 per cent of biology funding comes from external agencies. This naturally makes us highly competitive in framing our proposals and delivering results,” says Vaidya.

Is TIFR well funded or does it face the same lack of equipment that most Indian universities and institutions find? “Of course money is never ‘enough’. But frankly speaking we have one of the best-equipped laboratories in several areas of investigation,” says Shobo Bhattacharya, the new director.

“We want TIFR to be a major centre for optoelectronics in India. We have an aggressive purchasing policy for equipment. In a few months we are getting state-of-the-art vapour deposition equipment costing almost a million dollars which will allow us to produce materials for researchers elsewhere in India, as well as work in cutting-edge areas like nitrides,” says Arnab Bhattacharya.

Stargazers
TIFR attracted first-rate astronomers and astrophysicists in the 1960s. Govind Swarup, now a Fellow of the Royal Society and retired, was invited by Bhabha to come from Stanford University and establish a group in radio astronomy in the early ’60s. Swarup and his team built an equatorial radio telescope near Ooty using a highly innovative design that used the local geography of hills and valleys. Their crowning triumph has been the very powerful Giant Metrewave Radio Telescope (GMRT) at Narayangaon near Pune. The facility is now fully functional and has also become available for international experiments.

TIFR has also done experiments in Xray astronomy and is today designing experiments to be sent up a special astronomical satellite by Isro in 2006 called Astrosat.

A strong theoretical astrophysics group is also active, though it was depleted when Jayant Narlikar left TIFR to establish the Inter-University Centre for Astronomy and Astrophysics at Pune.

Shobo Bhattacharya, a condensed matter physicist, has extensive experience in the US, having spent almost 30 years in R & D with Exxon and NEC. “In fact, being under the umbrella of DAE, we don’t have to struggle for funds as at the top US universities. Today senior scientists in the world are scrambling for funds and spend most of their time with funding agencies. Our scientists don’t have to face that,” says Bhattacharya. Having come from a different environment, Bhattacharya brings a fresh perspective.

“At times it is our impatience with some procedures that leads to complaints, but once you get to know the system you find that it runs slowly, but smoothly. Of course if one thinks of an experiment in the middle of the night and wants to do it the next day, there is a problem. In such cases our competitors elsewhere have an edge. We need to plan things much more in advance,” says Vaidya.

Ternary convergence: Bhabha, JRD and Nehru
On his return from Cambridge in 1943 Homi Bhabha, who had done first-rate work in theoretical physics and had become a Fellow of the Royal Society at an astonishingly young age of 32, had a vision he systematically set forth to realise. He sounded J.R.D. Tata out for financial support from the Tata Trusts to execute his plans. JRD needed very little convincing and he advised him, “If you and some of your colleagues in the scientific world will put up a concrete proposal backed by a sound case, I think there is a very good chance that the Sir Dorabji Tata Trust and perhaps also the Sir Ratan Tata Trust will respond. After all, the advancement of science is one of the fundamental objects with which most of the Tata Trusts were founded, and they have already rendered useful service in that field.”
Thus Bhabha wrote a four-page letter on 12 March 1944 to Sir Sorab Saklatvala, a trustee of Dorab Tata Trust. It began, “I have for some time past nurtured the idea of founding a first-class school of research in the most advanced branches of physics in Bombay.”

The letter cogently put forward his vision and ended with, “I have come more and more to the view that provided proper appreciation and financial support are forthcoming, (emphasis his) it is one’s duty to stay in one’s own country and build up schools comparable with those that other countries are fortunate in possessing. If Tatas would decide to sponsor an institute such as I propose through their Trusts, I am sure that they would be taking the initiative in a move which will be supported soon from many directions and be of lasting benefit to India.”

The Government of Bombay also came forward to back the proposal and thus, with modest support from Dorab Tata Trust and a total budget of Rs80,000 for the year 1945–46, the Tata Institute of Fundamental Research came into being at Kenilworth, a bungalow on Pedder Road in Mumbai, where Bhabha was in fact born. CSIR, then headed by S.S. Bhatnagar, gave a generous grant of Rs75,000 as it was interested in fostering research in nuclear physics. In 1948 Jawaharlal Nehru was convinced of Bhabha’s vision of the strategic importance of atomic energy to newly independent India and the Atomic Energy Commission was set up. Soon, with growing collaboration between AEC and TIFR, the needs of the institute grew and in 1949 it was shifted from Kenilworth to the Old Yacht Club near the Gateway of India. In 1956, with the growing importance of T I F R in the atomic energy programme, the Government of
India entered into a tripartite agreement with Dorab Tata Trust and the Government
of Bombay (now Maharashtra) and slowly took it entirely under the wings of the Department of Atomic Energy. However, the institute is still run by a management council with representatives from all three parties and with considerable autonomy, unlike any government body.

Till 1961, when the institute’s tastefully designed Colaba campus was built, T I F R was housed in the Yacht Club. The land at Colaba belonged to the defence ministry and was still littered with old barracks, and it was in those barracks that the controls for Apsara, the first nuclear reactor in entire Asia, and TIFRAC, the first digital computer, were designed and built. Bhabha was of the firm view that great institutes are built around people, not buildings.

Bhattacharya has a tough job. He has to lead his team in reinventing TIFR to suit the environment in the 21st century. There is a popular American saying: “Don’t fix something that isn’t broken” — and we need to keep that in mind. TIFR continues to be a great place to work. But it also needs to reinvent itself. The changes needed might seem incremental, but when added up they might look formidable.

Bhattacharya is aware of the complexity of his task and is proceeding cautiously. Being an ‘outsider’, he suffers from the fact that he does not know the micro details of problems or their history, but he also enjoys the advantage that he does not carry the baggage of history and brings a fresh point of view. His experience in corporate research must have also impressed the search committee.

What is the agenda that he has set himself? “My immediate agenda is simple: recruit the best faculty and students. Here we need to adopt active search by targeting individuals,” he says. He does not call it poaching, but having worked in corporate environments at Exxon and NEC he clearly is familiar with the expression. As for attracting the best students, he faces a tough problem. TIFR has started an undergraduate internship programme, which is hugely popular and entry is highly competitive. But most of those students want TIFR on their CVs and want to go abroad for PhDs. The only consolation is that many of them might want to come back as young faculty. “We need to develop an overall outreach strategy that will enhance our profile among the public, which in turn will attract the best young students to us,” he says. In fact the recent public lectures by visiting scientists Stephen Hawking and Roger Penrose were part of that outreach.
While on ‘marketing’ TIFR, Bhattacharya is embarrassed by TIFR’s Website. The institute might have been the cradle of Indian computer science, but it still sports a totally obsolete Website. The institute, despite a budget of close to Rs150 crore, also does not use much of IT in its procurement or administration or HR, something the new director is keen to change soon.

The fruit fly community
“We are known as the fruit fly group,” said Vidita Vaidya, a young neurobiologist at TIFR. When we want to study the nervous system we would like to tinker with it and see the effects not only on the creature but also on the future generations of that creature. Thus we need systems that multiply fast and show the effects on future generations quickly. The small fruit flies are ideal, since they multiply rapidly. More than a quarter-century of work on fruit flies, much of that here in TIFR, has led to tremendous depth in understanding the system thoroughly. So when one of us comes up with a bright new hypothesis, we naturally turn to fruit flies to prove it,” adds Vidita. Pioneering work done in the 1960s and ’70s by Obaid Siddiqui, which earned him accolades and a fellowship of the Royal Society, and his students like Veronica Rodrigues, on Drosophila, the common fruit fly, has created the scientific infrastructure for the same.

The T I F R biology group, strong in neurobiology, is now split into a large group in Mumbai and an even bigger group at the National Centre for Biological Sciences at
Bangalore. The two work in tandem. There is intense activity at both and both have achieved international acclaim for their work. The areas studied include: how are signals transmitted between neurons (brain cells); the secret of smell and taste; why proteins fold the way they do (the way a protein folds determines to a large extent the function of each protein); how muscles develop; the immune system; learning and memory; emotional coding of stress and fear; whether stress leads to changes inside the brain; and so on.

A whole bunch of interesting questions no doubt. Naturally the world is following their work closely. In a recent public lecture Siddiqui recounted that when he joined TIFR in the 1960s “you were limited by your own capabilities”. Many of the younger lot would agree with that despite the highly competitive world of global research they live in today.

Bhattacharya is also carefully reviewing all existing programmes along with the senior faculty so that nothing is taken for granted and every project is justified competitively. If necessary some projects might get closed down.

Even though most Indian scientists like Mashelkar would be envious of the environment, and lack of bureaucratic procedures, in TIFR, Bhattacharya would like to simplify them further. He would also like to delegate authority. Today the director has to get involved even in leave applications and so on. “We would also like to get out of governmental accounting procedures and establish alternative acceptable ones.”

Nation - building
It is improper to talk about spin-offs from TIFR. After all the founding of TIFR was part of a nation-building exercise. Bhabha clearly looked at it as a mother institution. Hence, when India embarked on its nuclear programme, TIFR provided the initial manpower and expertise. The very first reactor Apsara’s controls were designed and built at TIFR.
Over 46 scientists were loaned to the Atomic Energy Establishment at Trombay. Today’s highly profitable Nuclear Power Corporation, whose net profits crossed Rs1,000 crore two years ago, by generating electricity using nuclear reactors, can be considered as a grandchild of TIFR.

The expertise in building digital computers at TIFR later helped the Electronic Corporation of India build the TDC (Trombay Digital Computers) series for real-time computing. Similarly, the radio astronomy group helped in building the first satellite earth station at Arvi for Overseas Communication Service (now V S N L). This was later commercialized by ECIL into a healthy microwave antenna business. The defence electronics work at TIFR led to the formation of SAMEER (Society for the Advancement of Microwave Engineering and Electronics Research). It is also not so well known that the experiments in digital switching at TIFR formed the core of C-DOT’s technology, which revolutionized telecom in India with its inexpensive and robust digital switches.


A major complaint heard in the corridors of TIFR is of course the lack of travel facilities. After all, scientists grow with international exposure and the current finances are structured in such a way that travel to conferences becomes very difficult. In fact many scientists do believe that here the new chairman of the management council, Ratan Tata, would be able to help them out with his perspective. “We need to collect endowments so that we get flexibility, especially in travel. We are well supported by government, but need some flexibility. We plan to reach out to the community and friends of TIFR” Efforts in this direction, which started before Bhattacharya took over as director, have already yielded some results. Kanwal and Ann Rekhi, S.D. Shibulal, Sudha and Narayan Murthy, Harish Chandra’s family, Sasken Technologies, and others have come forward with contributions.

However, as Mashelkar points out, the difficulty with science is often not with the new ideas, but in escaping the old ones. A certain amount of irreverence is essential for creative pursuit in science. “I believe that if we promote that irreverence in Indian science, by change of personal attitudes, change of funding patterns, creating new organisational values, creating that extra space for risk-taking, respecting the occasional mavericks, and rewarding the risk-takers, then not only will the fun and joy of doing science increase, but Indian science will also make that much awaited difference,” he adds.

A new development that might bring that irreverence to TIFR is the deemed university status it has newly acquired. This might eventually lead to TIFR getting involved in undergraduate education. This will be welcomed by all Indian students and TIFR is sure to benefit by having bright young minds around. Bhattacharya is thrilled by the opportunity he has in being part of reinventing TIFR.

Parallel worlds
As biologists and physicists dirty their hands with fruit flies, semiconductors, zapping lasers, and high-energy accelerators, the mathematicians at T I F R form a different breed. They live in a parallel world of extreme abstraction, which even most natural scientists do not understand. It is the world of strange shapes of algebraic geometry that do not look or sound like anything that we learnt in geometry — remember those cones, cylinders, spheres, and the rest? Or number theory, which doesn’t sound like the arithmetic we all learnt, or Lie (pronounced ‘lee’) groups, which even quantum physicists who use similar names do not understand.

But higher mathematicians the world over highly respect the group at TIFR. The International Congress of Mathematicians, which meets once in four years, is the very élite of global mathematics. According to M.S. Raghunathan, a Fellow of the Royal Society renowned for his work in Lie groups, invited talks are given at the congress by a select group of about 150 mathematicians from all over the world. It is remarkable that in almost every congress since 1970 there has been an invited talk by at least one TIFR mathematician .

Though Bhabha was a practical scientist who wanted to build capability in nuclear physics in India, he also saw the need for building a strong group of abstract mathematicians.
Similar culture at the Institute of Advanced Studies, Princeton, must have influenced him and appropriately he persuaded K. Chandrasekharan to come from Princeton to work at TIFR. Chandrasekharan, a high-profile mathematician himself, is credited with building a first-rate mathematics group here. He brought top-notch mathematicians from all over the world to visit the then unknown TIFR and lecture there. TIFR’s lecture notes of those days are sought after all over the world even today.

TIFR over the last five decades has been one of the top places to do research in abstract mathematics.

In a parallel track, TIFR is also involved in organising science Olympiads in Physics, Chemistry, Biology and Mathematics. Indian students are regularly winning Gold and Silver medals in these fiercely competitive Olympiads. These competitions are playing a highly motivational role in drawing bright young minds to science. M.S. Raghunathan who is also involved in organising the Maths Olympiad was recently pleasantly surprised when he sent a congratulatory message to Manindra Agarwal, and his students Neeraj Kayal and Nitin Saxena of IIT Kanpur. The trio had hit international headlines by cracking a three hundred year old problem in number theory. In turn Kayal and Saxena thanked Raghunathan for encouraging them as school students in the Maths Olympiad!

Nehru believed that science and technology were tools to pull India into modernity. Increasingly weighed down by the vagaries of national and international politics, he found refuge in the company of scientists. Inaugurating the campus on 15 January1962, he said, “It has been a great pleasure to me, and something like an exhilarating experience, to come here from time to time and to see the growth in our scientific work, whether on the other side at Trombay or here. This takes me out of the normal rut in which I live, which is often depressing.”

It is a testimony to the vitality of this institution that 40 years after Nehru’s observation TIFR still has the same exhilarating effect on its visitors.

Art of the matter
Bhabha’s love was quantum physics. He encouraged investigations into the structure of matter, both from the experimental angle as well as the theoretical one. As a result TIFR built up one of the finest groups in the study of cosmic rays. Cosmic rays are naturally available high-energy particles entering our atmosphere from far corners of the universe. In the absence of large particle accelerators, cosmic rays provided a natural source of investigations into particle physics. Today scientists at TIFR participate in experiments with other international scientists at the European Centre for Nuclear Research (CERN),
Geneva, and Fermi National Accelerator Laboratory, Chicago. In the mad, mad world of high-energy physics, large multinational and multidisciplinary groups have become a must for conducting and analysing experiments. Today it is not uncommon to see a two-page paper written in the Physical Review Letters authored by over a hundred scientists (a few of them from TIFR)!

Theoretical physicists too had remarkable successes in the 1960s and early ’70s.
Today TIFR has a very strong group in String Theory, which walks the thin line between mathematics and physics.

In the case of materials TIFR had early success with semiconductors and microelectronics with the group led by K. Ramanathan. The group did cuttingedge work in microelectronics in those days. Unfortunately this early expertise could not be capitalised later. However, in the 1980s, TIFR shot into the limelight again when L.C. Gupta and R. Nagarajan gave the world a new class of materials called boro-carbides, which exhibited high-temperature superconductivity —the holy grail of electrical engineering, where materials conduct electricity with practically zero loss during transmission.

Pioneering computer science in India
Modern digital computers came into being at the end of World War II. The first one built was E N I A C at the University of Pennsylvania in 1946. John von Neumann played a leading role in conceptualising it and a more refined version of the same at Princeton later. In fact, von Neumann’s report on the Princeton computer EDVAC can be considered as the beginning of computer science. It is interesting to find that computer science did not take very long to come to India. R. Narasimhan was probably the first Indian to study computer science in the US back in the late 1940s and early ’50s.
After his PhD in mathematics he returned in 1954 and joined Tata Institute of Fundamental Research, being built by Homi Bhabha.

In the early 1950s it was audacious, to say the least. Comparing these efforts with those of contemporaries, Narasimhan says, “Looking at the Princeton computer, IBM 701, and the two T I F R machines, it emerges that except for its size, the TIFR pilot machine was quite in pace with the state of the art in 1954. TIFRA too was not very much behind the attempts elsewhere in 1957.”

The pioneering work at T I F R in the 1950s and ’60s is being now extended to new limits. Narendra Karmarkar, who won the prestigious Fulkerson Prize for the work he did in efficient algorithms at Bell Labs in the ’80s, is trying to build a group of young computational mathematicians under the aegis of T I F R at Pune to test the frontiers of the science of algorithms.

Shinsei Bank

Business India, Januray 19-February 1, 2004
Karma in Japan

Indian executives of Shinsei Bank and Indian software companies have played a significant role in a great turnaround story in Japan

Shivanand Kanavi

Dhananjaya Dvivedi, corporate executive officer (banking infrastructure group) of Shinsei, is a driven man. He was recruited from Citibank, where he had headed many an IT innovation globally. “When we took over LTCB the challenge was dealing with the unknown. The bank was not visible to anybody. Internal workings, business, people’s capability, products that were sold and were part of the warehouse, everything was an unknown. Meanwhile, Yashiro-san (‘san’ in Japanese is a respectful address like ‘ji’ in Hindi) had a very sharp definition of what he wanted. He wanted the company to be profitable, and he did not want a short-term solution that involved social trauma to customers, depositors, or employees. Moreover, we had a timeline of only one year. We also had revenue targets defined in the very first year. These became our engineering design criteria and we had to work backwards, says Dvivedi.”

Today Shinsei’s IT infrastructure, built by Indian software companies like Nucleus, i-flex, and Polaris under Dvivedi’s direction, has become the standardsetter in Japan. The bank has turned around and is now the most profitable bank in Japan. Wall Street is eagerly awaiting its $2 billion IPO expected in the next few weeks.

However, to understand the change wrought by Yashiro and his team one needs to understand the bank’s previous Karma.

Birth of LTCB
To understand the change wrought by Yashiro and his team in Shinsei Bank one needs to understand its history. Long Term Credit Bank is what we in India would call a development finance institution. As the Americans handed over power to the Japanese in 1952, the new Japanese administration decided to discuss the nature of the financial system needed to fund Japan’s revival. “Will it be stocks, bonds, or banks?” asked the then finance minister Ikeda. The answer he gave later, with America’s tacit support, was: “Banks, not capital markets.” The Tokyo Stock Exchange was reopened, but it only played the role of tying up industrial families, the keiretsu, through crossholdings.

LTCB was started to fund the industry by issuing debentures, which were like bearer bonds. It was directed to lend to core sectors and later to automotive, etc. In fact a young car manufacturer with global ambitions called Toyota came up owing to support from LTCB. However, soon lending was not based on cashflow projections but on the fact that only companies with a web of social contacts would survive, while those without allies would naturally die. The interest rates did not reflect risk, since the government set the price of money. Money was not an end but a means to an end — and the end was the revival of Japan.
Over three decades LTCB funded a large number of companies like Kawasaki Steel, Bridgestone, Toshiba, Tokyo Electric Power, and so on. It was highly successful in its mission. But that created a problem. The successful manufacturing companies in the 1970s and ’80s with strong cashflows no longer needed loans from LTCB; if need be they could directly access global finance. This led to some experiments in learning merchant banking skills from foreign markets, but these activities were marginal. Then came the real estate and stock market bubble of the ’80s. LTCB, like others, grabbed this opportunity for high profits immediately. However, the collateral for these loans was suspect. But the LTCB culture did not allow for serious financial appraisal.


Death
And then the stock and real estate bubble burst in 1991–92. Since then the economy has stagnated. The financial system is burdened with bad loans that have been estimated to be as high as $1 trillion! The government, however, has continued to muddle along without taking hard decisions, riding on the still very high domestic savings of over $14 trillion.

After meandering along for six long years, with over $40 billion as bad loans and its capital base totally eroded, and carrying a capital deficit of $3 billion, LTCB declared bankruptcy on 23 October 1998 and the government nationalised it. R.I.P.

Rebirth as Shinsei
Then came a group of US investors led by Tim Collins of Ripplewood Ventures.
Collins, along with Chris Flowers, a former Goldman Sachs dealmaker, put together a consortium of investors including Citigroup, AIG, GE Capital, Mellon, Paine Webber, and David Rockefeller personally. It was as high-powered a slice of Wall Street as you could get. Moreover, Collins took on board powerful individuals like Vernon Jordan (close to Bill Clinton), Paul Volcker (former chief of the US Federal Reserve), and John Reed (former Citibank chief and currently chairman of NYSE) as advisors, while co-opting Mitsubishi and Nippon Steel bigwigs on the governing board.

This group eventually won the bid. They bought the bank for a total capital of about $1.2 billion. Since the quality of the loan portfolio was opaque to the new investors, the Japanese government allowed a put option for any ‘bad loan’ discovered later.

It was path breaking and not smooth, to say the least. It was the first ever foreign entry into mainstream Japanese banking and was perceived by many in Japan as another invasion of the gaijin (aliens) and that too by a detestable ‘vulture fund’ from Wall Street. For the protagonists, however, the deal became the proverbial pudding to test Japanese commitment for globalisation and deregulation and led to some highpowered lobbying in Washington and Tokyo.

Tim Collins persuaded Masamoto Yoshiro, former head of Exxon in Japan and Citibank Japan, to be the chairman and CEO (see interview with Yashiro) to execute the turnaround. He recruited a team of investment bankers to start that line of business and a host of senior executives like Dvivedi, Sajeeve Thomas, and Janak Raj from Citibank to execute his plans for a total remake of the bank.

“Japanese do not like abstractions like software, they excel in manufacturing the concrete”-- Masamoto Yashiro

A great believer in harnessing the skills of Indian software companies, Masamoto Yashiro chairman & CEO, Shinsei Bank, explained the issues in Japanese banking, in a candid interview with Shivanand Kanavi


Q You were an outsider to banking. So how do you look at banking in Japan?

A I spent many years with the oil industry, 30 years with Exxon. Both oil and banks were regulated in this country. Japan does not have oil resources, so they let the oil companies operate much more freely than banking, especially in the 1980s. In the case of banking, till recently banks were not free to offer new products. So like the CIO, CFO, etc, they had one ‘Chief Ministry of Finance Contact’. These officials used to go every day to the MoF and sit around in the corridor and see who was coming and going. It was that bad. There was no initiative.

Q When Tim Collins invited you to join him in Ripplewood you had already retired. So what made you take his offer?

A He was very insistent. He thought there were many business opportunities in Japan. I thought I must help in restructuring Japanese companies. But initially it was outside of financial services. But very soon the banks that were nationalized were available for investment even for foreign interests, and that came about very quickly. So I had to divert my energies to the banks. That is how I ended up here. But I continue to be a limited partner of Ripplewood.

Q When you took up the assignment at Shinsei did you think it would be a model for ot her Japanese banks?

A Yes and no. LTCB had only sold debentures and given corporate loans, so I thought we should change the business model completely. But to do all these things you needed to change the infrastructure. Infrastructure as it existed was antiquated and was 20 years old. We had mainframe computers, we were using Cobol! Everything was old. The story of Jay’s (Dhananjaya Dvivedi’s) contribution is very well known. Anything we want can now be supplied by Jay’s group. The product is à la carte.

Q Is this unusual for a Japanese bank? Are others acknowledging your success?

A Yes, it is unusual. Others do not want to acknowledge it openly, but IT people know that we are doing the right thing.

Q Japan is the second-largest software market. Who is servicing it?

A It may be in terms of money. If you have to pay five times more than elsewhere, you can even be number one very quickly.

Q What is your advice to Indian software companies?

A Strangely, Indian banks seem to go to Australia for software! Japanese companies focused on manufacturing and brought their costs down, but they did not touch non-engineering parts of overhead. They keep spending more, year after year. They are worried about visible products, which they can improve. Abstraction is the last thing we attach value to. India has many philosophers; we don’t have any.

Q Would Shinsei bank be interested in emerging markets like India?

A We are looking at Korea and Taiwan, but India is too far for us. But since we have many Indians working in the bank, maybe we should take a look at it.


“We had no management information systems here when we came in. Reports were produced once in six months, but top management could not monitor on a monthly basis which products were doing well, which customer groups were behaving in interesting ways, and so on. We also wanted to launch the retail bank with a whole new way of banking access. For example, ATMs here closed at 3 pm. It was not the law, more an industry practice, but everyone followed it. Also people were being charged for using ATMs. But a retail bank with very few branches like us had to invite people to use ATMs and the Internet more and more to do normal banking. So all these equired a new infrastructure, which at the same time had a low total cost of ownership. Jay’s team, with the help of Indian software vendors, has delivered that. Jay is like a cook — if we want caviar added to a product he can do it, if someone wants garlic removed from something else, he can do it,” says Yashiro with a twinkle in his eyes.

“I have known Yashiro-san from my Citibank days,” says Jerry Rao, CEO of MphasiS-BFL, which did a lot of preliminary groundwork for the IT roadmap at Shinsei. “In fact we both retired from Citi at the same time in 1998. I invited him to be the advisor to MphasiS, which I had just started. Yashiro-san and Jay had to cut costs, implement a retail banking solution in a 100 per cent wholesale bank and migrate from an old system to a new one, while retaining the old people. Strangely, Japan, which is very advanced in automobiles, electronics, and so on, is very backward in banking and insurance. Yashiro promised 100 per cent improvement. Executing five different meshed projects simultaneously isn’t trivial, even though the technology was known in global banking,” adds Rao.

“We had to choose a design that would allow flexibility for our business plan. Customer self-service was the first point of our system, not labour saving. When the customer comes in he should have full power to service himself. Flexcube gave us the first generation packaged software to run retail banking. It is an extremely well engineered product if you work within its limitations, but if you want to add something in there like a credit card, or any other complex product, then it has a problem coexisting in this package. The new-generation product is from Polaris. We use three or four products from Nucleus, collection systems, general ledger, etc, but the more important thing about them is tenacity. If something does not work, they make it work. Complex engineering pieces have been developed by Nucleus,” adds Dvivedi.

Hitting the headlines
What would have cost $500–600 million for any other bank in Japan using traditional mainframes and customized software has cost Shinsei just $60 million. Naturally the engagement is continuing and expanding. This has led to headlines in Japanese newspapers like: “If you want to learn about software, learn from India”— Nikkei Sangyo Shimbun (17 September 2001); “Not enough IT engineers, foreigners save in software development” — Nihon Keizai Shimbun (22 September 2002); “Two secrets of ‘Cruel’ Shinsei Bank: open computer systems, Indian companies” — Nikkei Sangyo Shimbun (26 October 2001); and so on.

The robustness of the system, besides its low cost, was also highlighted in early 2002 when two major banks – UFJ and Mizuho (the largest bank in the world) – had crashes in their mainframe-based IT systems. Now grudgingly other banks are trying to copy what was done at Shinsei. Thus, Shinsei is becoming an agent of creative disruption within Japanese banking circles in more ways than one. Bill Gates takes a keen interest in Shinsei and has visited it. After all, it is the largest installation of Windows based banking software.

But the change did not go smoothly. There was a definite culture clash. “Even now only about half the old employees appreciate the change. The other half might still want the placid old days of LTCB. But change is a one-way street,” says deputy GM (IT) Michiyuki Okano.

Culture clash
What were the roots of culture clash? “Firstly, Japanese believe in a consensus approach (namewashi). Any change has to be discussed and only after a consensus has been achieved things move. But here change was happening through orders from the top, and at a furious pace. Of course change could only come this way, otherwise we would be debating endlessly,” adds Okano.

“The other was the Japanese obsession with perfection. Europeans and Americans may accept some imperfections, but Japanese do not. Now this can take an inordinately long time,” says Okano insightfully. “In the beginning we might have been a little cocky too. We had installed Flexcube at 60 sites and Shinsei was the 61st. But soon we learnt a lot. The drive towards zero defects was unprecedented. We improved greatly through this experience,” says i-flex CEO Rajesh Hukku.

Nucleus had the tough job of supporting the migration from legacy mainframe systems to new Intel servers and a PC-based system. “We built a reconciliation engine to show the equivalence of both the systems. It was crucial to migration. However, many times we had people holding two printouts from the two systems to a light and pointing out a font difference or a change in the position of a column!” says Vishnu Dusad.

“Indian companies have good engineering skills, but to make an impression in Japan they do need to realise also that time in Japan is of utmost importance. A Friday morning deadline means that the client expects it at 9 am Friday Tokyo time, not Friday afternoon, evening, or Monday or Tuesday. In fact a familiar ‘no problem’ response always scares me unless a detailed road map is given to show how the problem will be solved,” says GM (IT) Peter Franken, another former Citibanker.

Already Dvivedi and Yashiro are thinking of leveraging the IT skills developed in-house in conjunction with Indian software engineers. There is a plan to start a Shinsei Bank support centre in Pune. Nucleus already has 100 engineers at a centre in Pune. “We are creating a pan-Asian banking model. The Pune centre will be a big step for us,” says Dvivedi.

The results are there for all to see. Shinsei ATMs are working 24 hours, and the retail bank has attracted over half a million customers starting from zero less than three years ago. Customers can access their accounts at railway stations and even through 52,000 third-party ATMs at no cost. Deposits by new customers have crossed $14 billion.

Of course technology is not the only thing that has brought this in. A brand new retail banking culture brought into Japan by the Shinsei team headed by another Indian, Sajeeve Thomas, is responsible for that. Every branch of Shinsei looks like a modern showroom of an upmarket store rather than the congested paper-laden office it used to be. Earlier each transaction used to take forever. It was assumed that the customer had infinite time. To count the money half a dozen or more officers used to be involved before handing it over to the customer! Today Internet kiosks at every branch take care of that.

In fact the impressive headquarters of Shinsei had a 100- foot-high glass entrance with not a soul there. “I could not believe it in the beginning. How can the lobby of a bank be empty and forbidding?” asks Thomas. He quickly changed it by starting a retail branch there with a Yahoo! Internet café and a Starbucks coffee shop thrown in. “We did a survey among our own employees on what should a retail bank look like. The names that popped up were Starbucks, Seven Eleven, Uniqlo (a Japanese clothing store), and Sony. We called in designers to remake all our retail branches to give a customer-friendly experience. The elimination of enormous amount of paperwork and centralised data processing created a lot of space in each branch. Shinsei had a brand recognition of 4 per cent when it started. Today it is 87 per cent,” says Thomas.

The self-effacing Thomas has brought in more than an exterior change. The culture has changed —the stiff old manager hidden behind paper in a forbidding room inside the branch has been replaced by a smiling one, right at the reception to direct any customer to the appropriate kiosk.

But what about the basic corporate lending business that Shinsei inherited? “Well that too has changed,” says Janak Raj another ex-Citibanker who heads risk management group.
“When I was in Citi Japan in the early 1990s we wanted to sell a building and there was no problem getting an offer of $500 million for it, by just walking around and visiting a few nearby offices! That was the nature of the bubble economy those days. Obviously these assets shrunk to 10 per cent of their value after the bubble burst,” adds Raj.

However, Shinsei broke the mould of zombie lending (bankrupt banks lending to bankrupt firms to keep them afloat), a term coined by Anil Kashyap of the University of Chicago’s Business School. Immediately it was declared a “cruel bank” and a representative of Wall Street’s greed. But Yashiro stood firm, in not lending to bankrupt firms just to keep the “relationship” going, while being sympathetic to viable ones. However, now the recovery has become smoother and many old borrowers have paid up, thereby reducing the bad loan portfolio — by $27 billion in three years. Out of those only $10 billion were reduced by exercising the put option and returning them to the government as agreed in the contract of sale, while $17 billion were actually recovered. “Now other Japanese banks are also collecting a lot of money. Otherwise
no-one can survive,” says Okano. Considerable progress has also been made by Janak Raj’s team in securitizing loans by issuing new bonds, adding another stream of revenue to the balance sheet.

As a result Shinsei has become the most profitable bank in Japan today— it declared over $440 million in net profit in March 2003. GM (management accounting) Sanjeev Gupta, another former Citibanker, and his team are happily preparing the balance- sheet for the much-awaited IPO. Investment bankers expect the offer, slated for mid-February, to fetch close to $10 billion for the bank. The investors plan to raise $2 billion through this issue. Considering that they bought the bank for $1.2 billion, the ‘vulture fund’ attribute of Ripplewood might change to ‘venture fund’.

Will Shinsei change the Japanese financial sector, as Tim Collins and David Rockefeller suggested? The jury is still out. Change anywhere, and more so in Japan, is painfully slow. When it does come, as in the Meji restoration at the turn of the century, it can be amazing. A mixture of angst about change and pride in being Japanese drives Yashiro at 74. But he can claim modest success – by the grudging imitations that are happening in other banks – and retire a satisfied man. Obviously he has absorbed global best practices and rebelled against inefficiencies and irrationalities in the Japanese system. But he has handled the change with firmness and sensitivity. Not an employee was fired in all this process and many more customers have been added. He put a stop to zombie lending and took his fiduciary responsibilities towards his depositors seriously, combining them with sympathy (not loyalty) towards his corporate borrowers. Shinsei Bank rose out of the ashes of Long Term Credit Bank of Japan, which went under in 1998 with $40 billion in bad debts

Yashiro loyalists, like Jay Dvivedi, Sajeeve Thomas, and Janak Raj, might move on once Yashiro retires. In fact Dvivedi might eventually even set up his own software consulting firm. The Indian software companies are using Shinsei as the edge of the wedge into Japanese market. Already Nucleus is finding new customers like Honda, and more banks. I-flex has installed its products in six more banks in Japan. And so on.

As for the 2,000-odd Indian software engineers in Tokyo, it is not really ‘Jaapaan, love in Tokyo’ à la Shammi Kapoor. Very few learn Japanese or study the Japanese culture. Most yearn for home food, for which there are over 200 Indian restaurants in Tokyo alone!

Shinsei has been good karma.