Tarun Khanna: The Business of Inclusion

Image: Evgenia Eliseeva; Illustration: Malay Karmakar; Imaging: Sushil Mhatre

Tarun Khanna, Jorge Paulo Lemann Professor at the Harvard Business School

Tarun Khanna is the Jorge Paulo Lemann Professor at the Harvard Business School. He works with multinational and local companies and investors in emerging markets globally. He and his former HBS colleague, Yasheng Huang, realised that nations develop in very different ways. The duo’s class on how China’s state-controlled growth was different from India’s democratic approach to wealth creation became a 2003 Foreign Policy article. Khanna has an engineering degree from Princeton University and a Ph.D. from Harvard. Khanna joined HBS in 1993. In 2007, he was nominated to be a Young Global Leader (under 40) by the World Economic Forum. His latest book Winning in Emerging Markets draws on his research on how world-class companies spring out of emerging markets.

For quite some time now, the world has stayed focused on the potential of emerging markets. Over the last couple of years, my interest, both as an academic and an entrepreneur, has been around the subset of this galvanizing story, the more disenfranchised in emerging countries. Look at Africa, parts of which are perhaps the most emerging of emerging markets, with several hundred million locked out of the mainstream. Add to this 300 million in China, 500 million in India, and over 200 million in Latin America, and it is a sizeable number we are dealing with.

The practical and intellectual problem at hand is how to give people an economic voice, and how to provide incentives to the more fortunate to facilitate such inclusion. I’d like to illustrate what is being attempted with a few examples chosen from India.

Two Harvard Business School students started a company called iTrust (www.itrust.in). It takes financial literacy seriously. When financial intermediation exceeds simply post-office deposits offering low rates of return, as it thankfully does in India now, citizens need a basic level of financial sophistication to intelligently interface with the financial markets.

iTrust has begun to build a business that allows middle and even lower-income employees of initially the National Capital Region (NCR), now the nation, to hold different types of deposits and mutual funds, use mortgages intelligently, and make a will to protect their heirs. Indeed, as one moves down the income and wealth spectrum, the need for literacy becomes more and more paramount.

It fills an important institutional void in India, the term that we have used in our recent writings to describe the missing structures we take for granted in more mature markets, whose function is to facilitate the matching of buyers and sellers in all sorts of markets. iTrust must use cartoons to communicate, and does so on radio, TV and print, and in multiple languages. It remains an exciting work-in-progress.

Then there is the even more serious problem of bringing talent into the mainstream. There are thousands of colleges in India where the degrees are not worth the paper they are written on. On the other hand, there are several hundred companies in India desperate for talent. Imagine the missing mechanisms that fail to bring latent demand and supply together, perhaps the most gargantuan of institutional voids. The companies need more talent every year, but cannot go to more than a few dozen, if that, colleges across the country to recruit this talent. The truth is, there is talent available outside their universe of leading universities. There are good people everywhere from Bareilly to Trichy. But the cost of going there and recruiting this talent is high.

What, therefore, would be the social impact of technology that could facilitate this thus-far failed matching? That was the seed for Aspiring Minds (www.aspiringminds.in), founded by two students I had the good fortune to meet, an engineer from MIT and one from IIT. They created a system to access talent from the hinterland using the latest computing tools, and matching them to appropriate pockets of corporate demand.

Importantly, Aspiring Minds acts as a social multiplier by targeting everyone from twenty-somethings upwards, who would otherwise become disenfranchised and alienated. Indeed, there is enormous social value in finding a job for an un- or underemployed person, as it brings stability to the person, his or her family and eventually to society. This is change-agency at its best.

Aspiring Minds earns enough of a return to allow it to reinvest in the business, and to attract outside investors, so that it can scale quickly. Of course, its fees shouldn’t be too high either because then the benefits will not spread and social inclusion won’t happen. So far, Aspiring Minds seems to have done just fine, getting paid by candidates who take the tests and corporates who hire successfully from tested candidates; in the future, perhaps other entities will also pay for the matching process.

What about political inclusion? Political and economic inclusion go hand-in-hand. We ought to ask ourselves, are the voices of people being heard in the democracy we are so proud of? To some extent it is. But in other ways it is woefully inadequate.

Another Harvard student I’ve had the privilege of knowing is C V Madhukar, founder of PRS Legislative Research (www.prsindia.org). The idea was to substitute for a different kind of institutional void, the equivalent institution in the U.S. being the Congressional Research Office or various congressional or senatorial research staffs, the likes of which are underdeveloped in India.

This organization is a non-profit and provides non-partisan, non-ideological input on issues about to be legislated in Parliament, free of charge to India’s MPs. It has been embraced by all sides of the political spectrum. The intent is to create ways for the needs of the people to be responded to entrepreneurially.

Bringing the ignored part of India into the mainstream is morally right. It can also be economically viable, with a modicum of creativity.