May 25, 2006

Remarks by
Henry V. Jardine, U.S. Consul General in Kolkata

At the workshop on
"DEVELOPING TECHNOLOGICAL ENTREPRENEURSHIP IN EASTERN INDIA"
Bengal National Chamber of Commerce and Industry (BNCCI)
May 25, 2006, Kolkata

Distinguished guests, ladies and gentlemen, I would like to thank the Bengal National Chamber of Commerce and Industry for inviting me here today to talk a little about technological entrepreneurship in Eastern India.  I thought, since I represent
the U.S. Government, I could draw on the U.S. experience first and reflect on its relevance to this region.
Small and medium scale enterprises (SMEs) constitute the most vibrant industrial segment in most countries.   The SME's are where the entrepreneurs cut their teeth and bring their ideas to market.  This is true in India as much as in the United States.  In India, SME's account for nearly 40% of value added and about 35% of India's exports.  As India's economic liberalization continues to take hold and expand into various sectors and regions, the importance of the entrepreneur in expanding economic opportunity will also increase.  The United States offers an example of how this dynamic will develop.   Here are few impressive numbers provided by our Small Business Administration of how SME's contribute to our economy; they
*  Make up 99.7 percent of all U.S. employers, meaning that only 17,000 companies, or 0.3 percent of all employers, have 500 or more employees;
* Generate half the non-farm output of the U.S. economy, and employ about half of all Americans not working for government, while adding 60 to 80 percent of net new (nongovernmental) jobs annually;
*  Comprise 97 percent of exporters and produce 29 percent of all export value-key points when we consider that exports have accounted for about 25 percent of U.S. economic growth over the past decade and support an estimated 12 million jobs;
*  Win nearly 24 percent of all government contracts, ranging from ship construction to printing brochures.
The numbers that I reference indicate the importance of the entrepreneurial businesses to the U.S. economy, but since today's topic is a discussion of technological entrepreneurship it is also worth noting how quickly the SME's adapt to new technology.  In fact, it is the smaller start-ups that more nimbly exploit the new technologies than their large, well-known competitors.  Georgetown University Professor of Government, Dr. Derrick Leebaert notes the following about the innovation of SME's in the U.S:
*  Small businesses produce 13 to 14 times more patents per employee than large firms;

*  Small business patents are twice as likely, as opposed to large firms', to be cited as the most significant innovations;

*  Small businesses employ 39 percent of high-tech workers such as scientists, engineers and IT workers;

*  These businesses are able to pioneer new alliances and partnerships, in contrast to large businesses with demarcated competitive interests, as shown by biotechnology companies vis-à-vis the U.S. pharmaceutical giants.
*  High spending on information technology enables agile responses to changing customer requirements: small and mid-sized firms account for 45 percent of U.S. technology spending;
*  Firms of 100 to 1,000 workers are spending eight times faster on technology than are big corporations, further enabling the close touch of business owners with the end users of their products or services;
*  By deploying flexible production techniques enabled by both technologies and newly efficient practices, small businesses can adapt faster to shifting economic conditions;
*  Small businesses act as a shock absorber for fluctuations in employment caused by downsizing and globalization: 53 percent of small businesses operate out of an individual's home, from hair styling for neighbors to consulting for other businesses large and small.
With the rather contentious ongoing policy debate in India on disenfranchised and underrepresented groups it is also worth reflecting on the important role that entrepreneurial initiatives and the creation of new SME enterprises has for promoting social cohesion and creating economic opportunity for those that may have been excluded from the economic mainstream. 
In the United States, SME's help the historically disadvantaged in the following ways:
*  Small businesses serve as an entry point into the economy for new or previously slighted workers: women-owned small businesses, for instance, generate nearly a trillion dollars in revenues annually and employ more than 7 million workers;
*  Small businesses increasingly generate entrepreneurial opportunities for minorities, which census data show as owning 4.1 million firms that generate $695 billion annually and employ 4.8 million workers;
*  Small businesses bring economic activity to distressed areas: about 800,000 companies (90 percent of them micro enterprises) are located in the poorest areas of the 100 largest U.S. cities;
*  Small businesses offer job satisfaction and autonomy: studies show that most businesses are started to improve one's condition, rather than for lack of an alternative, with some half a million new businesses started each month.
As Dr. Leebart notes, the small-business sector constitutes a large part of the U.S. economy, but its influence transcends its already significant size. As economies prosper more from how they apply knowledge rather than materials, there is an ever-greater premium on innovation, flexibility, large-scale customization, and specialization-whether in serving sandwiches or programming software. While the percentage of Americans employed by Fortune 500 companies steadily drops (from 20 percent of the workforce in 1980 to less than 9 percent today), an average of 9.36 percent of the population could be found over the last decade starting their own businesses.
Given the recognized importance of the entrepreneur, naturally the United States government tries to foster an environment that assists these innovators.  One of the key ways that the Government assists is to help start-ups get the initial capital that they need.  Coming from a strong free enterprise system, we don't do this by just giving money. Our  lead agency, the Small Business Administration (SBA) helps in guaranteeing loans.  This helps to address lenders' concerns about the risks of extending credit to risky start-ups.  The U.S. Government will, therefore, guarantee the loan if the borrowers default.  To help educate prospective entrepreneurs, the SBA also has online tutorials that teach business skills and ideas to anyone with internet access at http://www.sba.gov/training/coursetake.html.   In addition, the U.S. Government tries to foster a small-business climate with a tax code that includes tax credits, deductions or reductions that help small businesses.  Also, our government ensures that policies and laws are in place to protect intellectual property like patents, copyrights and trademarks that are critical for the small businesses to take advantage of their intellectual and brand capital.

Key to understanding the U.S. market, though, is the realization that failure is a distinct possibility.  Again, in the U.S. system, we try to create an environment that allows failure.  As Law Professor and Resident Scholar at the American Bankruptcy Institute Nathalie Martin wrote, "If a business in the United States fails, the individual can move on with his or her life without living in shame or total poverty.  The ability to start over is what makes some Americans willing to take risks in business, which can be good for the overall economy."  So, business failure in the United States, unlike in many other countries is not regarded negatively.  In fact, U.S. bankruptcy laws are structured so that those who fail in business are encouraged to continue entrepreneurial pursuits.

The entrepreneur and their SME's constitute an important part of the economy of East India as well.  The SME's here constitute a quarter of India's unorganized manufacturing companies and employment in East India's SME's constitutes approximately a third of the employment in India.

Given the critical nature of the entrepreneur to this region's economy and reflecting on the U.S. experience, I would offer the following possible recommendations for Indian officials to build on the local climate of innovation.

1. Government should help to encourage credit and lending for start-up companies.
2. Intellectual Property Rights (IPR) should be promoted and protected.
3. Training Opportunities should be provided.
4. Red-tape should be reduced, one-stop clearances introduced, etc.
5. Foreign investment should be facilitated; small companies can be service providers to foreign companies.
6. Infrastructure, connectivity enhanced.

While not an exhaustive list, these are potential areas that the BNCCI can focus on in their engagement with local officials to foster a climate of technological entrepreneurship.

Again, I would like to thank the BNCCI for asking me to participate in today's seminar.  I hope I've contributed some useful insights.  I think today's event has been very good at increasing awareness of the critical importance of entrepreneurship for India's plans for future development.  The work of the many innovative individuals in East India will ultimately be to create economic opportunity for the majority of India's populace, and I hope, become a center of innovation for the international economy.

Thank You.

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