Did you know that shareholders used to be liable for corporate debt and were obligated to participate in capital calls by management? Did you know that for many railroads as much as 50% of their expenses were interest on borrowings? Did you know general stores used to have barrels of free crackers so wives would come in to gossip with friends, revealing details about people in the town to the eavesdropping store owner who used the information to decide who he could trust to offer credit?
I took an amazing class that covered businesses in the US from the 1700s all the way to the 20th century. It was fascinating and useful in revealing that a lot of things I took as static are actually dynamic, just over long periods of time.
One of the great things about the class was that we read primary sources. Wanted to share some favorites (excuse the informal writing):
- 1914 Ford Press Release - when they announced they were doubling wages. It changed a lot of people’s lives; it also attracted the best talent from competitors and increased worker productivity. By the end of the week it was announced, it was the headline in every paper in the US and Europe. The less obvious context is that Ford had terrible attrition at the time (as did every other firm), and their savings on recruitment/training, plus increased utilization of their capital equipment via more hours made up for the wage hike. Also, WWI came along in the summer of that year and by the time the war ended, the new higher wages were no greater in real terms than they were before the increase — due to inflation.
- 1874 Louisville & Nashville Railroad Annual Report excerpt. This document is super cool. You can see the railroad had a 30% gross margin. You can see that in most of their regions, interest on capital was 50% or more of their expenses. The most interesting thing, though, is that this document is one of the first recorded instances of a business person really dealing with the issue of fixed vs variable costs. There was no business school at the —fixed vs variable costs weren’t known concepts. The railroads were the first industry with operations that were huge, required precise reporting, and had very different cost structures for different activities. It’s interesting to see Fink tackle the problem of figuring out which of their expenses go up with revenue, and which stay flat.
- 1840 Wilmington Whaling Co letter to board and ledger of ship costs/gains. There are a ton of interesting things about this document. (1) you can see that the president is making a capital call on all share holders to make a $5 investment, which they have to oblige because of how corporations were structured at the time. (2) you can see an example of how rudimentary financial reporting was before the railroads. (3) I won’t go into them, but the Whaling industry in the early-mid 1800s in the US was similar to the tech-startup and movie industries today in a striking number of ways—investment long before revenue, team considered of paramount importance to successful venture, equity compensation, a whaling company would raise LP-like third party investment to fund a new venture. The big difference though, as you can see in the doc, is that most Whaling ventures weren’t profitable.
- 1748 Agreement in which Ben Franklin sold 50% the Pennsylvania Gazette. This is a legal doc and a pretty dense to read. What’s interesting is how ingenious of a move this was by Ben Franklin. Franklin had, by this time, achieve financial success and was part of the social elite — the Gazette had recurring revenue and he could have coasted for the rest of his career. But he wanted to explore other things: he wanted a second career. But he couldn’t simply sell the Gazette. There are two pieces of context: (1) there are no capital markets, (2) the people with the necessary trade skills to run the business — journeymen — don’t have enough capital to buy it. When you read the document you realize the other party isn’t paying him anything. The clever thing Franklin did here is that he structures the agreement as, essentially, an 18 year debt object or annuity. The other party agrees to run the biz for 18 years, giving Franklin half the revenues each year, and at the end of the 18 years he is allowed to buy the assets of the business from Franklin. This move gave Franklin the time and money to start a second career—invention and public service—which most people couldn’t have in that day and age
From Reza Aslan’s AMA (Ask Me Anything) session on Reddit:
Religion is nothing but a signpost to God. If you believe there is something beyond the material, and if you want to commune with that “thing” then it helps to have a set of symbols and metaphors to help you talk about it - both to yourself and to other people. That is ALL religion is supposed to be. A language of symbol and metaphors to help you make sense of something that is ineffable. I just happen to prefer the symbols and metaphors of Islam.
I just got back to Cali after spending 15 days working with a tech company in Bangalore, the largest city in south India. A lot of people I’ve talked to since getting back have been curious about how it was, so I’ve put together some observations that hopefully satisfy or spark your curiosity in one way or another.
I know this post looks long, but I’ve tried to make it easy to read.
A bit about the trip
I’ve been curious about India for a long time and have wanted to travel there. A big challenge, though, is visiting in a way that would allow me to get a comprehensive understanding of things.
For example, a tourist from France who experiences New York City through Central Park, shops on 5th ave, Ellis Island, and their hotel are missing out on a lot of what it’s like to live there. I didn’t want to do the India version of that.
So I’d hoped that my visiting on the premise of work, instead of tourism, would make it easier for me to see beyond the surface. And I happily found that to be the case.
The company I was with has 150 employees in India and 15 in the US. It was fantastic working with them.
What I noticed
There are a million fascinating things about India. Below are a few that made an impression on me—some more trivial than others— specifically with regards to:
A) The business environment
B) Infrastructure & govt.
C) Social culture & conventions
Here they are.
A) The business environment
- Labor is cheap in India (pt 1). It’s cheaper than in the US, as you probably know. A software engineer in their early-mid twenties might make 15-25K a year. The result is that most Indian “tech” companies are services companies which can take advantage of the international arbitrage — product companies are rare. Accordingly, Infosys is probably the most highly regarded tech company there. Infosys is sort of the Apple of Indian tech.
- Labor is cheap in India (pt 2). It’s not surprising labor in India is cheaper than in the US. What might surprise you, though, is that in India it’s also often cheaper than products. That is to say, many of the things we use products to solve in the US, labor is used to solve in India. For example, instead of a vending machine, you have a person selling packaged snacks. Instead of buying a laundry machine, you’ll have a person do it. Instead of an automatic gate, you have a man open and close it. Instead of buying a car, you’ll hire a driver. In general, most problems are solved with labor.
- There’s more tech than I expected, and less English. And they are both in high density in the same place: Bangalore. HP, IBM, Microsoft, Amazon, Intel, Oracle and many others have tens of thousands of employees there. The presence of these multinationals makes it important to speak english. In the rest of the country, although people can read and write english in some cases, it’s rarely spoken fluently.
- Capital is expensive. Interest rates are ~10%. The central bank is explicitly keeping their rates high to combat inflation (the rupee is down 25% against the US dollar in the past 5 years). You can see how that impacts retail financial products: a home loan from a big domestic bank is north of 10% and a 12mo+ fixed deposit is just below it. Here’s an example rate sheet at one of the big banks.
- When hiring, compared to the US, trust matters more and optimal talent less. There are two forces at play that create this reality. Number one, corruption is relatively high and there’s an emotional residual from the historical difficulty in enforcing contracts. Number two, information is scarce and imperfect which is relevant in two ways. First, someone could screw their business partner in Dehli and move to Bangalore and find a new business partner who’d have no way of knowing of their previous nefarious actions. So it’s hard to trust someone new. And second, without LinkedIn and other strong sources of information about talent, how will you identify the optimal talent anyway? The impact of these dual forces is that it’s hard to find the best talent and it’s hard to know enough about a person to be confident you can trust them. So priority is given to those you can trust. One of many byproducts of this is that Indian business owners often employ family.
- In terms of opportunities, it’s sort of like the US 60 years ago. There are 100mm internet users in India, which is less than half the US, and they command far less purchasing power (they also aren’t allowed to setup recurring payments). The biggest opportunities in India, it seems to me, are many of the things that were the biggest opportunities in the US in the mid-twentieth century: consumer packaged goods, education, energy, transportation, entertainment. Telecom is also lucrative as with many developing markets. Print media is growing. Healthcare and real estate are probably good longer bets with 50% of the population <25 years old, 75% <35, and a middle class expected to grow from 15 to 40% by the end of the decade. Education, though, is the opportunity that really stands out to me.
B) Infrastructure and govt
- I’m suspicious of their GDP numbers. The country reports a GDP around $2T US. I don’t know the details of how they calculate that, or which of the three methods they use, but there’s no way that things are getting reported accurately. Most shops in India, even in parts of big cities, look like shanties. There are 1.1 billion people. And there’s rampant corruption. I’d bet that the GDP is higher than estimates, despite most countries typically over-reporting (except China perhaps). A few people have suggested to me that economists can “back into” the right GDP number or “factor in” the underreporting, but I haven’t been able to find any proof there’s a sufficient method. Remember, India’s circumstances are unprecedented: benchmarks, comps, or standard multiples won’t produce accuracy.
- Infrastructure is way behind (pt 1). Power flickers throughout the day. There’s no national grid. After my first day at the office, I said to the a few managers, “It’s crazy the power goes out so much. It went out three times in one hour. And no one seems to notice. Is that weird?” And they joked, “It’s only weird if the power doesn’t go out.” I stood in the electricity-powered elevator later that day thinking about the implications of that… Moreover, this shortcoming has precipitated an opportunity. Where government has fallen short in setting up infrastructure, private enterprise has stepped in. The shinning example of this in my mind are the “tech parks” in Whitefield, Bangalore — the part of Bangalore where most tech companies have their HQs. These complexes, constructed by private developers, not only have office buildings but also on-site power generation, fences and security, and sometimes even malls and residential space.
- Infrastructure is way behind (pt 2). The streets aren’t wide enough. Many streets aren’t paved. Several parts of Europe have the same problem with small streets, but in India it’s exponentially more challenging because of the population. And you can top all that off with almost no traffic law enforcement. The combined result is that there’s tons of traffic and no concept of lanes. Besides the day-to-day challenge this presents, you can imagine the logistics challenge a company like Amazon faces trying to get a package from Dehli to Bangalore by truck. The point is, there’s a problem. And as with the example of tech parks, the market forms up around the opportunities created by the constraints of government infrastructure. One of the most significant results is that there are throngs of motorcycles, outnumbering cars as the main mode of transport, and allowing for easier maneuvering. And they’re not just for personal transit: McDonalds, Pizza Hut, Dominos, and the like all do delivery orders by motorcycle.
- The nation is loosely tied. The independent identities of the different provinces reminds me of the original 13 US states post-revolution, pre-civil war. In fact, they’re probably more divergent in terms of culture. Almost every province has a different provincial language. In Karnataka, the southern province of Bangalore, the language is Kannada. In Maharashtra, the western province of Mumbai, the language is Marathi. And in addition to provincial languages, everyone speaks some amount of Hindi (the national language), English, and/or a village vernacular. So there are ~23 official languages in India. You get it. The diversity goes beyond language of course. Religions differ by province and city — be it Hinduism, Buddhism, Sikhism, Jainism, Christianity, or Islam (the first four of which were born in India). Hyderabad’s province, Andhra Pradesh, is mainly Islamic, whereas it’s neighbor Karnataka is mainly Hindu. Religion, of course, is very relevant to commerce because it dictates different consumer values and practices (i.e. no beef, worship three times a day, respect for elders vs youth, etc). It goes beyond religion as well. Diets are different. Commerce laws are different. Dress is different. Diversion is different — people in the South say people in the north (Punjab in particular) are more flamboyant and like to live indulgently. I’m sure whole books have been written on the amazing diversity. The takeaway as it applies to business opportunity, though, is that India is far from a homogenous consumer market. You can’t rely on many of the standards we take for granted in the West. You have to address many provinces individually.
- Corruption is real. This is what I’m told. Apparently some people chose to not to engage in it, but for the vast majority it’s just the rules of the game. It’s more accurate to think of it as an informal tax than an impassable barrier though. One person said to me, “many people go into politics because it’s the best way to make money.” And the main way that money is made, is through bribes.
C) Social culture & conventions
- There’s no toilet paper. That’s right. No one had told me before I arrived — I didn’t poo for 3 days. It was a shitty situation. The main solution for wiping your butt is a bucket of water and your left hand. In more affluent cities they have essentially a bidet hose. Almost like a little gardening hose that you use in the toilet bowl. In the most western places (multinational companies / malls in tech parks) you’ll have both the hose and toilet paper, which is a killer combo. At first, I feared using the hose would jeopardize my masculinity :) — butt once I tried it, it was hard to go back. It’s definitely superior to toilet paper.
- It’s tropical, like Hawaii. I don’t know what your mental image of India is but I was surprised to realize how tropical it is. As a mater-of-fact, it’s at about the same latitude as Hawaii. At one point a person I was with pointed out that if you look up at the trees everywhere, you’ll notice that no two seem to be of the same species. It’s hot and, in most places, humid. There’s both lush greenery and sparse, rocky landscapes. It’s probably less colorful than you’d imagine if you’ve seen tourism photos or religious documentaries. And there’s more dirt and dust than you’d be familiar with from the West.
- Drinks are served at most meetings (pt 1). At first, I was surprised in two ways. First, the drinks are most often hot: chai or coffee. Let me give that context. When it’s 100+ degrees outside you’re sweating more than a middle school boy at the first school dance (am I right). You’re forced to mentally reconcile that your typical strategy of wearing clothes 3+ times before washing them will not work here. And you’ve unbuttoned enough buttons on your dress shirt that you look like either a rockstar, an Abercrombie & Fitch model, or a drunk banker at a club after 2am; of which I am none. Point being, in those conditions, you can imagine your reaction when being served a steamy beverage you’re expected to consume. I know there’s a good reason for this, having to do with decreasing the difference between your body temp and the outside, but still. The second way in which this can be initially surprising, is that it happens pretty much any time you sit down with someone you don’t see regularly. For example, I was lucky to get to go an engineering university where the CEO was giving a talk and was introduced to the business faculty. Three minutes into the conversation it became apparent that the language barrier was going to make it prohibitive to have a long conversation. Right as I started to say goodbye and turned to get up, a man with a tray handed me a chai. Boom. I was now committed to 10 more minutes.
- Drinks are served at most meetings (pt 2). Jokes and culture shock aside, drinks being served at meetings is an outcropping of more a fundamental theme: hospitality. People, at least in the south, are very gracious and welcoming to guests. And this in no way is a commentary on how they treat tourists or foreign travelers. It’s moreso how they treat friends, friends of friends, and community members.
- Veg and non-veg. In the US, the default is that you eat everything — that you’re an omnivore. If you’re not, you’re a vegetarian or vegan or kosher, etc. In India it’s flipped. The default is that you’re “veg” and the alternative, if you eat meat, is that you’re “non-veg,” or as I like to think of it, “veg+.” Even for non-veg, beef is almost nonexistent. McDonalds, for example, only serves chicken, fish, and fried veggie patties. At Subway, there are actually two separate lines for veg and non-veg orders. I remember laughing about one guy who told me when he took a trip to the US, he bought a bunch of bacon and burgers, froze them, and then rushed from the airport home to put them in his freezer.
- The most significant difference from the US in terms of values. In more ways than most countries outside of western Europe, India is similar to the US. It’s a democracy where people feel entitled to their opinion and doing what they want. It’s extremely diverse. It’s english-speaking so they’re attracted to Western brands (unlike China). It’s a capitalist free-market. It’s increasingly a place of socioeconomic mobility. I think longterm economic success for the US in this century will disproportionately depend on how we involve ourselves with India — but that’s the subject of another post. The point is, among many similarities, the biggest difference is the value we place on individuality and how that affects society. Most of the values we hold most dear in the US are based on individuality: freedom, exploration, credit, heroism, hope. All of these things are predicated on the individual not being beholden to their past, to their location, to their family, to their current resources. In the US, our heroes are individuals. Our success stories are stories of individuals. Our concept of a journey is a narrative of a single person’s adventure. (Of course we can all think of a few exceptions.) In India, as I see it, the individual is not the most important, though. Family is. People will leave their jobs, move back from the US to India (after spending 15 years earning US residency), or whatever it may be, to help when family needs it. And this is not just in response to a heart attack or sudden event, but rather often when a family proactively decides it makes sense for health or financial reasons. In India working adults take care of not only their children, but often too, their parents — the most obvious byproduct of which is having everyone in one house. That’s not the only example though. In the US, while we value family more than most things, it’s less than individuality. I immediately feel guilty of some crime when I consider that, but when you look at behavior in other cultures, it’s clearly comparatively accurate. In the US, adult’s parent’s (“elders”) are often put into retirement communities so the freedom of the adults and their parents aren’t encumbered by family, for example. In the US adults help elders, but from afar. This difference in values can be measured in anecdotes of family structure, but it’s most visible impact is on the role of the government. In the US, we employ the government to take care of our elder’s: social security, medicaid, medicare. We give the government money to take care of them for us. In India, this job isn’t outsourced to the government, it’s handled in-house by the adults. There are two main advantages for countries like India (and China) where the working adult population takes care of the elders: efficiency (1) financially and (2) politically. With regard to (1), it’s more efficient for adults and elders to live in the same home, share meals, share vacations, share materials, etc. than it is to pay the government to help elders afford duplicates of all the aforementioned. This is a huge capital commitment for the government. In the US, it’s worth the expense, though, for the freedom it affords adults to build their own lives and futures as individuals. With regard to (2), there’s also a political efficiency for countries like India who don’t have to deal with massive policies like social security. It allows politicians and voters to focus on other things like civic projects. In the US we can only focus on something like bridges so much, because in the short-term we care much more about social security and things that effect so many lives immediately.
So there you go. Those are many of the things I noticed during my short time in India. It was fascinating. I hope to go back and to be involved with India in my career. As I said, I think it’s the brightest star for citizens of english-speaking democracies. Moreover, I think it’s going to be increasingly imperative for American business people to understand — lest we make the same mistake as the British Empire at the turn of the century: believing we’ll always be the biggest and most powerful economy just because we are currently.
To end, I of course have to say I’m sure this isn’t complete and it’s impossible all these things hold true 100% of the time. As one a close Australian friend of mine who did exchange in the US pointed out, the rate of learning when you enter a new culture follows a “u-curve” whereby you learn a lot in the first few weeks, and then the rate slows, only to speed up again once you’ve embedded yourself with relationships. I tried to speed this up by going on work, vs tourism, where relationships were built in, but I know my list above only scratches the surface. I’m sending this to a bunch of the people I met in India so hopefully they can call me out where I’m totally wrong, and I’ll update this post accordingly. If you have any thoughts, I’d love to know (email@example.com).
Hope this was useful in expanding your perspective on India in one dimension or another!