label/Indian Startups | pluGGd.in: on Indian startups and Indian Internet Industry

Pluggd has an interesting article about wage inflation in India and Riya shutting down its offices in Bangalore. Excerpt below. I strongly agree with the comments below. One of the biggest complaints I hear from entrepreneurs is how expensive it is to recruit talent. But I think the article misses a few points. First, there is a cultural aversion to working at startups. So startups have to pay a premium to get talent. Second, entrepreneurs in India see their team members as working for them. This paternal relationship bias stems from the family business culture that has dominated India the last several decades as well as the CEO-cult mentality that it developed. Few entrepreneurs in India realize that they can not create phenomenal wealth and large companies without making their companies more about the team and less about themselves over time. Indian entrepreneurs are still hesitant to give up control and equity, so employees have to seek higher salaries. Third, some of this is due to the bubble that has emerged in India the last few years - look at the pay scale for web developers in the US in the late 90's, it was ridiculously high. Things have overheated to the point in India where history is repeating itself. Forth, India does not produce enough good software engineers. There is a tremendous shortage of software programmers you can hire to develop a world-class startup or product/service. For all the engineers India graduates every year, many do not have the training to be employed at Indian or Valley startups. Econ 101, when there is a small supply, the shortage causes prices to rise. Lastly, India can not have its cake and eat it too. A globalized world allowed domestic workers to develop products and deliver services to a global market. But the things that drove that capability, also provide workers with more opportunity and choice here in India and around the world. As such, Indian companies need to pay for some of the opportunity costs that individuals take on by joining a startup. What happened to Riya should not be all that surprising for the India we live in today.


label/Indian Startups | pluGGd.in: on Indian startups and Indian Internet Industry: "Unlike Silicon Valley, however, the employees in India didn’t value stock options as much as folks do in Silicon valley. It was understandable, however, given they had never seen a friend hit it big or seen the Google like wealth effects which occur every 5 years in the Valley. Hence, they argued more for cash compensation. This combined with the fact that we were going after the best in Bangalore (the most impacted city in India) increased our exposure to wage inflation.

Thanks to hiring spree triggered by big MNCs, the employees are pampered like kids and eventually, the balance of power is shifting towards the techie crowd.

Bangalore wages have just been growing like crazy. To give you an example, there is an employee of ours who took the first 5 years of his career to get from 1% to 10% of his equivalent US counterpart. He then jumped from 10% to 20% of his US counterpart in the next 1 year. During his time with us (less than 2 years) he jumped to 55% of the US wage. In the next few months we would have had to move him to 75% just to “keep him at market.”

Smells like desi bubble burst? I don’t know.

Is Bangalore really the silicon valley of India? Do we really understand what silicon culture means?
Definitely NOT"

Google: Strong company, inflated stock price - August 6, 2007

Interesting analysis of Google's stock price:

Google: Strong company, inflated stock price - August 6, 2007: "Every company's objective is to earn a return on capital that exceeds its cost of capital. Sounds obvious, but it's remarkable how many managers and even some investors lose sight of that fact. In performing this bedrock task, Google has been a superstar. Its cost of capital has consistently been around 13 percent, while its return on capital for the four quarters that ended March 31 was 52.5 percent. The resulting spread, almost 40 percent, is simply stunning and better than that for 99 percent of the companies in the Russell 3000, says the consulting firm EVA Dimensions.

So what's the problem? Just this: Google's tremendous past has sent investors into a delirium about its future. When you buy a stock, after all, what you're paying for is the future. Specifically, a stream of future profits, in particular what's called economic profit or economic value added (EVA), the dollar amount by which return on capital exceeds the cost of capital. With that in mind, I asked EVA Dimensions to calculate the EVA that Google would have to produce to justify today's stock price.

Here's what it found: To live up to the expectations embedded in its current share price, Google would have to increase its EVA, which was $2.4 billion for the past four quarters, by $"

India Housing Bubble

The following Economist article discusses how income growth is strongly tied to housing value appreciation and shows why the Indian housing market is in a bubble:
Economics focus | Home truths | Economist.com: "Don't buy in Mumbai

The Economist also boldly poses that it is not longer a question of whether the Indian housing market will fall, but how big the fall will be?