sustain the momentum. For entrepreneurs, ‘home proximity’ is the most important location factor (Ramachandran, 1986), particularly in societies such as India with strong cultural bonds among family and community members. In case the relative factor advantage of the cluster goes down temporarily, a capital flight is bound to happen. However the local entre- preneurs are more likely to continue and work for the revival of the cluster advantage because of their greater bond with the location (Stuart and Sorenson, 2003). In addition, in dealing with a turbulent industry, such as IT, the location of the business in a place where one’s social and profes- sional networks are present becomes important (Johannisson, 1998). This is particularly so for start-ups with limited internal resources (Siegel et al., 1993), but with the need to have a growing pool of resources (Barney, 2002).
This is evident in the case of the Bangalore cluster where companies like Infosys and Wipro have taken a very active role in supporting the Karnataka government to revive factor conditions and to some extent arrest the flight of capital to other locations, such as Chennai and Hyderabad. The presence of this important factor, that is, a local pool of entrepreneurs shaping the competitiveness of a location has not received enough attention in the extant literature.
However a fundamental question that remains is the replicality of the
‘Bangalore Strategy’ elsewhere in India. Since the competitive, technologi- cal and regulatory environments are not the same, it will be interesting to see the extent to which clusters like Hyderabad and Kolkata have followed the same strategy as Bangalore.
CASE II: FORMATION OF CLUSTER AS A LATE
tions in Hyderabad by providing better infrastructure, concessions, hidden subsidies and local demand through e-governance projects. It has simultaneously backed local IT firms, such as Satyam Computers and InfoTech Enterprises, to grow and flourish. As a result, Satyam has emerged as the biggest exporter from the city, and one of the ‘big four’ in IT industry in the country.
We shall next discuss the major differences between Bangalore and Hyderabad in the context of the IT clusters.
Factor Conditions in the Mid 1990s
Hyderabad was often considered as a ‘hot, dusty and dirty’ city, with crowded and badly maintained roads. Power supply was erratic and civic services of poor quality. It had a few engineering colleges, but not of very high quality. Discipline in academic institutions was nothing to boast about.
Graduates in large numbers used to migrate to other places in search of jobs.
There were a few advanced defense research institutions located on the outskirts of the city, away from the public glare. In addition, the city had a few large public sector enterprises, manufacturing electrical and electronic goods, located on the outskirts. It had four major industrial estates which had a number of small and medium size pharmaceutical and engineering manufacturing units.
In short, Hyderabad was often called a ‘big village’ with a laid back atti- tude to life. Politicians used to be busy trying to retain their seats and gov- ernment highly bureaucratic and corrupt. It grew at a snail’s pace and nobody seemed to be concerned. Nobody, then, would have imagined in their wildest dreams such a transformation of the city within such a short period of time.
Entrepreneurial Leadership of State
In this section we present an analysis of how the Andhra Pradesh state gov- ernment led by the then Chief Minister Chandrababu Naidu (1996–2004) made a giant stride to shape an IT cluster in and around Hyderabad. Naidu started his career as an entrepreneur and left it with his family to run when he joined politics. In 1996, when he became the Chief Minister, he had spotted the emerging entrepreneurial opportunities in knowledge intensive industries. Though Hyderabad was already known for its cluster of phar- maceutical firms, he believed that the potential in IT was greater. Early on, he realized that he had to make a major change in the mindset of people in the government and outside. His entrepreneurial vision and the clarity of
the strategy are evident from the number of initiatives Naidu had taken to position Hyderabad as the knowledge hub of India. This included not only upgrading economic and social infrastructure, but also providing pioneer- ing leadership in e-governance in India. This not only pushed up IT orien- tation in the society, but also opened up business opportunities for several companies, including Microsoft.
As someone with proven entrepreneurial capabilities, he had realized the need to stir up the administrative machinery from its slumber and provide high quality service to give confidence to prospective investors. With a team of chosen civil servants who shared his dream and with proven managerial capabilities, he started pushing administrators to think and act differently.
He demonstrated that accountability and performance can be improved even in the government machinery. For instance, he improved the manage- ment information system (MIS) in the government. Follow up became routine. He privatized and outsourced a number of services that until then were carried out directly by the government, without retrenching people.
For instance, every road in Hyderabad got cleaned before sunrise every day.
The government secretariat started functioning in time and wore a profes- sional look.
The state government partnered with private companies to promote IT literacy too. This included campaigning and facilitating the creation of a number of pioneering international quality institutions in the area of IT, biotechnology, life sciences, business management and insurance, all in emerging growth areas. All of them are designed to be of international repute. The creation of a finance district to house a number of institutions and agencies is expected to lead to a cluster of financial organizations in Hyderabad. The entrepreneurial leadership is as much reflected in these ini- tiatives as it is in brand building around them. A number of foreign dele- gations and dignitaries were invited to the HITEC city in the last few years and several road shows and seminars were held in various countries, includ- ing the USA, UK and Germany, to give visibility and build image for the city. Naidu, as the chief minister, took a personal interest in negotiating with a number of multinational firms. All these formed the building blocks of a grand strategy to catch up with the development process, which is knowledge driven in the emerging context. These steps are far superior to anything happening in any other Indian state.
The entrepreneurial leadership of the state is reflected in a number of other ways too. For instance, Andhra Pradesh was one of the first states in India to formulate an IT policy in 1999. Recognizing the emerging global opportunity in the IT Enabled Services sector (ITES), Andhra Pradesh for- mulated a separate ITES policy in 2002. The Chief Minister demonstrated superior entrepreneurial leadership compared to his counterparts in other
ing which location to choose for the prestigious institution among Karnataka, Tamil Nadu and Maharashtra, the Chief Minister personally persuaded the high powered team to visit Hyderabad and give him a chance to make a presentation, though his state was not on the shortlist. The vis- iting team’s experience in Hyderabad contrasted with those in other cities.
While one chief minister (CM) wanted a quota of seats reserved for appli- cants from there, another CM made them wait for 45 minutes and showed indifference at the meeting. In Hyderabad the Chief Minister not only indi- vidually greeted the members of the team and garlanded them, but also made a power point presentation, and personally handed out plates at dinner. Many investors have experienced the same pattern of behavior from him both before and after making investments. Interestingly, three years after the setting up of ISB the entire area, lying on the outskirts of the city, has suddenly become an IT hub.
The current strategy of Hyderabad to encourage the setting up of a number of high quality private schools for primary and secondary educa- tion is relevant in this context. However some of the other initiatives that make sense in this context include the creation of a number of parks, botan- ical gardens and other ecotourism centers, a major urban afforestation program all over the city, the promotion of tourism in a large and concerted way and building the image of Hyderabad as the first choice in where to live. These are all strategic variables forming part of a grand strategy based on the emerging industrial location factors. These strategies are synergistic with the current efforts to promote tourism in the whole of Andhra Pradesh, including Hyderabad. There is a definite and conscious effort to make Hyderabad and surroundings and the state as a whole attractive for the knowledge and service driven industries to grow. It is such qualities of entrepreneurial leadership that provide the necessary fuel to push the state to a higher production function and enter a new and higher paradigm, as explained by Schumpeter (1949).
The initiatives have started paying offas can be seen from a survey con- ducted by NASSCOM (2002) on city competitiveness. Hyderabad was ranked one ahead of Chennai (three) and Bangalore (six). The competi- tiveness assessment was carried out based on three parameters: availability and quality of infrastructure, availability and cost effectiveness of person- nel and policy support.
In essence, the Hyderabad case proves that it is possible for a late mover to catch up if it follows the principles of identifying entrepreneurial oppor- tunities (Ramachandran, 2003; Shane, 2005) and successfully executes them (Bossidy and Charan, 2002). It is not easy for a sleepy government system to wake up and act like this suddenly.
Cluster Literature and Entrepreneurial Leadership of State
Our earlier discussion on business clusters showed that so far no notable work has been done on the creation of a cluster within a short period of time, when the factor conditions are unfavorable. Even Porter’s (1998b) discussion on government role in cluster growth did not envisage a situa- tion where the local government plays the role of an entrepreneur in iden- tifying an attractive opportunity and exploiting it. After a review of the role so far played by governments across the world, Porter finds a role for the government ‘. . . in ensuring that appropriate factor conditions are present as well as setting a context that encourages upgrading through appropriate policies . . .’ (p. 11). Here also, implicitly Porter talks about a managerial role that involves a reactive response, and not a proactive entrepreneurial approach. Later, in the same paper, Porter finds ‘an important role for gov- ernment in facilitating the upgrading of clusters’ (p. 12). Governments are expected to be social engineers to foster private entrepreneurship, and not to be entrepreneurs themselves (Chang, 1995).
However, state governments in China have started showing entrepre- neurial vision to enhance national or regional competitiveness (Pereira, 2004). It is to be remembered that the power of the state to effect changes is unlimited in a totally controlled economy such as China. Singapore is another country that has demonstrated entrepreneurial leadership at the national level, during its process of transformation from a poor, newly independent country to a rich, city nation. In fact it was forced to develop the economy by attracting overseas investments (Rastin, 2003).
Of course, Singapore did not try to create a cluster, but behaved entre- preneurially. As noted by Schein (1996), the local government demon- strated honesty and trustworthiness in its transactions with MNCs. This pattern of behavior was demonstrated in Hyderabad when Naidu con- vinced Bill Gates to open Microsoft’s research center in that city. There are two differences between Singapore and Hyderabad. First, Singapore enforced political autocracy like China to ensure stability and the rule of law whereas Hyderabad has functioned as a democracy through its history.
Second, unlike Hyderabad, Singapore had a culturally fluid society, where people were willing to adapt their own cultural norms and values to the changing environment (Choy, 1987). Demonstrating entrepreneurial lead- ership in a tradition bound, bureaucratic, democratic government set up requires not only vision but also capabilities that are noticed in path break- ing entrepreneurs.
In essence, the existing cluster literature is silent about any entrepre- neurial dimension in cluster creation. Our major contribution is in iden- tifying and discussing this role. We notice that it is possible to create a
ship in spotting an emerging opportunity and exploiting it. Effective entrepreneurial leadership involves the creation of an organization with an integrated approach to converting information into ideas and solu- tions (Marquis, 1969; Utterback, 1971). Such organizations, whether private, public or government, highlight the importance of an explicit and well articulated strategy that enables managers to have an integrated vision of where to go (Miller, 1983). The commitment of an entrepre- neurial organization to seize opportunities is revolutionary rather than evolutionary and the processes are tuned to it (Stevenson and Gumpert, 1985). Stevenson and Jarillo (1990) had observed that an entrepreneurial organization pursues opportunities independent of existing resources.
They follow the strategic intent arguments of Hamel and Prahalad (1989). McGrath and MacMillan (2000) have identified three sets of practices that are affected in this process. These are work climate, seeking and realizing opportunities, and quick problem solving with people at work.
Success of such leadership initiatives in organizations depends on the presence of a supportive leadership that builds commitment and enthusi- asm by creating a shared sense of purpose and meaning in the organization (Roberts, 1984). Devarajan et al. (2003) conclude that effective entrepre- neurial leadership would create a shared passion in the organization.