Commentary: Why doesn't India have as many tech unicorns as China does?
While the Indian IT sector has successfully created impressive tech clusters and thousands of jobs, growth has mainly come from providing cheaper manpower, says Professor Amit Joshi of IMD Business School.
Cities like Bangalore, Hyderabad, Delhi and, to a lesser extent, the financial capital of Mumbai, have become buzzing IT hubs, offering coding and outsourcing skills worldwide.
An additional advantage is the general proficiency of its populace in the English language, which is the language of commerce around the world.
INDIAN UNICORNS LAGGING BEHIND
But where is the Indian Alibaba or Tencent, let alone Facebook or Google?
IT outsourcing has long been one of India's flagship industries but recent news reports have claimed that major companies, including Tech Mahindra and Wipro, are making thousands redundant due to increased automation AFP/INDRANIL MUKHERJEE
While China has spawned globally popular applications and software brands, India has lagged behind.
True, there are some success stories: US retailer Walmart in 2018 spent US$16 billion on almost 80 per cent of e-commerce service Flipkart - a local competitor to Amazon. Snapdeal, an Indian daily deals site, has eclipsed larger foreign players such as eBay and Groupon.
Other prominent indigenous providers include food delivery apps Swiggy and Zomato, ride-sharing service Ola and furniture etailer Pepperfry.
But these all are minnows compared with their Chinese counterparts. Some numbers shed light on this phenomenon.
According to the Economic Times, by mid-2020, India had 21 start-ups that had achieved the “unicorn” status of valuation over US$1 billion, with a cumulative valuation of US$73 billion.
In contrast, China had over 10 times as many unicorns at 227 . Indeed, 11, or over half, of the Indian unicorns have Chinese investors.
While the Indian IT sector has successfully created impressive tech clusters and thousands of jobs, growth has stemmed primarily from trading off salary arbitrage – providing work more cheaply that could have been done in a customer’s home country.
What has been lacking, at least until now, are clearly defined international brands and their corresponding ecosystems.
WHY HAS INDIA LAGGED?
While there is no obvious single answer, various factors explain India lagging behind in this aspect, compared with its bigger neighbour.
First is infrastructure. Mobile phone penetration in India – essential for e-commerce and other online services in the absence of a developed fast fixed line network - has skyrocketed.
However, mobile reach, especially that of smartphones, lags China. The Newzoo Mobile Market report of 2019 notes that India’s smartphone penetration is about 37 per cent, compared to almost 60 per cent for China.
Given that most Indians connect to the internet via mobiles, the low penetration of smartphones is clearly a hindrance.
Linked, but separate, is the broader issue of income inequality. Wealth has climbed over the past 20 years, stimulating the emergence of the new, increasingly affluent, middle-class.
But its numbers remain relatively modest – about 25 million households – and very much concentrated in urban areas. Rural regions remain generally underdeveloped.
Government policies have often been contradictory, or even unhelpful. Start-ups still have to navigate arcane procedures and laws and it still takes an average of 29 days and 12 procedures to set up business, as per the World Bank.
India has not seen the same focused prioritisation of IT and internet growth characterised by China.
While Beijing has erected its Great Firewall to block out unwelcomed news and reports, the Communist party has not openly banned Google, Facebook or Amazon, even if there have been serious delays.
All three, by contrast, have experienced significantly differing levels of difficulty gaining ground in India.
Compared with Chinese single-mindedness and rules, often designed to favour local players, central and regional government policies in India have tended to be inconsistent and volatile. Red tape and bureaucracy are notorious Indian bugbears.
Credit has also flowed more freely in China for ventures blessed by the party, helping to fuel rapid growth.
India’s home market is also much less homogeneous than meets the eye. Not only is regulation less centralised than in China – in India, a uniform goods and sales tax across its 28 states was only implemented in 2018 - the country has a multiplicity of languages.
India has 22 recognised languages, none of which is an official language, and an estimated minimum 2,000 dialects.
While China’s vast geography also makes for linguistic plurality, it is far less extreme, and the weight of Mandarin - and Beijing - far more compelling.
PERPETUAL SECOND?
Is India doomed to remain in its neighbour’s shadow? Not necessarily. Experience shows Indian business is often relatively slow off the mark but makes up ground eventually.
For a start, the country has a much longer tradition of openness to the world. Indian entrepreneurs are every bit as innovative and canny as their Chinese counterparts. While not obvious outside the country, internal competition is often fierce.
Indeed, the presence of the iconic global Indian manager of many top corporations may be attributed to some of these factors.
Rather than anonymous party apparatchiks, the country does a healthy trade exporting top scientific and technological talent.
Just take Sundar Pichai at Google, Satya Nadella at Microsoft, Shantanu Narayenat Adobe or former Nokia CEO Rajeev Suri to name but a few top chief executives of Indian origin.
Silicon Valley has long relied on foreign talent, such as Google CEO Sundar Pichai, to boost its bottom line AFP/Fabrice COFFRINI
To complete the circle on start-ups and unicorns, while India itself only has 21 unicorns currently, there are an additional 40 unicorns founded by persons of Indian origin, outside the country, as opposed to only 16 for China.
The Indian government should find ways to attract these 40 unicorns and their founders to the Indian start-up ecosystem.
Clearly, skill, talent and drive are not lacking. Instead, minor modifications to regulations, infrastructure and capital markets may be what is missing
Amit Joshi is Professor of AI, Analytics and Marketing Strategy at IMD Business School in Switzerland and Singapore. This commentary is part of a bi-monthly CNA-IMD Business School series on leadership and business issues.
