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Business News/ Opinion / The bull case for India’s tech sector
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The bull case for India’s tech sector

The main message to Indian entrepreneurs is to respond to this financial market reset by taking an expansive mindset and thinking outside the box

Photo: Hindustan TimesPremium
Photo: Hindustan Times

Over the last few quarters, the tech community in India has been engaged in debate about the viability of some of the country’s largest Internet and technology companies. Investors have become cautious, which is bifurcating the market: businesses that have been subsidizing growth through deep discounting are getting a wake-up call; whereas entrepreneurs managing businesses with strong fundamentals are being rewarded, particularly on a relative basis. The pullback from the heady days of 2015 is positive in our view; it forces entrepreneurs to be resourceful, and pace investment to today’s market opportunity. Entrepreneurs who have defined their addressable market expansively are better off. Often, this requires thinking outside the box.

To be clear, we could not be more bullish on the long-term prospects for India’s economy, its people and its technology sector. India’s macro indicators for gross domestic product (GDP) growth, Internet penetration, wireless infrastructure and the quality of Internet products and services look better than ever. In 15 years, India will be one of the world’s largest economies. As exciting as the long-term prospects are, it is critical to appreciate that we are still in the very early innings. There are only 60-70 million people in India today with annual incomes over $5,000. India’s online transacting customer base is still fewer than 100 million users. India’s GDP at $2 trillion is far closer to that of the UK than China so today’s Internet and technology economy will not resemble China for some time.

The businesses that will survive the current turmoil and capture the growing market opportunity understand these fundamental realities about India and see India as it is. They are not building clones of American companies and operating in markets almost 1/10th the size. They are defining their markets more expansively, either by offering broader solutions than their US counterparts or by defining their addressable markets to include customers outside of India.

Practo, a Google Capital portfolio company, is a great example of a company doing just this. In the US, there are strong competitors in every niche of the healthcare technology sector. There are numerous companies building enterprise health management solutions for hospitals, practice management solutions for doctors, marketing solutions for doctors to acquire new patients and electronic medical records companies. Some of these companies have been building their products and customer base for over 30 years. In India, Practo does not face this entrenched competition and can reasonably pursue all of these strategies at once. The benefit of such out-of-the-box thinking is not just a bigger business, but a better value proposition for doctors and consumers.

Another example of thinking outside the box is to pursue international customers. Zoho, a B2B SaaS (business-to-business software as a service) company, pioneered this strategy. They determined that they can sell to small and medium-sized businesses through the same online channels as their competitors in the US and benefit from operating costs that are 20-30% lower. Our portfolio company, Chennai-based Freshdesk, has built a very successful business using this sales and marketing playbook to compete with the leading software companies in the US.

Indian consumer companies are also competing abroad. Zomato, for example, has expanded to Southeast Asia, the Middle East, and Eastern Europe. Indian consumer Internet businesses have the benefits of high quality tech talent similar to that employed in the US, but have more experience with the dynamics of businesses in developing markets. In particular, Indian entrepreneurs are comfortable with a mobile-first strategy, have a greater facility managing multiple languages, have built workarounds to imperfect payment systems and have more experience dealing with inconsistent data speeds. Our portfolio company, CarDekho has pursued this strategy and has successfully launched its Internet car buying platform in Indonesia.

The main message to Indian entrepreneurs is to respond to this financial market reset by taking an expansive mindset and thinking outside the box. Tracking start-ups in the US, Europe and China is a good exercise but should not be the basis for a business plan. Clones of successful US and Chinese companies in India are typically not that interesting. Worse, they are likely to undershoot the opportunity by missing unique customer needs or untapped market opportunities. What makes more sense is to identify uniquely Indian strategies. Entrepreneurs thinking out of the box are the most likely to generate outsized returns. Fortunately, this mindset is becoming increasingly pervasive.

David Lawee is managing partner of Google Capital.

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Published: 13 Oct 2016, 02:40 AM IST
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