Can India produce global start-ups?4 min read . Updated: 17 Feb 2017, 02:42 AM IST
Indian start-ups have much to learn from the German mid-sized firms and how they leverage the institutional support provided to them
In October 2015, the IT industry body Nasscom proclaimed that India had overtaken Israel to become the third largest ecosystem with 4,200 start-ups, next only to the US and the UK. Some of these start-ups operate globally and are valued at several billion dollars. But we are yet to see a truly global start-up, such as Google and Facebook, that would capture the imagination of users and markets across the world.
In the current, relatively lukewarm year of venture investing in India, central and state governments are falling over each other to unveil start-up policies—providing subsidies, tax holidays, grants, incubation spaces, and easy exit routes. All of these have led to a surge in entrepreneurs venturing out on their own. However, the global start-up from India remains elusive till date.
A global start-up is a venture with a business model that can generate revenues from international markets (multiple countries) and can therefore be scaled up more speedily than one relying on a single country or a region. One of the requirements for a truly global start-up is to offer value to consumers worldwide.
Well-known venture capitalist and co-founder of PayPal, Peter Thiel, in his book Zero to One (co-authored with Blake Masters) captures the phenomenon of formation of global start-ups. Global start-ups go from nothing (zero) to something (one). They offer a unique value proposition to an internationally diverse and large consumer group. The proposition places itself in uncharted territory and therefore creates a first mover advantage in markets worldwide. Then, other start-ups follow this business model, i.e., go from one to n.
In India, unfortunately, most start-ups fall under the second category. One reason could be that the start-ups originating in India typically pursue large market opportunities within the country, and therefore their founders do not design ventures that need to rely on global markets for scale advantages.
Can India have start-ups that go from Zero to One? There are quite a few lessons to be learnt from some of the global start-ups that have changed our landscape.
In a recent article in Global Strategy Journal (bit.ly/2l37rcd), my co-authors Christian Landau, Ansgar Richter, Klaus Uhlenbruck, and I argue that some firms are successful in international markets because they can utilize the institutional support provided by government and other ecosystem partners better than their competitors. We develop this argument using examples from the German Mittelstand and Hidden Champions—medium-sized firms from Germany that are global market leaders. We term this ability institutional leverage capability.
Indian start-ups have much to learn from the German mid-sized firms and how they leverage the institutional support provided to them. There is a vast difference in the business environments of the two countries, and therefore making a direct comparison may not be advisable. Therefore, I take some of the success factors from ventures that have utilized and leveraged institutions and apply these to the Indian context.
First, there is a need to increase awareness of ecosystem support that start-ups or aspiring entrepreneurs can receive to help start their ventures. Much of this is available in India on web portals of the government, such as Startup India. With heightened social media activity of some of the support providers, awareness about the start-up support is just a click away.
Second, access to some of the start-up policies, incubation facilities, and funds is critical. State support in India is bureaucratic, though methodical. The result is that grant support by the government only trickles down to intended beneficiaries.
There is a need to make meaningful data—for example socio-economic and demographic data—accessible, so that aspiring entrepreneurs can use this information to identify problems and design solutions that tap into large opportunities.
Third, there is a need for start-ups to be creative in responding to the need of the hour. Large opportunities are afforded by the large Indian market, often not clearly defined but existing in the form of massive problems. Whether these hover around financial inclusion or access to infrastructure, India has several problems to be solved. Start-ups that solve these problems by designing disruptive solutions can unlock the large domestic market. Some of these problems will also find global markets.
Finally, an adaptive mindset is necessary to convert local solutions into globally scalable business models. This requires start-ups to be “lean and agile" in their approach to converting ideas into commercial ventures. Indian start-ups that are imitations of Western business models often compete on scale, but when the original disruptors enter India, the local start-ups face the heat fuelled by large investments. If Indian start-ups were to design solutions so that their competitive advantage is embedded in the way the solutions are designed, rather than in the form of access to capital, they might succeed globally.
In sum, the ability to leverage ecosystem support and designing innovative solutions can help Indian start-ups make a mark on the global stage. This can be achieved by building competitive advantage in the large market that India offers to its local firms. Being aware of support, accessing the right assistance, responding to local needs, and designing adaptive and scalable business models can lead us to not just unicorns, but start-ups that we can call truly global.
Amit Karna is a member of the faculty at the Indian Institute of Management Ahmedabad (IIMA) and the chairperson of the Centre for Incubation, Innovation & Entrepreneurship (CIIE). He tweets from @amitkarna. Views expressed are personal.