As India rises on the global economic stage, foreign players are increasingly attracted to the seemingly unlimited and unexplored potential of the South Asian giant, which offers a market of 1.3 billion potential consumers.
The stakes are high for both India and for foreign companies looking to enter the country’s market. Foreign direct investment around the world fell by 23 percent in 2017 compared with the previous year, according to a report released earlier this year by the United Nations Conference on Trade and Development. However, the sharpest drops were experienced in developed economies, not developing economies such as India. And the ongoing threat of a trade war between the U.S. and China may make India an increasingly appealing forum for Chinese investors.
Chinese companies that have failed to penetrate the Indian market on their own have turned to investing in local companies and entrepreneurs there, thanks to government policies that encourage companies to invest more abroad. U.S. internet companies, meanwhile, still struggle with the Indian market, aiming at replicating their success at home by using the same products and services, says William Bao Bean, managing director of Chinaccelerator, one of China’s leading investment and mentoring programs for software startups, operated by the fourth-most active seed investor in the world.
Which companies will succeed is a matter of which are the most aggressive and assertive, but not necessarily which ones are carrying a stronger legacy, Bao Bean says. Bao Bean talked to U.S. News & World Report about China’s interest in India and its strategies for expansion, as well as future trends in global business. The interview has been edited for the sake of length and clarity.
How is Southeast Asia Important to China?
The new “new thing” for China is Southeast Asia. Chinese companies in the internet dominate India and Southeast Asia increasingly, especially Alibaba, Tencent and Xiaomi, the No. 1 mobile phone brand in India. Alibaba basically controls the No. 1 payment platform. They also own the top e-commerce platform. If you go through payment and e-commerce, market by market, they’re either controlled by Alibaba or Tencent, and then you have Google, Facebook and sometimes Amazon.
Chinese companies generally are expanding to other markets that are similar to China – mobile-first, mobile-only markets. China is expanding into Southeast Asia, South Asia, South America, Latin America, Africa. They’re not focused as much on North America or Western Europe. But if you look at these markets, China is leading and Silicon Valley trails way behind.
As cross-border is becoming a new thing, the new fad, there will be a lot more money in this space, which on one hand will be positive for us because our companies will get funded more easily, but on the other hand, the better deals will be more competitive and we’re going to have a lot more competition.
When did this trend start?
Speaking in terms of the internet and to some extent mobile space, it really started to kick off two to three years ago, as leading Chinese internet companies as well as the Chinese phone makers started to enter the (Indian) market. This is mainly driven by the leading Chinese internet companies starting to invest quite heavily in e-commerce as well as e-payment, because if you control e-commerce and e-payments, you basically control the internet.
Why are Chinese tech startups looking at the Indian market?
For China, the market develops using a leapfrog methodology. Because (China didn’t have) 150 years in retail infrastructure and history, the consumers in China were much more open to embracing e-commerce. So e-commerce penetration in terms of (the) number of transactions is much higher in China versus the U.S. or Western Europe. The challenges and problems that consumers have in Southeast Asia and South Asia are quite similar to the ones you’ve seen in China over the last decade or so, so the solutions that the Chinese entrepreneurs have developed are more suited to solving the problems in these markets versus the one-size-fits-all (strategies) that you get from, say, Facebook or Google.
How is China’s strategy better than America’s when it comes to penetrating the Indian market?
U.S. companies have gone in direct with their platform that they sell to every country, whereas China failed to bring their own products into India, so what they’ve done is partner and invest in local players and bring in technology and know-how, especially around areas like artificial intelligence and machine learning. They’re not going in under their own brands or with their own products. This strategy is a lot more effective, so it’s China-plus-local versus North America.
Is China also helping India develop through its investments in any way?
No. When they invest, they do inject quite a lot of back-end technology, but to the outside world they are local companies. Previous to this, Chinese internet companies had a strategy of trying to enter the market themselves, but they failed. (Now) they invest in local entrepreneurs, the leading players in commerce and payment and other strategic sectors within the internet ecosystem. So it’s an Indian face with Chinese technology and capital.
Do Indian companies also expand into China?
No, (there’s) almost no expansion of Indian companies into China in the internet space. Indian companies are undercapitalized versus Chinese companies, and it would be extremely difficult for them or any other international internet company to compete in China.
What will the world world look like if the two largest markets work more closely together?
(In this case) I wouldn’t say that it’s two countries developing a solid relationship. It’s companies in one country acquiring or investing in companies in another market. Because the Chinese market is so competitive, you’ve got Chinese companies looking to expand and compete with each other in other markets. On top of that, (there’s) a multifront war where you’ve got Google, Facebook and Amazon starting to bump into the $600-$700 billion Chinese internet companies, (with which) they are not bumping in North America or China.
What will these developing markets do to the Western world?
All the growth in the world is now coming from what used to be called developing markets. You’ve got 400 million new internet users coming out of India and these mobile-first, mobile-only markets in Southeast Asia, South Asia, Africa, the Middle East, Latin America, South America. That’s (where) Chinese companies are a lot more aggressive than the local players or even the traditional internet (companies).
What you’ll end up with is North America and Western Europe in sort of islands surrounded by the rest of world, which is where the growth is and those markets are.