The Globetrotters from India

The What and the Why!

A protectionist economist from the pre-1991 reforms era might tell you that MNCs entering into India are invading our markets and will prove detrimental for Indian businesses. That might hold true in some cases, but the majority effect has been, as intended, the flow of information, world class goods and services, and industrial expertise and best practices.

While a long-haul objective of these reforms was to make Indian businesses compete on the global level, such instances till now have been far and few.

However, with the recent wave of start-ups looking at great intellects powered by immensely deep pockets, Indian businesses now seem to have truly taken off at the international level by showing capacity to think international and avoid the tendency to settle that has plagued Indian businesses by large.

There are, at a higher level, two reasons for this expansion, which are very much intertwined.

The first reason can be attributed to the fact that, despite growth in purchasing power and the number of smartphone users in the country, most of the start-ups have stagnated in their penetration power, that is, the differential amount of people in the penetrable (urban and semi-urban) areas that are yet to join their bandwagon are very few and might not really lead to a proportional increase in profits, especially because India is a market with longer sales cycles and lesser profit margins.

As long as there was no competition, this wasn't a problem. But with even the global giants like Amazon, Uber successfully running their operations in India, mostly as the market leader or as a significant challenger, there is in general, more impetus for the Indian start-ups to actually expand and in a way, diversify their growth prospects.

The second reason is the fact that they want to enter markets with higher purchasing power, which ensures greater revenues. And if we take into account countries with comparatively better infrastructure and more progressive labour laws than India, the strategy behind these expansions becomes quite clear. These companies are backed by VC/PE firms which demand higher returns on investments, and going global is one way they can actually justify their valuations. Entering foreign markets would also allow them to gain the required exposure to attract to a host of other foreign investors (apart from the ones who are already stakeholders in the firm), who in most cases have access to huge funds and greater expertise, which results in higher valuations for these firms.

Ideating and inching closer towards global dominance: The Indian Start-up Story

The Who's Who of the Indian Globetrotters

Ola, for one, has been one of the oldest unicorns in the Indian market and has been making giant strides towards conquering international waters. Backed by Softbank's Vision Fund and Tencent, Ola has entered Australia, UK and New Zealand, last year itself. With Uber having stripped off its license to operate in London, it presents a golden opportunity for this cab aggregator whose current net worth is $6.2 billion, to become the frontrunner in UK.

Another company with a young founder, the hotel booking platform OYO, backed by Softbank, has now entered the markets in China, Great Britain, the UAE and Indonesia, apart from those in Malaysia and Nepal, where it was already thriving. Interestingly China, housing more than 50% of the 3,50,000 OYO rooms available globally, has been quite a success story for the platform, where OYO has been astutely helped by China Lodging Group.

OYO’s competitor Cleartrip has also been able to successfully expand its operations in the Middle East and the UAE. It now accounts for about 60% of the market share in the UAE, and is a profitable venture in the Middle East. The recent acquisition of Flyin has also given them a big boost, considering that they now have direct access to more than 300k hotels and more than 450 airlines.

However, Zomato was one of the first few Indian start-ups to have shown the appetite to go bigger than what the Indian markets allowed, by expanding its operations in global territories, in 2012. It is now operational in several cities, including Dubai, Lisbon, Melbourne, Auckland, Jakarta, Prague, Istanbul, Toronto and Cape Town. Despite being just over six years old, Zomato has been able to spread its wings to 24 countries all over the world. Rival firm, Swiggy, on the other hand, too is looking to enter the Dubai and Jakarta markets.

PayTM, the highest valued Indian unicorn, launched a QR code-based payments service, known as PayPay in Japan, with the help of Yahoo Japan and Softbank, and has been able to accumulate about 10 million users, within ten months of its launch. It is a popular payment platform in Canada too, where PayTM had setup PayTM Labs in 2014 itself. Investors in PayTM include China's Alibaba group and its financial services arm Ant Financial Services Group. Berkshire Hathaway Inc. has also bought a stake in the payment aggregator.

Enterprise start-ups, including HackerEarth, Synup and Freshworks have been operating in the North American and UK markets for quite some time now. With the power packed bundle of improved internet connectivity and the advent of VPNs and online communication tools, it has become easier for these firms to scale and reach out to their customers in the overseas markets.

Health start-up Practo has been trying to expand and cement its operations in Philippines, Indonesia, Singapore and Brazil (mostly emerging markets). Craft beer manufacturing start-up Bira91 too has expanded to Nepal and Singapore. Chan-Zuckerberg Initiative backed EdTech start-up BYJU's and digital marketing firm Sokrati too have been looking at international expansion now.

The How after the Why

Setting up and operating in India successfully has given these start-ups a unique advantage. India is not only a demanding market, where you need to come up with high quality products and services at lower costs, but is also a diverse one, when it comes to the consumer's tastes and expectations. The cultural diversity in India is something these startups have to always keep in mind, which actually makes it easier for them in their adventures outside India.

This has been aptly summarised by Maninder Gulati, the Chief Strategy Officer of OYO in an interview with Quartz, “We, at OYO, have developed our business grounds up in a market like India, which we firmly believe is one of the toughest to crack given the emphasis on high quality at low price and the nuances that vary from city to city. Once you invest in building competencies, it is much easier to go to new markets.”

The Bumps in the Roads Ahead

However, this doesn't mean that the companies can afford to be lackadaisical; they need to perform the necessary due diligence and research to understand the myriad cultures, tastes, and preferences that exist in individual markets, depending on which the sales and marketing campaigns, the products and the services are to be envisaged and created. There are, several challenges that these firms face, in their quest to attain a foothold in the global markets.

The balancing act

What needs juggling is the bundle of three primary activities – managing their already successful operations in India, fending off competition from the foreign companies and trying to grow, albeit organically, as much as possible. They are expected to face issues here as well, as there are a lot of stakeholders involved, especially in the aggregator-based start-ups. We have seen Zomato having to take part in discussions and debates with National Restaurant Association of India (NRAI) over the provisions in Gold membership, and OYO hit by protests organised by Federation of Hotel and Restaurant Associations of India, alleging that the hotel aggregator had been breaching contracts.

Sustainability

The second challenge is sustainability, which is a prominent one. Expanding and setting up operations, especially for firms like Zomato, OYO, Ola require forming alliances with partner restaurants, hotels and guest houses and driver partners, respectively. These relationships take time to be built, meanwhile though, the firms are expected to take hits to their bottom lines, and the only way to survive is by taking reasonable (and not spur of the moment) decisions and optimising their losses. We know how Zomato had to eject out of nine major international markets, including the US, Chile, the UK, Ireland, and Sri Lanka, in 2016, because they were just not being able to realise profits. OYO too was forced to stop what it was doing and get back to the drawing board and rethink its expansion strategy.

Choosing and zeroing in on the right time and territories to expand to is quite crucial for these firms.

The decision should be based on where there is an opportunity to gain market share, get the required facilities with relative ease, availability of local talent so as to build upon them and explore newer opportunities. The ability to adapt well and adapt fast is a must as well, as with different territories, the customer demands change, which would in turn compel the start-ups to innovate, be much more dynamic and come up with unique products and services.