India vs China: A tale of two countries and their disparate startup ecosystems

The India-China relationship may be strained, but comparisons between the two top countries are aplenty. How do the two stack up when it comes to economic growth?

Flipkart grabbed massive funding, Paytm picked up funding from Softbank and so did cab aggregator Ola. Year 2017 was significantly warmer and helped put the funding chill of 2016 in the past.

According to YourStory Research, the first six months of this year saw close to $7 billion raised in funding across 455 deals.

And yet, the Indian startup ecosystem has a long way to go when compared to its counterparts in China and the US. To get a perspective, while 2016 was a bad year for funding overall, a report in Tech in Asia suggests that tech companies in China attracted a whopping $56.1 billion in disclosed investments last year. In the US, Crunchbase reports companies raised $21 billion in overall funding in the first quarter of this year.

There are several factors that determine why India still needs to catch up with China and the US.

High on entrepreneurial spirit

Vikram Vaidyanathan, Managing Director at Matrix India, at a panel at IIM-B event Eximus earlier this month, made a comparison based on four factors — hard and soft infrastructure, GDP per capita and the spirit of entrepreneurship.

Matrix, he said, has invested over $700 million in India and around $3.5 billion globally.

Vikram and four other panelists — Rahul Chaudhary, Co-founder and CTO Treebo Hotels; TC Meenakshisundaram, Founder and Managing Director of IDG Ventures; Thirukumaran Nagarajan, Co-founder at Ninjacart; and Rajesh Raju, MD, Kalaari Capital, — shared their view points on how the tango between India and China works.

When it comes to entrepreneurial spirit, India is as great and in some terms better than its counterparts.

Explaining, Vikram says, “Having met founders across the world, Indian founders are at par or better than those in China or US. Whether it is the spirit of persistence, management, leadership or the analytical rigour, Indian entrepreneurs stand out.”

Where do we lag?

But we may have ample soft infrastructure, but lack when it comes to hard infrastructure and GDP per capita. China beats us in that respect. In terms of mobile phone penetration and data accessibility, India is more or less at par with China.

However, there can be little comparison between China and India. While one is a booming $11.3 trillion economy, the other is nothing more than a $2.1 trillion upstart.

Vikram says, “Once a Matrix's China partner on his visit to India told me that it was exactly like China was in 1995. Our logistics and infrastructure need help.”

With more than half of the world’s building materials being used for construction in China, it is said the number of people living in urban areas of the country grew from 19.7 percent to 49.7 percent in 2010.

Also, India is not adding enough GDP per capita as the Chinese are. India’s GDP per capita as of 2016 stood at $1,709.39 while China’s was $8,123.18. While mobile phones and internet penetration is growing in India, the GDP is not seeing an increase. 

Clearly, we have a long way to go.

Scoring low on traction

Rajesh, of Kalaari Capital, explains that when he came back to India after his stint in the US in 2004, he was surprised to hear Infosys and Wipro being referred to as tech companies.

“They essentially are services companies and not tech companies. Only those companies that are IP (intellectual property) driven can qualify as core tech companies,” Rajesh explains.

On that front, China is still the operational home to the world’s biggest internet conglomerates - Baidu, Alibaba and Tencent (popularly referred to as the BAT).

TC Meenakshisundaram, of IDG Ventures, said in terms of traction reach India is five-seven years behind China, but the countries are the same when it comes to innovation.

“Our traction is one-tenth that of China, which is alarming.”

Thirukumaran Nagarajan feels that unless rural India is made a front runner we do not stand a chance in the comparison. About 58 percent of the Indian population is dependent on agriculture and core technology is lagging in that industry. He finds education is a huge deterrent in our country and said it’s the reason for this gap.

Thirukumaran said, “When it comes to agriculture, food wastage is 30 percent of produce which can be avoided through technology. However, as we do not have enough cold storage and core technology, we are not in the race.”

He believes that the urban population maybe at par but the rural world is still behind. India, he said, is dominated by marginalised farmers who aren’t tech-savvy.

Is India leapfrogging?

However, while India might not be similar to US or China, it is charting its own path.

Vikram says we are building an ecosystem looking to solve problems that are unique to India.

China too adopted a similar strategy. Their mantra has always been – Go Local and Build Local. Chinese firms have strengthened their positioning by relying on the local market; they would rather import for local use. So Alibaba uses the Chinese customer’s desire to own global goods to its advantage and caters to that need actively.

Quite a few tech-enabled startups have entered the foray and are building the ecosystem for India.

Rahul, Co-founder at Treebo, said, “India seems to be following a fairly different path in terms of secular growth, and that is combined with leapfrogging. It is not going to see the kind of intense growth China has seen in the past couple of years.”

According to Chinese thinktank China Academy of Information and Communication Technology (CAICT), the China Internet Industry reached ¥ 1.24 trillion ($179 billion) in 2016, with close to 716 million Internet (60 percent) users or netizens in 2016. Data also showed that of the entire base, 673 million (almost 94 percent) of these Internet users were on mobile.

From an Indian standpoint, the number doesn’t seem far behind. According to a recent report from Internet and Mobile Association of India (IAMAI), as well as IMRB International, the number of Internet users in India is expected to reach 450-465 million by June 2017, with overall internet penetration in the country standing at 31 percent.

Rahul said that in the early 2000s India and China were 50 percent apart; now they are 2.5 times distant. The difference could be due to various reasons, be it demography, supply chain or political transitioning. He said China has been devoid of the technological evolution due to the difference in the environment in the past 10-15 years while India has been leapfrogging and taking a detour of sorts.

Rahul said, “In the hotel Industry only, back in 2004 China started out in brick-and-mortar fashion because that was the available model back then. However, in today’s time, India might take a superior route due to the technology available at the early stage of the life cycle and internet penetration among consumers.”

Between 2007 and 2016, the market capital of Chinese internet companies grew from 50 billion to a trillion. The companies are not just large established ones; quite a few unicorns were created during this time.

Rahul rightly said: “It will be hard to classify how much farther behind we are in present times as these are skewed ways and they will never intersect.”