Open innovation brings Japanese companies to Startup India

In the recent past, innovative collaborations between Indian companies and Japan’s corporates have been in the spotlight. From OYO entering the Japanese real estate industry, and Paytm providing technology to Softbank and Yahoo’s mobile payment app PayPay - startups with a ‘make in India’ mark, the future looks promising for collaborations between India and Japan. Both Oyo and Paytm have entered into the high growth unicorn club, having amassed more than $1 billion in valuation. Indian startups are now capturing the Japanese market primarily due to their free-thinking abilities that disrupt existing framework, advanced development skills that enable and shape ideas swiftly, and of course, energetic youth that helm such startups, who can effectively communicate with a global perspective.

Why Bengaluru ‘India’s Silicon Valley’ is attracting the Japanese?

According to the annual report on the startup ecosystem published in October 2018 by NASSCOM, the number of startups in India has reached 7,200 in just a five-year period (2013 to 2018). India has also become the third largest producer of tech startups in the world, after the United States and the United Kingdom. Among these startups, 60 percent originate in Bengaluru, the Delhi-NCR region and Mumbai. Even the number of unicorns (estimated at a value of more than $1 billion) has increased, making India third in the world (with 18 unicorns) after the United States (with 126 companies) and China (with 77 companies). In 2018, there were eight new Indian-based unicorns, specialising in online services and marketplace dynamics.

The number of startups in Bengaluru (Karnataka) accounts for a mammoth 25 percent of startups in the country. The city is thus aptly called ‘the Silicon Valley of India’ thanks to its pleasant all-year climate, abundance of IT professionals, and the largest number of tech startups. Karnataka, which has a population of about 65 million, currently has 1.2 million IT engineers, accounting for 30 percent of the country, with 90 percent in Bengaluru alone. Even if one were to compare this with the number of IT engineers in Japan (900,000, according to the ministry of economy, trade and industry’s Results of research on latest trends and future estimates of IT human resources in FY2016), the humungous size of IT human resources concentrated in just one state and city is remarkable.

The main chunk of startups in India are predominantly in company services (16 percent), fintech (14 percent), marketplace (12 percent) and healthtech (8 percent), and these make up half of the total startup bandwagon (Figure 1).

Among them, the number of companies that have introduced advanced technology are 1,200, which is 1.5 times higher than the previous year’s figure. Advanced technologies being used are predominantly data analytics, IoT (Internet of Things), Artificial Intelligence (AI) - which is nearly 80 percent of all startups, concentrated in just these three categories. (see Figure 2).

Figure 1

Figure 2

Source: JETRO-created based on NASSCOM reports

A ‘treasure hunt’ in India by top global companies

Many MNCs, predominantly from Europe and the United States are trying to incorporate IT talent development capabilities, and innovative ideas, which startups in India have excelled at. According to NASSCOM’s analysis, more than 600 MNCs including Google, Microsoft and Amazon have set up in-house development bases, and global strategic bases in India called Global In-House Centres (GIC). These companies hire a diverse and large amount of IT human resources from India. They also promote in-house research and development, strengthen collaboration with external startups to incorporate new ideas and technologies, utilising all the resources internally and externally to create innovations.

Need of the hour: Direct investment or investment through VCs to partner in Indian companies

In business collaborations between Japanese companies and Indian startups, direct investment for startups and investment through venture capital (VC) are de rigueur. Startups also expect Japanese companies to invest, with cases where Japanese companies have invested in distinguished VCs to approach prominent startups.

The collaborations

1. On December 7, 2018, Nichirei, a processed foods company (and other businesses), invested in Delightful Gourmet, a startup that operates Licious, ​​an online meat marketplace in India. The company is hoping to build a cold chain and expand meat distribution in India. Nichirei aims to deepen its understanding of the Indian market, which is expected to grow, and augment their foothold to expand further.
2. Dentsu, the largest Japanese advertisement company has acquired nine Indian companies in the past five years. Today, ranked number one for digital advertising, its acquisitions include some digital advertising startups. Gaku Shinoda, chief operating officer, Dentsu Aegis Network India (which oversees these companies) says, “Thanks to the contribution of digital advertising companies we have acquired, we are awarded Agency of the Year every year in the digital advertising category, organised by Campaign Asia Pacific, a leading advertising industry magazine.”
3. Japanese company Sojitz announced on January 29, 2019 that it aims to create new business collaborations with prominent startups with expertise in AI and IoT through investment in the Bengaluru-based VC 3one4 Capital.
4. Bengaluru-based Japanese VCs like Incubate Advisors India, BEENEXT and Dream Incubator are also actively investing in Indian startups. Access to prominent startups through information exchange and joint investment in collaboration with Japanese VCs will also yield profitable outcomes.

A rapidly developing innovation ecosystem in Bengaluru

Startups in India attract talented and affluent IT professionals, with high developmental capabilities which in turn attracts investment from the world’s top companies. On the flip side, in order for a startup to grow, it is necessary to have a business environment that can generate not only funds but also enable multi-faceted support and innovation such as technology, management and human resources. How MNCs and Japanese companies approach IT talents or startups who have a strong synergy is key to such partnerships.

Among the best search finders for highly talented individuals and innovative startups are ideathons and hackathons. Here, creators and engineers come together and create new ideas, or jointly develop tasks presented by companies in a stipulated period of time.

The only Japanese unicorn startup in this talent searching category is Mercari, which hosted a hackathon in India, and successfully hired 32 talented engineers from top universities including the IITs. Hiring top talent is now at its most competitive, especially from the IITs. Reports of global companies offering a high Rs 2.03 crore as starting salary validate this search for top talent.

Today, companies hosting online hackathons are on the rise. Indian startup, Hackerearth has developed an online platform where other companies can host hackathons for a talent search. The platform has been introduced as a part of university classes across India and is being used by companies to recruit talented developers.

To get in touch with innovative startups, participating in large-scale startup exhibitions and conferences like TechSparks or Bangalore Tech Summit, or investing as a sponsor is key. This helps gain a thorough understanding of the startup ecosystem and enable connections. Companies can seek collaborations with startups by sponsoring such events or partnering with industry associations like NASSCOM and VC.

Case in point, Japanese corporates Panasonic and Yokogawa became strategic partners with NASSCOM, which led to Japanese delegates visiting India as the first step to access Indian tech startups.

Unique acceleration programmes attracts startups in targeted areas

For a company to establish a startup relationship, it has to attract a startup in a specific area of expertise with its current business and synergy. In order to attract more startups, it is important for Japanese companies to be able to transmit the funds, and networks beyond what is already available (at a lower funding). Major European and US companies have implemented their own acceleration programmes by sharing technology, know-how and investing in select startups for a certain period. According to NASSCOM, among the startups participating in the Corporate Acceleration Programme, about 10 to 20 percent have reached real time business collaboration with a company that is also a programme organiser.

Maruti Suzuki sees a large presence in the Indian automobile industry. It too has started an acceleration programme called Mobility and Automobile Innovation Lab (MAIL) in collaboration with Indo-Japan accelerator GHV Accelerator in Gurgaon. According to a Maruti spokesperson, “Even though we have more than 50 percent market share in India, we would like to continue innovating, just like how we started our business in India.” The company has selected five Indian startups across India to address problem statements related to connected car, mobility or safety.

Japan and India, “best friends” for a business partnership

The friendly relationship between Indian Prime Minister Narendra Modi and Japanese Prime Minister Shinzo Abe has seen the ties between the two nations strengthen. The Prime Minister, who was re-elected with high approval ratings in the recently held elections, has described Japan as India’s ‘best friend,’ also adding, “Sky is the limit for India-Japan ties.” Clearly Japan and India share a strong synergy, and common fortes; hardware and software, respectively. Also, the reciprocity in human resources between the two nations; severe labour shortage in Japan and high unemployment rate in India makes it mutually beneficial to both countries.

When Hiroshige Seko, minister of economic trade and industry (METI) visited Bengaluru in May 2018, he signed an agreement with Suresh Prabhu, minister of commerce and industry on the Japan-India Startup Initiative. The purpose of this agreement was to commit to accelerate innovative collaborations between the two nations. As part of the agreement, the “Japan India Startup Hub” was established under JETRO Bengaluru, spurring the initiative of the Japanese Government forward.

The Japan-India Startup Hub is responsible for promoting innovation through business development support between Japanese and Indian companies. Since its inception, in addition to briefing and mentoring Japanese companies, it has also received a delegation of Japanese companies promoting open innovation. Its most recent event was the “Indian Innovation Mission” sponsored by JETRO from March 4-8, 2018. JETRO invited 27 companies (in manufacturing, information and communications, and trading), who were considering open innovation with Indian startups. It held seminars and B2B sessions, and some Japanese companies are now in negotiations on collaborations or investment.

The Japanese companies who participated in this five-day delegation programme hugely appreciated the open-mindedness of Indians, high communication skills (including fluency in English) effective presentation, mathematical ability and strong logical thinking. Some felt that establishing a business in India was easy, and they would consider collaboration in research and development too.

What Japan needs to keep in mind when working with Indian startups

(1) Clarify target issues and partners that you want to cooperate with.

(2) Speedy decision-making and a commitment to the Indian market.

(3) Proactively disseminate the company’s strengths and its contribution to the ecosystem. Business-like and open-minded South Indians can facilitate business negotiations quickly if the purpose and issues are clear.

Going further, startups and MNCs in India felt that “it was interesting that many Japanese companies have shown an interest in India, “though they admitted that there was a lack of Japanese information, and many “want to actively transmit information.” India’s outlook towards Japan is very positive, with JETRO’s Bengaluru office getting enquiries from Indian companies. JETRO continues to strengthen its efforts to increase collaborations between Japanese and Indian companies on innovation.

Two-way communication is the first step in the Japan-India story

Yet, Japanese companies feel that it is difficult to capture India’s complex and large market. Understanding it requires a long-term commitment. Now, with Indian companies being open and positive about business with Japan, they are also seeking positive and clear information. As the first step, it is important to emphasise on effective communication with Indian companies while making pertinent use of India’s innovation ecosystem. From there, a global business based on Japan-India cooperation will also be born.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)

(Edited by Suruchi Kapur)

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