Is the Tiger ready to navigate Dragon fire?
The Centre’s FDI move is timely and will help safeguard many struggling Indian firms. But it can have significant implications for future investments in our start-ups
The Centre has taken a proactive step in order to prevent hostile or opportunistic takeovers or acquisitions by firms from countries that share a land border with India (including China) amid the Covid-19 crisis. As per the revised FDI policy, there would be no FDI allowed from these nations through automatic route. It will be only allowed through approval route by the government. European countries such as Italy, Germany, Spain and France have taken similar steps. It is an interesting move amid rapid growth of Chinese investments in Indian companies.
In the last few years, Chinese investors have been playing an important role by providing early-stage investments to Indian start-ups. China’s most prominent tech firms including Alibaba and Tencent have invested separately in 18 start-ups, out of which 12, including Big Basket, Paytm, Zomato, Swiggy and Byju’s, have achieved unicorn status (privately held start-up valued at over $1 billion). According to a 2020 Gateway House report, investments from Chinese investors in Indian start-ups have almost doubled from $2 billion in 2018 to about $4 billion in 2019. The report also suggests that Chinese investors hold shares in 18 of India’s 30 unicorns.
Moreover, there is a growing interest among Chinese companies to invest in Indian firms. Although the Centre’s move is timely and will help safeguard many struggling Indian firms, it can have significant implications for future investments in Indian start-ups. Investments from China will slow down in the short run. In the long run, it is important for India to strengthen domestic investments that can contribute to building a self-sufficient investment ecosystem. Business tycoon-turned-angel investor Ratan Tata has already invested in numerous start-ups including Paytm and Ola. Domestic funding is the need of the hour and more large organisations must recognise this and start contributing to the Indian start-up ecosystem.
For the last few years, India has been witnessing concerns about investments from Chinese firms in light of data privacy, security, platform control and so on. The fear of Chinese domination has been existing even before the Covid-19 crisis. So how can India meet the Chinese challenge? India should focus on building indigenous capabilities.
This will involve creating domestic manufacturing, strengthening technological capacity, and building digital and organisational capabilities through skill development. Several government initiatives such as ‘Make in India’ will continue to play an important role in creating domestic manufacturing potential. The initiative has already led to the creation of important entities such as Tata Boeing Aerospace Limited, which focuses on manufacturing defence equipment in India. Further, India should make efforts to establish exclusive economic zones and invest in infrastructure including logistics and storage.
Given the great potential of India’s market, foreign firms are increasingly interested in expanding to our nation. International strategic alliances and joint ventures are becoming popular as vehicles of growth strategy for these firms. Indian firms should leverage such alliances with foreign firms to migrate up the value ladder.
For example, recently Mahindra Agri Solutions Ltd., a subsidiary of Mahindra and Mahindra, formed a joint venture with Japanese firm Sumitomo Corporation to take MASL’s crop-care business into the next stage of growth. Through this partnership, it is getting access to the cutting-edge technology of Sumitomo. Our survey of 106 Indian firms suggests strategic alliances and joint ventures with firms from the developed markets provide Indian firms access to higher-order resources such as technological capabilities and brand equity. Recently, Indian companies have also increasingly started acquiring firms from the developed markets. The recent acquisition of iconic British motorcycle brand Norton not only would help TVS Motors in its global expansion plans, but could also bring to its table technologies to manufacture premium bike models in India.
Skill development and improving employability should be a high priority for India. Collaboration and alignment between the government, corporates and academia is crucial to solve important problems and design curriculum as per changing industry trends. There are great examples of fruitful collaboration between them. ISB is one such example. It partners with government and industry in both knowledge creation and dissemination, and in finding solutions to some of the complex business problems faced by organisations today. Building close collaborations with them should become a part of university culture.
The current crisis is forcing universities to adapt to a new normal—online education. India has to leverage its IT capabilities to develop high-quality skills through online education. This will help provide education for a country like India at a mass scale and reasonable cost. The issue of unemployability is a huge challenge that the nation is now facing. The current education model needs a substantial overhaul. Universities should focus on imparting important skills including language, programming, data analytics, engineering and so on.
The cornerstone of any successful economy is the viability of its small and medium enterprises. For a nation like India, establishing a solid ecosystem for start-ups is vital to achieve this goal. With right policies to encourage the development of indigenous capabilities and firm actions, India will convert the current global challenges into new growth opportunities.
Assistant Professor of Marketing,Indian School of Business