Are Japanese and Chinese Companies riding roughshod over US IT Behemoths in India?

 Asoke K Laha
President & MD, InterraIT

One thought has been coming to me time and time again concerning American investments to India. I believe that the relationship between the two countries should incrementally go up with every passing year. I still remember that in the initial stages of liberalization, hardly a day went by without a mention about some new investments coming into India from the US – be it in IT, telecom, biotech, aerospace, or defense. The US was the largest trading and investment partner of India and it continued for quite some time. 

I want to dwell on lacklustre economic engagement between India and the US. First, I believe the current trend is not in the interest of both countries, which have a long history of working together in the economic fields, even when the political and diplomatic affinity was not very conducive. Yet, it did not deter both countries to work together in strategically important avenues to further the economic interests of both countries. Why there is a blip now?

The other argument is that since the US is the only country that has come out of financial meltdown blues, there is a groundswell of opportunities awaiting investors there. American companies are now looking more inwards to reap the opportunities. Investing abroad, they feel, is a bit risky – and not that rewarding. The recent significant tax cuts announced by the Trump Administration, particularly corporate tax cuts, are aimed at attracting more investments. Coupled with Trump’s America First or Buy America, the tax cuts can and will make a difference and are attracting more investments into the US. 

The other reason for the US developing cold feet on India is seemingly a reaction to some of the unsavoury decisions India had taken recently. This includes a cap on the prices of some of the life-saving medical devices like stents and various stands taken by India, particularly relating to compulsory licensing of patents of certain high-priced medicines, which did not go well with the US companies. 

India’s trade with the US is miniscule compared with China, Japan and even Russia. Even with China, despite acrimonious relations at times, the US maintains a good trading relation. The only explanation which can be offered is that India still has to emerge as an equal partner in our commercial relations with the US. In the latest security perceptions and tasks ahead published by the US, China and Russia are categorized as competing nations and India as a global ally in the making. It may be a charitable reference to India, but clearly indicates that India is not treated with the same seriousness and awe as they treat China or Russia.
A few countries have gained access to India in the midst of cold feet developed by the US. On top of this list are Japan and China. Look at the footprints these countries have made in the recent times. We see that Softbank and Alibaba are making inroads into Indian economic landscape. The Japan-based Softbank is picking up stakes in Indian companies, particularly in the e-commerce, digital payment, and taxi aggregating segments. Flipkart, Paytm and Ola are some of the entities which received handsome investments from Softbank. In the same way, the Chinese digital companies such as Alibaba and Tencents are gobbling up stakes in many Indian companies operating in sectors like logistics, manufacturing and even e-commerce.

Softbank and Alibaba are not limiting their operations to India alone. The recent buyout of stakes in Uber, the taxi aggregator based in the US, by Softbank has made big news. Now the taxi aggregator space in India is exclusively with Softbank, having bought the stakes in India’s own taxi aggregator, Ola.  Softbank has also invested heavily in the Chinese digital platform, Alibaba, another entity investing heavily in India. Softbank’s controlling shares in the Flipkart, Paytm and Snapdeal are well known. Now, the fight in the India’s e-commerce space is between Softbank and the American behemoth, Amazon. 

The interest of the Japanese and Chinese in the e-commerce space is rather intriguing. Only Amazon India is reported to be making profits and the rest are in deep red. Also, e-commerce space is not growing in India, as was expected.  Still Softbank and Alibaba are gung-ho about India’s e-commerce space.

One possible reason for the larger exposure of the Japanese and Chinese companies in the e-commerce and internet platforms is India’s growing mobile penetration. The internet penetration will catch up phenomenally in the coming years, thanks to India’s digital push. Also, they expect that the restrictive policies on e-commerce and digital payment platforms will eventually end. 

So why is the sudden interest of the Japanese and Chinese in the Indian landscape? I have a few explanations. 

The first is the importance of India as the reservoir of soft skills like proficiency in English, flexibility in adapting to cross-country mannerisms and cultural mores. Internet makes distance neutral. For e-commerce and taxi aggregators, artificial intelligence can help in automating a lot of things. But there are certain critical services which people with good mix of soft skill, can only undertake. In India, one can find a pool of such talented people. Not very long ago, India had the maximum number of call centres catering to the customer relations in most of the English-speaking countries.

Secondly, India’s potential in IT is much more than that of Japan and China. Japan has the technical manpower, but the domestic e-commerce market is limited due to its small population and that too is ageing. China has a large population but is more focussed on manufacturing. 

Thirdly, India has a better rapport with the West than China or, for that matter Japan, partly due to English advantage. It has never been seen as a competitor to the West and that way, the people in the West may feel more comfortable in dealing with the Indians. Last but not the least, India’s young population is an important catchment for the e-commerce and internet companies. The future potential of the internet is also a deciding factor. In India, a host of sectors which are are going to be digitally connected in the coming years generate a lot of business opportunities. The Japanese and Chinese companies are there to take advantage of the groundswell of business opportunities that are evolving. 

I only wish the US takes cognizance of these emerging opportunities riding back on the unprecedented political and economic affinity between the two countries nurtured over the years.