Can India Exploit Chinese Frostiness to Secure More US Tech Investment?

india flagXi Jinping and Narendra Modi were both in the US recently to press the flesh and do the diplomatic rounds, but I think the latter will have returned feeling more positive.

As explained in my latest for IDG Connect here, Beijing has, via tightening regulations, antitrust investigations and even more restrictive censorship rules, been making the Middle Kingdom an increasingly hostile place for foreign – especially US – tech companies. It was never easy – foreign firms have always had to team up with a local partner to have a crack at the huge domestic market, with all the risks that entails. But now it’s even more difficult.

So enter India – a nation of over one billion and with the world’s fastest-growing economy. US firms have had a much better time there historically. Foreign direct investment is very much OK, and even in those few industries which are less welcoming – retail, media, telecoms and banking, for example – successful partnerships with local players are possible.

The start-up cash pouring in from Silicon Valley and elsewhere is staggering – dwarfing that in China already, according to Forrester research director, Ashutosh Sharma. In the last quarter this reached $6bn from private equity alone, he told me. What’s more India can boast:

  • A suspicion of China matched only by the US
  • A nominally democratic political system based on rule of law, making its regulatory environment more predictable, if still overly bureaucratic
  • A young, tech savvy, increasingly well educated, and affluent population

On the minus side, however, it has dreadful mobile connectivity and poor broadband penetration.

“The size of the country in terms of populations makes it difficult for any government to strike a right balance between pursuing growth through investments versus leaning towards more socialistic policies,” Sharma told me.

“This dithering on policy initiatives since India liberalised its markets in early ’90s have cost them time which has manifested in poor physical and virtual infrastructures.”

A large, “digitally dark” population which doesn’t speak English makes it hard to justify investments in digital media, he said.

“However all indications are that this is temporary because at the pace innovation is happening both in terms of affordability of mobile devices, data connection, and local language solutions it won’t be long before a major part of India is digital,” Sharma added.

As mentioned, the regulatory framework is still over complex and bureaucratic, although this too is apparently changing.

“The pace of simplification and speed of execution has improved since the new government has come in place,” he said.

It will take years before India even comes close to the $600bn in bilateral trade the US and China enjoy. But that trade is massively unbalanced, comprising mainly of Chinese imports to the US. This is not the case with US-India relations.

The winds of change are blowing, and they’re blowing to the sub-continent.

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