So, the biggest story in one of the world’s biggest online markets is that two foreign businesses will fight for supremacy. Just as Indian-founded but foreign-funded Ola is competing with foreign company Uber.
Our Flipkarts and Olas are genuine cause for celebration. But news of billions of dollars getting invested in Indian tech companies has blinded many to two basic and disturbing truths about India’s internet economy.
First, foreign online companies are not unmitigated good news for India’s medium- and long-term evolution as an innovation-led hub of global internet economy. Second, even Indian-founded but foreign-funded/owned online business companies don’t necessarily make the cut as far as India’s emergence as an influential internet economy player is concerned.
Let’s explain both.
In a superb 2017 analysis (‘Should India Adopt Policies to Level the Playing Field for Internet Companies?’) that’s even more relevant a year later as foreign firms/investors take a firmer grip on India’s internet economy, venture capital firm Kalaari Capital managing director Vani Kola had argued that India operations of many foreign online business majors were essentially anti-competitive. An Amazon has access to oceans of capital. And some of it can flood India’s online business, putting any local rival at severe disadvantage.
Note that an Indian-founded, India-headquartered e-commerce player like Flipkart is ready to take the fight to Amazon only because it is backed by big foreign investors, Walmart being the latest.
But why is Amazon’s free-spending anti-competitive? Why isn’t it simply a demonstration of the workings of a free market that welcomes foreign investment? Because an Amazon is using its strong position in other markets to sell stuff dirt cheap here. As Kola argues, this is dumping of capital, akin to dumping of commodities.
Commodity dumping happens when a foreign producer sells goods to another country at, say, below cost price, to aggressively capture market share. There are rules against commodity dumping. Shouldn’t there be rules against capital dumping?
More, India-headquartered, Indian-run online businesses generate far more high-skilled local employment than their foreign rivals, who can run vast operations with very few local technical hires, thanks to the nature of the internet business. Most important, if foreign online giants dominate India’s internet economy, we will never develop the kind of ecosystem that’s a must for becoming a serious player globally.
Note, in this context, what Bob van Dijk, chief of Naspers, a South African company that invests in e-commerce around the world, told ET in an interview earlier this year. “India needs to make sure that it builds an ecosystem for the success of local [e-commerce] businesses… I think Europe is a digital colony of the US. Europe has nothing… there is no ecosystem of capable internet entrepreneurs or professionals. It’s a disaster.”
Here’s what Dijk’s advice to India was: “You should try to avoid becoming the Europe of internet… I think that would be a very dangerous outcome.”
Yes, if India doesn’t change course on e-commerce, we are headed for a “very dangerous outcome”. But aren’t Flipkarts and Olas countervailing forces to this “dangerous outcome”? Yes, and no.