India: The Other Asian Giant

European Straits #73

Dear all,

Last week I was in Portugal to participate in a 2-day-long meeting on the strategic relationship between the European Union and India. My role was to deliver a keynote speech on regulating emerging technologies. But I had the fortune of having access to the entire proceedings, which proved an extraordinary opportunity to learn a great deal about India and to connect with people from there.

The European Council on Foreign Relations (ECFR) that organized the meeting has worked for years on European strategic positioning regarding China, exemplified by publications such as this white paper and this shorter article by François Godement, the Director of the ECFR Asia & China Programme. Now it is extending this approach to India. From what I understand, there are at least two underlying reasons. China has become so powerful in Asia and so central on the global stage that there’s now a need for Europe to diversify and rebalance things. At the same time India is actually catching up fast in terms of economic development, notably on the technological front.

Now I must admit that having worked a lot on China recently, India was, for me, very much so “the other country with 1 billion people”. There are only so many things about India that we in the West have seen on a regular basis, and those come largely thanks to the amount of pop culture surrounding it. Like many people, I grew up learning parts of Indian culture and history—notably I remember being impressed by a riveting graphic novel on the life of Gandhi, and then watching Peter Brook’s 6-hour enactment of the Mahabharata with my mother on French TV (I was so enthusiastic that I then bought, and read, the book). Living in London now, there’s obviously an Indian presence, not least in terms of cuisine. And there’s a whole stream of movies and series that I’ve seen in recent years, including with my children, that give a tiny glimpse of India today (Lion, The Best Exotic Marigold Hotel), India as part of the British Empire (The Crown), or Indian immigrants in the UK (Bend It Like Beckham). Yes, like I said, pop culture 😘

Beyond that, there are more rigorous readings that have lately contributed to enlightening me on India. One was this extraordinary essay by Venkatesh Rao, A Brief History of the Corporation (1600-2100), focused on the terrible and singular history of the East India Company. What’s more, India is a recurring topic in tech circles, whether it’s about the many Indians that have reached top positions in Silicon Valley, the once-mighty Indian IT industry, or the brutal controversy that followed Facebook’s failed attempt to connect millions of Indians to the internet.

And it’s true that India has many assets to utilize in playing a prominent role in the digital economy. The Family’s dear friend Vivek Wadhwa has been writing for years on the decline of the Indian IT industry and the need for India to refocus its technological efforts on solving its domestic problems—or how “one billion problems” can be turned into “one billion solutions”. Pankaj Ghemawat has also contributed groundbreaking works on the twists and limits of globalization, using the Indian IT industry as a frequent illustration. I would also note that the multilingual nature of India, and particularly the widespread use of English in the country, can be a tremendous asset to make the most of the current transition.

For us French people, there are many things about India that sound familiar. For instance, India is another nation that, much like France (and Russia), excels in mathematics: we have Henri Poincaré, Laurent Schwartz, and Cédric Villani; they have Srinivasa Ramanujan, Harish-Chandra, and C.R. Rao. And the two countries have established a similar positioning within the tech market, both seeing an interest in positioning themselves as outsourcing powerhouses for software engineering and data science.

Not that I agree with such a strategy. Specializing in outsourcing can be a deadly problem for local entrepreneurship, as I discussed three years ago when writing about ecosystems blessed with a lot of talent but devoid of both capital and rebellion. I call it the “contractor economy”:

“It’s quite simple: if there are lots of engineers, but no capital to invest and no taste for rebellion, then the best way to create value is to sell the engineers' know-how to foreign companies. This is what India did for a long time (less and less so though): selling IT engineering work to clients in developed countries. The contractor economy is characterized by narrow margins (revealed by cost-plus, non-scalable business models), thus it doesn’t contribute much to economic development.”

That being said, the Indian startup ecosystem is finally rising. 2013 appears to have been a turning point, with pro-business Narendra Modi becoming Prime minister the following year and sustaining the momentum. You can expect the Indian ecosystems to keep thriving as the country gets ever younger in the future (notably as compared to China) and the closing of borders in the West forces the best Indian engineers and developers to stay in India and create value there. We at The Family are seeing just what that talent can do, as we’ve recently brought two India-based startups into our portfolio: HealthCube Pro, which provides an innovative patient management & diagnostic device and software that help clinics and doctors improve patient care; and Clarisights, which develops a data solution for marketers.

Much like Europe, and unlike the US and China, India is still devoid of global tech companies. As a result, US tech companies see India as a large market for startup M&A and international expansion, to the point where it appears to be a consolation prize for companies such as Amazon and Uber after they give up on China. Last year, Flipkart, Ola, Hike and other Indian tech companies gathered together in a new organization to retake the initiative and defend their interests with the Indian government as well as against their foreign competitors. (In the meantime, Flipkart has been acquired by Walmart, but that’s another story.)

Beyond that, what strikes me is the obvious rivalry between China and India. We have to remember that the two countries briefly went to war during the Nathu La and Cho La clashes of 1967, and today India is the only major Asian country not taking part in China’s Belt and Road Initiative. As if to counterbalance China and its big bet on digital infrastructures, India is tackling large-scale digital challenges where its superior scale can also make a difference. For China, it’s the nascent social credit system; for India, a big step forward has been to deploy Aadhaar, a 12-digit unique identity number that will make it possible to connect most people, notably the poor, to public and private organizations. It’s expected that Aadhaar, much like the e-Estonia infrastructure, will trigger radical progress in terms of access to basic services and overall economic development. On the tech front, there’s more on both ecosystems in this 2015 a16z podcast.

I’m bound to travel in India in the future, especially because my wife has a connection with the country: her father used to travel to the state of Rajasthan to trade antiques, and would sometime bring her with him, which inspired her lasting affection for the continent. Once I’ve visited India, I’ll share more about technology and entrepreneurship there. In the meantime, I look forward to reading various books and learning more about India—and I’m eager to hear your advice in that regard. What do you recommend?

Warm regards (from Paris, France),

Nicolas