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India has become the new China for Silicon Valley

It wasn’t long ago that pretty much every US firm was attempting to crack the lucrative Chinese market, but now India is drawing the attention.

This is not to say there haven’t been investments directed towards India in the past, but the world has shifted very dramatically in recent months. Thanks to political tension, China is looking like a less realistic opportunity for US companies seeking fortunes abroad, but India could turn out to be a very suitable alternative.

And like most aggressive drives into the international markets, Silicon Valley is the tip of the US spear.

As one BRIC crumbles, another looks like solid gold

The BRIC countries (Brazil, Russia, India and China) are four markets which have been traditionally targeted for international expansion by some of the worlds’ more traditional economic powers. However, this is increasingly looking like a dated assumption as China rivals the US for global supremacy, Brazil constantly seems politically unstable and Russia aggravates Western governments.

There are of course other markets which companies with international ambitions are looking to. Indonesia, Mexico, South Africa and Malaysia, to name a few, but India is one which could hold untold fortunes.

For years, India looked like an economy which could be incredibly lucrative, but never seemed to fulfil its potential. Then something big happened; Reliance Jio turned the connectivity market upside down, inside out and back to front. Reliance Jio democratized the mobile internet for the Indian masses and set the country on the path of an incredibly aggressive digital transformation mission.

This push towards the digital economy happily coincides with the souring of relations with the Chinese Government.

The Silk Road unravels

As China began to open its borders in the early 00s, there was a tsunami of businesses waiting to flood the market. This was a country with an increasingly wealthy population of more than 1.2 billion with an appetite for Western products, services and culture. There were of course administrative difficulties and bureaucratic complications, but the rewards were seemingly worth the effort.

In recent months, it appears President Donald Trump and President Xi Jinping have barely been on speaking terms, casting a shadow of uncertainty over commercial prospects for US firms. This tension is likely to increase following the news the UK will ban telecoms operators from buying Huawei equipment, largely thanks to pressure from the US.

Security and privacy have been suggested as reasons for the ban, though the UK Government was not considering one until US administrative action compromised Huawei’s ability to source semiconductors. The decision to ban Huawei was not made by the UK, it was strategically outmanoeuvred by the White House and forced into such action.

US and China trade relationship (billions, USD)
Year Exports to China Imports from China
2018 119 499
2017 133 477
2016 122 436
2015 131 461

Source: The Observatory of Economic Complexity

As the prospects for Huawei and Chinese telecoms companies in the international markets become smaller, the same could probably be said for US firms in China. This will hardly come as a surprise to many, as trade between the two nations has been slowing down recently. Unless there is a dramatic shift in the relationship between the two countries, these trends will continue in the same direction.

Silicon Valley leads the charge into India

Perhaps the most obvious example of US capitalist ventures into India in recent months concerns Reliance Jio, the disruptive telecoms operator.

On April 22, Facebook become the first company to invest in the digital business unit of Reliance Industries, taking a 9.9% stake for $5.7 billion. Since this point, Reliance Industries has been selling off minor stakes to investors around the world, but it is the US who has gained the most. Qualcomm (0.15%) and Intel (0.39%), both bought into the connectivity mission, as did private equity firms L Catterton (0.39%), TPG (0.93%), Silver Lake (2.08%), KKR (2.32%), General Atlantic (1.34%) and Vista Equity Partner (2.32%).

With 13 investors now having purchased a slice of Reliance Industries digital business unit, 78% of the cash has come from the US.

And it isn’t just Reliance Jio which is attracting the attention of the internet giants. Google has reportedly been in talks with Vodafone Idea over an investment in the telco, while Microsoft and Amazon have been linked to the final major telco, Bharti Airtel.

Outside of these investments (or rumoured investments), there are plenty of other ventures into the Indian digital economy.

Netflix has been investing heavily in localised content for years, Apple has been attempting to relocate manufacturing capabilities as a prelude to expansion and Google recently announced a $10 billion investment.

With four key pillars (connectivity, localised products, SME growth and AI) the investment certainly attracted headlines, but Google has been pumping cash into India for years. It has a well-established digital payments app, has created a wifi network across transport hubs and tailored products to be less data-intensive for the market.

Is the Indian digital economy on the verge of booming?

For years, the world has been talking about the potential of India, but now it might be ready to realise these fortunes.

Indicators of economic prosperity in India (thousands) 2017-19
2017 2018 2019
Population* 1,338,676 1,352,642 1,366,417
Average salary (₹) 1,03,000 1,13,500 1,25,408
Mobile subscriptions* 1,167,435 1,088,369 1,082,997
4G subscriptions* 242,130 433,061 604,745
Avg. price of GB (₹) 19.35 11.78 18.5

*Figures in thousands

All of the indicators are heading in the right direction, and while there does seem to be a jump in the cost of data, this is a fraction of what it cost prior to the introduction of Reliance Jio (2015; 226.3 per GB). This is the foundation of the interest in India; the digital economy is set to surge.

If the mobile internet has been democratised for Indian consumers, the path to Valhalla has been laid for the US and the internet giants. This is a market where the app economy is in its embryonic days, SMEs are still in pre-digital transformation days and consumers are yet to be digitally monetised. India today could be viewed as the US in 2010, just as 4G adoption was scaling through the mass market.

This is what is exciting about India for the internet giants; the potential of a ludicrously large audience ripe for the digital plucking. The likes of Facebook, Google, Apple, Netflix, Microsoft and Amazon must be licking their lips. Work started here years ago, but the India digital economy seems to be scaling quickly into the acceleration section of the hype curve.

Just as the potential for China is seemingly fading into nothingness, India’s digital economy is rising and evolving rapidly.

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One comment

  1. Avatar Gary setiadi 18/07/2020 @ 10:24 pm

    Your table about US and China trade relationship misses the true numbers of current account balance between the 2 countries.

    According to this article, analysts from research firm Gavekal Dragonomics reported that by 2016, American business sales in China topped $450 billion, while the Chinese sales in the U.S. were less than $50 billion. When balanced against China’s $350 billion merchandise trade surplus, America has been winning for many years now.

    https://www.cnbc.com/2020/06/01/after-coronavirus-chinas-economy-looks-set-to-grow-as-world-braces-for-contraction.html

    The issue is not the dollar balance of trade but rather its effect on jobs. The money that American companies make in China increases jobs for the Chinese, while the money that China makes by sending goods to America reduces American manufacturing jobs.

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