How Does India’s Startup Ecosystem Affect MNCs?

Posted by Written by Melissa Cyrill Reading Time: 3 minutes

India ranks third among global startup ecosystems, behind the U.S. and U.K. This presents a huge opportunity to both, investors and entrepreneurs alike, especially as the government has signaled the need to reduce regulatory hurdles for startups. However, some executives at multinational companies (MNCs) have expressed concerns over how the growing startup culture impacts new market entrants and established businesses. In many ways, India’s startup ecosystem diversifies the resources available to MNCs.

India’s startup ecosystem

The momentum behind India’s startup culture builds on the strong foundation established by the information technology (IT) sector. An estimated 1,200 technology startups were initiated in 2015 alone, and more than 50 percent were in the e-commerce, consumer service, and aggregator domains. Between January and September 2015, angel investors and venture capitalists injected US$7.3 billion across 639 deals for early stage startups and late stage companies. Moreover, funding in the third quarter doubled over quarters one and two, and grew over 200 percent from the fourth quarter in 2014.

The pace of this growth can be explained by the excitement over India’s economic prospects as well as the quality of the pitches coming from young Indian graduates and professionals. Across India, entrepreneurs and investors find a vast consumer base, rapidly developing technology infrastructure, expanding internet connectivity, and an immense talent pool. Though the main startup hubs are Bangalore, Mumbai, and the Delhi National Capital Region, several other parts of India are catching up fast, including Hyderabad, Chennai, Goa, Kerala, and Coimbatore. Each region has its own startup make-up depending on the level of infrastructure, proximity to concerned industries, entrepreneurial climate, and access to talent.

The bulk of India’s startups offer business-to-consumer (B2C) services, and have adopted a two-sided marketplace model. According to Professor V Sridhar at the International Institute of Technology Bangalore, many startups “have built platforms that connect sellers, hotels, hospitals, restaurants, and drivers on the one side, with buyers, travelers, patients, foodies, and passengers on the other”. Further, the startup revolution has even benefited the blue collar workforce and unorganized sectors of the economy – cab drivers, delivery people, cooks, maids, plumbers, electricians, local artisans, and craftsmen alike.

Startups diversify resources

India is the youngest startup nation in the world – 72 percent of Indian startup founders are less than 35 years old. This makes sense as young entrepreneurs are not as risk-averse, and provide the level of energy and innovation required to fuel startup development. They are flexible, use new-age technology, experiment with bold business models, and target high growth projections, despite the long-term survival uncertainty. In India, creative entrepreneurs have innovated technology based solutions in health care, education, social platforms, hyper local services, e-commerce, transport, logistics, and data analytics – creating opportunities out of old challenges afflicting the Indian economy.

Startups have also become exciting work opportunities for fresh graduates as open-minded places to test new ideas and come up with flexible solutions in the absence of hierarchy and rigid systems. However, the growth trajectory of startups is volatile, which mean a lot of startups fail. Yet, they expand and diversify the labor pool in meaningful ways.

Young professionals at the start of their careers gain invaluable experience in such firms, which necessarily require creativity, initiative, and digital technology expertise in multi-task roles. In the present dynamic business environment, their growth over a short span in a startup can become the equivalent to the knowledge, skills, and abilities of mid-career and senior professionals. For instance, employees from startups may have already developed new technologies and services, and tested their ideas in the market. Established companies can do well by targeting professionals with startup experience for recruitment.

In terms of business strategy, startups present additional opportunities for both MNCs and small & medium enterprises (SMEs). International Business Advisory Manager Adam Pitman says: “MNCs and SMEs can benefit from capabilities and resources developed at startups. MNCs can source talent or business units engaged in technologically advanced fields from startups, and integrate their skills to diversify their business. MNCs and SMEs can also acquire under-performing startups to obtain physical assets – like infrastructure and employees – as well as new clients and revenue streams”.

Incentives for startups 

The transforming digital and startup landscape in India has triggered key government campaigns promoting economic development, inviting foreign investment and job growth, the latest being Startup India. As part of this ambition, the India Aspiration Fund (IAF) has been launched as an aggregator of funds under the Small Industries Development Bank of India (SIDBI) to boost the startup ecosystem. Indian startups will also benefit from tax breaks, incubation centers, and easier approval and exit processes in the near future.

Flush with investor funds, the pace of growth is expected to accelerate in the Indian startup community. Although the rapid growth of the startup community does pose some challenges for established businesses, this growth also creates a number of opportunities for established businesses to realize and convert.

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