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In the next 10 years, it is impossible for Chinese APPs to return to India
A few days ago, Derek forwarded a report in the circle of friends called "India B2B Great Leap Forward". The number of Indian unicorns confirms his judgment two years ago, and unfortunately, he has no chance to become the creator.
Two years ago, when he was preparing to start a business in India, the news of "banning Chinese apps" came. Derek was caught up in the torrent of the times and became a historical footnote before he could struggle.
At one time, Chinese entrepreneurs and capital had ambitions, thinking that they could encroach on the Indian market, which has a huge population base and growth potential.
The story starts in 2015. The Indian government promised to relax “doing business in India”; Indian Prime Minister Narendra Modi visited China and signed 24 cooperation documents of more than US$10 billion; Ali and Ant invested over US$1 billion in the Indian version of Alipay Paytm; VC delegations to visit India have become common practice. In 2018, according to media statistics, the ten companies that have received the most capital investment from China, and behind the small Indian giants, stand with names such as Ali, Tencent, Meituan, Hillhouse, Morningside, and Shunwei.
Two years later, the situation took a turn for the worse.
On April 17, 2020, India issued a notice of amendments to its foreign investment policy (FDI), requiring that investors from countries bordering India's land borders be subject to government approval.
This means that Chinese investment in India must be approved by the Indian government. Two months later, the Indian Ministry of Electronics and Information Technology announced the ban on 59 Chinese mobile apps, including Tiktok, WeChat, and Kuaishou. Soon after, the Indian government imposed relevant restrictions on at least seven Chinese companies including Huawei, Tencent, and Ali.
"In the next 10 years, it is impossible for Chinese APPs to return to India. All the dreams of carrying Chinese Internet companies to India, a market with a population of 1 billion, will die in 2020, and will not be resurrected within ten years." Derek predicted.
Another summer two years later, Chinese-funded companies in India were once again caught in a systemic crisis.
On August 3, the Indian government said in a statement that vivo had evaded taxes of 22.1 billion rupees (about 1.89 billion yuan); in July, the Indian Law Enforcement Bureau said that it had raided vivo and its affiliates and blocked bank accounts. About 4.65 billion rupees (about 390 million yuan) of assets were frozen; not only vivo, according to Caijing, at least 500 Chinese-funded companies have encountered tax and compliance censuses in India.
I tried to chat with Derek about his entrepreneurial experience, but he seemed uninterested. He just told me that there was no need to pay attention to India, and the way to start a business on the Internet was blocked. "You can write if you want, but we entrepreneurs still look at new opportunities, and that (India) is an episode of the past."
Right now, he plans to make some money first, then go to Southeast Asia and restart the plan.
Here's what Derek has to say:
I worked in a large factory for four years, and then I worked for a unicorn in India, responsible for the business in China. Before resigning to start a business, I traveled to India almost every month.
I have a good impression of Bangalore. This city is very similar to Kunming. It is above the plateau and it is like spring in all seasons. Unlike some cities in northern India, the roads in the old city are full of potholes, cow dung and standing water everywhere. The infrastructure in Bangalore is OK, and the locals are generally peaceful and kind.
Bangalore is the Silicon Valley of India. The software outsourcing industry is very famous. Some people think that it is difficult to find talents to start a business in India. In fact, Indian engineers already account for one-third of Silicon Valley, and there are many high-end IT talents, such as the current CEO of Google Sundar Pichai and the current CEO of Microsoft. Tia Nadella is of Indian descent.
At that time, many Chinese companies went to India and recruited many Indians. When I went there, I also met some Indians who had cooperated with Chinese companies. Therefore, the working habits and methods were not a big problem, and there was no manufacturing industry. The kind of trouble you can get in recruiting. In addition, India's stock market is generally healthy, and international capital is very optimistic about India, which can be well funded.
I plan to build a cross-border supply chain e-commerce platform. Starting in early 2019, I spent half a year researching the market in India, returning to China in August, and spending another two or three months building a team and finding investors.
At that time, going to India to start a business was in the golden period, just like the domestic boom in 2015. Basically, the big companies can get money with a PPT. We chatted for a while, and there were three institutions willing to invest. One of the institutions was able to provide stronger resources, so we chose them.
This is a second-tier institution. I didn’t get a high-ranking position in a big factory, and I didn’t get the project done in Indian unicorn. My partner also has a certain resume but is not particularly beautiful. It’s impossible. As soon as we come out, we can get the money of Sequoia Jingwei, but our own business logic is still very strong.
We judge that the Indian Internet is equivalent to the level of China 10 years ago or even 15 years ago. It is mainly growing through replicating Chinese and American companies, and it will have growth value in the next 5 to 10 years. Specifically in the field of e-commerce, whether in India, Southeast Asia, or the global market, there is currently no platform for Chinese-funded cross-border e-commerce to become the king.
It's not that retail e-commerce cannot be done in India, but the market is in the cultivation stage, and first- and second-tier cities have been eaten up by Amazon and Indian e-commerce. Considering the local per capita income level, infrastructure and the purchasing power that e-commerce can reach, it is unrealistic to continue to invest resources here.
B2B is different.
India imports a large amount of goods from China every year, of which consumer goods are about 10 to 20 billion US dollars. This demand is solid. In addition to transportation to first-tier cities, it will also be distributed to second- and third-tier cities.
After resigning from Unicorn, I went to India and spent months researching wholesale markets in Bangalore, Delhi, Chennai and Kolkata. Offline wholesale in India has a complete link from importers, wholesalers in first-tier cities, to second-tier and third-tier, and there are circles for each industry and category. This circle is relatively stable, but there are many pain points. The core breakthrough lies in the terminal retailers. They are in the last link of the value chain, their profit margins are squeezed to the limit, and they have to bear the risk of turnover.
The idea of my design is to locate in the third-tier cities. After purchasing from China, directly deliver the goods to the third-tier cities, and then directly to the retail terminal, cut off all the intermediate links, save costs, and give the profits to the retailers. In this way, the price of goods is cheaper, and the retail store owner can earn a little more.
I don't think there is anything wrong with this business logic. I have worked in the supply chain in Ali before, so I have a very clear understanding of the distribution of domestic industrial agents, and know where to find manufacturers directly at the cheapest cost.
But the plans couldn't keep up with the changes. After we got the financing, the epidemic came, and the flights between China and India were stopped. At first, we thought that the situation should be similar to SARS, so we just waited. We didn’t expect that it took nearly three months for Wuhan to lift the lockdown. When the domestic situation was almost stabilized, the overseas epidemic began to break out again.
Immediately afterwards, India’s move to ban Chinese apps completely cut off my entrepreneurial path. From a macro level, I have some predictions about this kind of crisis. I even mentioned it to investors when I raised financing. Geopolitical risks have also appeared before, such as the Doklam confrontation in 2017. I felt early on that it was impossible for us to take root in India for a long time. The original idea was to use it as a sales market. After the model was run through, it would be copied to Southeast Asia as soon as possible, even if the store closed in the future. But unexpectedly, the epidemic accelerated the outbreak of the crisis.
My hometown is in Wuhan. I almost went back in February, but then I felt something was wrong and I refunded the ticket the day before. After the outbreak of the epidemic, I have been thinking on the positive side. When the news of India's ban on Chinese apps came out, I was completely desperate. I know that even if the epidemic is over, I will not be able to go back.
When I saw the news that said "recovery", I said it was all nonsense. To talk about recovery, we must first unblock that batch of apps, but even after unblocking, we also know that local policies have no continuity at all. The issue of national sentiment is at the root of all business crises. When amending FDI (Foreign Direct Investment), the article "entities and citizens of countries with land borders with India" points to Pakistan, Nepal, Bhutan, Bangladesh and Myanmar in addition to China.
But these countries do not have the ability to invest in India on a large scale, so only China is targeted. Chinese investment in India is already at a stagnant stage, and Chinese capital still wants to pass. Some time ago, there were more than 300 investment applications, and India approved 80, but I estimate that it is mainly manufacturing, and Internet investment has long been cut off.
Big companies are not doing well in India either. At the time of listing, Ant was the largest shareholder of Paytm, but as an Indian national-level app with 300 million users, the largest shareholder is a Chinese company, which can easily stir up public sentiment, so now the shares of Ant and Ali have been repurchased part. Some time ago, there was news that TikTok plans to return to India, which is unlikely. The only way I can think of is for them to find the largest consortium in India for a joint venture, but this is meaningless and is equivalent to handing over control.
Looking back, our capital bosses’ understanding of India only stays at a very shallow tactical level, while the understanding of India’s former suzerain (Anglo-Saxon) is a deep-rooted strategic level, and the big chaebols of the United Kingdom and America are truly Understand the underlying logic of Indian society and the operation of power.
I am still tossing around in the e-commerce field, and I have been dying for the past two years, but it doesn't matter, I will do it slowly. Although the previous project was stillborn, we have already seen that cross-border e-commerce is an important direction. This trend is not long after the rise. In global trade, the penetration rate of cross-border e-commerce will reach 30% in the next 20 years— 40%, the current level is only about 20%, and there is almost double the growth potential.
Infrastructure such as transportation and logistics is basically no problem in developed countries, and emerging markets such as Southeast Asia are also developing, so I am still optimistic about the long-term opportunities of cross-border e-commerce.
From a regional perspective, Southeast Asia is definitely the best solution for going to sea now. China's per capita GDP has exceeded 10,000 US dollars. Many industrial chains are moving there. With more local job opportunities and income, consumption will naturally rise. When a node is reached, it will naturally have the opportunity to expand. Moreover, the geopolitical risk in Southeast Asia is small, and it is unlikely that India will directly block you without any reason.
Then there are the Middle East and Africa. But now there is a problem in Africa, one is political instability, and the other is economic imbalance. Some countries' economy is OK, such as Nigeria, but the overall level is still low.
India is a thing of the past for me. We are now working on a project to make some money. When the epidemic improves, we will go to Southeast Asia. If this project is restarted in Southeast Asia, it also depends on which country to start from and understand the local market. I still believe that this logic is definitely fine, and the start-up capital will be invested by yourself. After the business is completed, consider financing.
As I wrote in an article, the epidemic will always pass, and the road to sea will continue.
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