The Big Picture – Should Indian startups be given protection against foreign firms?
India’s most successful internet entrepreneurs of Flipkart and Ola have raised the banner of nationalism in their fight against foreign origin rivals urging the Government to design policies which will favour home grown companies. The coordinated push amongst seeking protectionist support from the Government against US internet giants like Amazon and Uber from the two poster boys of Indian internet defined their battle as the one in which capital plays the most important part and not innovation implying that the US companies are burning cash in a price war.
Analysis:
It is the effect of competition and a demand for level playing field is entirely justified but beyond that if someone says that one company needs protection from the other just because it is Indian, this is not how the business works anymore in India. The Indian companies are also being financed by the same sources as their foreign counterparts. Therefore, the question is about who brings in more capital, who understands the local situation better and who is bringing in better business. The areas where level playing field is not there, that should be indentified and taken care of.
As far as startups are concerned, this demand is from certain segments of the industry which survive completely on cycle of investment and they function on non existent margins. This industry suffers from extreme attrition. It is also an industry where the top management is sometimes accused of perhaps benefiting the most from making the best of pay scales from each cycle of investment. Immediately expecting a support or crutch from the Government would be quite difficult. Asking for level playing field is one thing and asking for protectionism neither works nor it should be encouraged or entertained because this will only encourage the mindset of a trader not an entrepreneur. The same claim can also be made by brick and mortar stores that they need protection from e-commerce websites.
Even if protection is provided, there is a need to see which category of entrepreneurs have to be looked at. Big business houses do not need protection because they already have investors coming from all over the world. Future startups in their growth phase may be given some sort of incubation. There needs to be some kind of law which tells that they cannot burn money like this. There has to be a system where the company has to make itself profitable rather than keep giving deep discounts which are not sustainable in the long run. Predatory pricing is something that e-commerce sector has been accused of.
If a foreign company aims to wipe out a domestic company, then this thing has to be taken into consideration.In the manufacturing sector, there is protection in the form of import duty plus there are other advantages like knowing the local customers and distribution network. Competition Commission of India is also there to ensure that things are in place. The scope for innovation is more in manufacturing than in services sector. India needs to see how the Government can leverage its policies to give an impetus to innovation in all segments and bailout is not a good idea.
Protectionism within the realm of legal framework has severe consequences and there are several implications. This will lead to retaliation from other countries particularly if we take into account India’s obligations under the WTO, TRIPS etc. If trade barriers are used to protect national interests, then there are chances that other countries might follow the same. It might affect FDI in the country.
Conclusion:
Indian companies need to cash better on their advantages. They understand their consumers better than the foreign companies. They need to innovate on how to provide services in a better manner through market research, data analytics and explore the untapped market. Only providing discounts are not going to help. India is quite ahead in consumption across the world as compared to other countries. It is obvious that foreign companies would try to have their chunk market dominance.
At the end of the day, it is not a company or a business but the consumer whose interests have to be safeguarded. Each startup that comes up has to understand that it has to make a differential in the system so that it can market itself in a unique manner with an effective delivery system to the consumer.
