Is Flipkart Asking For Govt. Support Because Of Its Inability To Improve?

Posted by Rahul Debasish Mazumdar in Business and Economy
December 14, 2016

Albert Einstein once claimed, ‘Nationalism is an infantile disease. It is the measles of mankind.’ While Einstein might have gone overboard with his scepticism of nationalism, there is some substance to the arguments of the clan who claim nationalism is a double-edged sword, which can be used to mobilise masses to fight against adversities but whose imprudent and reckless use can mar its wielder with everlasting scars.

History has witnessed demagogues twisting sentiment and using it as a tool to incite flames and use the emanating smoke to rise to higher echelons of power. Likewise, India too has seen the blatant misuse of the term by various groups to protect their interests. In the recent past, slogans of ‘Bharat Mata Ki Jai’ have also been used against anyone who has dared to place justice above the recalibrated definition of ‘nationalism’.

But there is one part of the economy where you expect nationalism to play no part. Well, it did play a large part in India till 1991 but the positive effects of liberalisation have established the age old classical theory – ‘Markets work best with minimum government intervention.’

The opening up of local markets was not just beneficial for Indian consumers who suddenly had a plethora of choices at cheaper rates. But it also forced, the till then lackadaisical local suppliers to innovate and optimise their ways to compete with the foreign companies. Over the last two and a half decades, the government has also played its part by opening up more and more ventures for foreign investments.

Most modern day entrepreneurs are beneficiaries of these free and open trade policies. The end of the License Raj also ended the prohibitions that denied entry of private entities into many segments. Add to that the exposure to unlimited sources of global funding made possible due to the relaxed regulations. One would expect, these entrepreneurs/technopreneurs to be champions of free trade that espouses minimum regulations. It is in the light of these expectations, that the calls of protecting local businesses in the name of national interest by people like Sachin Bansal and Bhavish Aggarwal sound both bizarre and hypocritical. Remember, these are the same people who were vehemently against government interference when traditional brick and mortar stores cried foul play against the deep and predatory discounts offered by such ventures.

While the call for a level playing field, is another matter but calling on the government to save themselves from aggressive, and in many cases more innovative foreign competitors show outright timidity. While it is true that major foreign entrants like Amazon and Uber have deep pockets and can thus offer greater ‘cashbacks’ to their customers, it is also true that there lies plentiful global capital whereas the opportunities for profitable investments are very few.

The key thus lies to building excellent models and plans to gain access to these funds. And one also has to concede that most Indian startups have simply sought to replicate these foreign models without spending any time or resources on innovation. While foreign players have constantly attracted customers by new value additions, Indian businesses have been guilty of simply copying their models. The latest Amazon Store using artificial intelligence to eliminate the hassle of long queues and cash counters has already created a buzz.

While it is true, that the scope for innovation in the services sector, where most of the home-grown startups operate is much lower than that in manufacturing, there are areas and specific customer requirements that can be understood and met to gain a competitive advantage over foreign players. Despite a huge boom in the recent years, sales through e-commerce still amount to only 5% of the total merchandise sales in the country. Thus, there are vast domestic untapped markets with increasing purchasing power. In this regard, Indian firms can take a cue from the ‘Uber-Slayer’ Didi which leveraged its local advantage to oust the world’s most valuable startup from the burgeoning Chinese market. Didi, by using a combination of innovative marketing strategy of urging cab drivers near railway stations to download their apps and by focusing on markets with huge potential like Shanghai covered around 400 cities in just four years since its inception.

Another problem that Indian startups face is their inability to attain economies of scale. Due to the overcrowding in almost every sector and the subsequent price wars, these companies eat into one another’s profit through their ‘cash-burn’ tactics. Here again, Didi provides an example of consolidation through collaboration by merging with the rival Kuaidi Dache thus ending a bloody price war. Several other issues like the quality of service post-transaction, implementing efficient customer feedback and grievance mechanisms can also be implemented.

Trade restrictions by one country are often reciprocated by others. Take for instance the Great Depression (1929-1939) when the unemployment rate in the US rocketed to 25% and the GDP shrunk by more than 15%. While various factors like the failure of the banking system, the stock market crash of 1929 and the plummeted demand after the World War 1 contributed to the depression; a major cause of this depression were the trade restrictions in the form of tariffs and quotas employed by the US government which were reciprocated by other nations. Thus, at a time when startups like Zomato are expanding their global presence, and many other ventures seek foreign funding, using the protectionist policy can be counterproductive as other nations can replicate these policies.

The recent remarks by the owners of some of the champions of the Indian startup environment depict their inability to come up with world class services to match up with their foreign counterparts.

Investment in market research to design customised services to cater to the needs of the ever diverse Indian population is the need of the hour. And if these ventures are somehow able to satisfy the wishes of such a diverse flock of people, then, ‘The world is their oyster!’


Image source: Samrat Mazumdar/Flickr