India Insight: Silicon Valley-style success bites

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4 minute read

An employee works on a computer terminal against the backdrop of a picture of late Apple co-founder Steve Jobs at the Start-up Village in Kinfra High Tech Park in the southern Indian city of Kochi October 13, 2012. Three decades after Infosys, India's second-largest software service provider, was founded by middle-class engineers, the country has failed to create an enabling environment for first-generation entrepreneurs. Startup Village wants to break the logjam by helping engineers develop 1,000 Internet and mobile companies in the next 10 years. It provides its members with office space, guidance and a chance to hobnob with the stars of the tech industry. But critics say this may not even be the beginning of a game-changer unless India deals with a host of other impediments - from red tape to a lack of innovation and a dearth of investors - that are blocking entrepreneurship in Asia's third-largest economy. To match Feature INDIA-TECHVILLAGE/ Picture taken October 13, 2012. REUTERS/Sivaram V

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BENGALURU, Oct 11 (Reuters Breakingviews) - There has never been a better time to be a techie in India. New recruits to one Delhi-based financial technology startup were promised free BMW motorbikes and a trip to Dubai to watch India compete in the T20 cricket world cup that starts on Sunday in the Gulf emirate. These are highly enticing perks in a country where foreign brands are aspirational and the sport is akin to religion.

The incentives are also becoming necessary as demand for local talent skyrockets as India has its tech-coming-of-age moment. Silicon Valley experienced something similar over 20 years ago, while China has been going through it over the past decade. There’s an acute shortage of folks with the right training and experience throughout the ecosystem, and particularly of mid-to-senior level staff needed to oversee teams scaling up rapidly.

One reason for the squeeze is that India is creating read more unicorns - startups worth $1 billion or more - at a dizzying speed as foreign capital floods in. That’s on the back of an astonishing pace of digital adoption: India boasts 550 million smartphone users, compared to 250 million at the end of 2015, per Counterpoint Research.

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A Credit Suisse note counted 100 unicorns worth a combined $240 billion in March. Three were minted last week including Licious, a fresh meat and seafood home-delivery service and CoinSwitch Kuber, a crypto-currency trading platform that has won a debut India investment from Andreessen Horowitz, a California-based firm founded and named after the two super-angel investors. Rebel Foods joined the club as well.

Existing unicorns are rapidly getting bigger too. Ola Electric, the SoftBank-backed manufacturer of two-wheelers, has almost doubled its valuation to $5.2 billion in barely three months, according to a person familiar with the situation. That came after it booked more than 100,000 orders for its slick debut scooters in just 24 hours in July.

That’s fuel to put more bums on seats in Ola’s new campus in Bengaluru where it designs cars, test-drives scooters, and churns biryanis out of its experimental kitchen. It’s entering the food-delivery business through its adjacent ride-hailing app that competes with Uber (UBER.N). The group’s bustling eight-storey workplace counts 4,000 staff.

Competition for IT engineering talent is such that the company’s co-founder Bhavish Aggarwal has joked about thinking of sending some work to “a lower-cost” centre in San Francisco, where a decades-long tech boom has resulted in some of the highest house prices in the United States.

As well as the flourishing startup scene, India’s original tech legends that benefited from western companies outsourcing are in high demand, after the pandemic drove more business online. The $195 billion Tata Consultancy Services (TCS.NS), employer of more than half a million people, is hiring on campuses at what it calls unprecedented scale and grappling with a big increase in employee churn, a problem mirrored across the industry.

Revenue at Tata Consultancy grew a robust 16% in the three months to the end of September, the company reported on Friday. Boss Rajesh Gopinathan is confident that demand from clients will remain strong as banks and companies ramp up outsourcing and rush to build climate-risk assessment capabilities and more. But rising wages are a threat to the industry’s closely watched operating margins. Infosys (INFY.NS) similarly has been growing at its fastest pace in a decade and increasing salaries.

For now, the pair are in rude health. Infosys has outperformed since the pandemic hit, beating the $230 billion Reliance Industries (RELI.NS), even though Mukesh Ambani’s conglomerate has proved a magnet for foreign capital from Facebook (FB.O) to Alphabet’s (RELI.NS) Google. Its share price rise has beaten the broader benchmark Nifty 50 Index too.

Adding to the hiring pressure are large established Indian companies rushing to digitise their consumer-facing businesses. Ambani is taking his brick-and-mortar retail businesses online and Tata’s conglomerate owner is testing its points-based super-app so shoppers can browse everything from cars to hotels to jewellery through a single online window. Banks are rushing to up their game as the government is backing new digital infrastructure that will reshape the lending market for small- to medium-size firms.

Other Indian founders can see a near future where companies in the world’s outsourcing hub may soon have to outsource themselves. The fact that their technology workforce has experience managing projects at scale makes their staff employable overseas. That creates an extra headache for those already competing for talent with a broad and growing range of multinationals across many industries including Amazon (AMZN.O), Microsoft (MSFT.O), Volkswagen (VOWG_p.DE) and major global banks like JPMorgan (JPM.N). Finding ways to win the hiring war, though, is at least a luxury problem for a pandemic-ravaged economy to have.

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Editing by Antony Currie and Katrina Hamlin

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