With Uber China deciding to throw in the towel by merging with China’s top taxi-hailing service Didi Chuxing, it joins the ranks of several US tech firms who haven’t been able to make it in China. Whether it is Google or eBay or Facebook or Twitter, each has either been shut out or has bowed out, a combination of not being able to read the Chinese market and tough Chinese laws which several US tech firms have complained about in the past and said were selectively applied. As Thomas Hout and Pankaj Ghemawat put it in HBR in 2010, in return for market access, China stipulated “a high degree of local content in equipment produced in the country, and force(d) the transfer of proprietary technologies from foreign companies to their joint ventures with China’s state-owned enterprises”. Not surprising, for almost all US household names of tech firms, there is a Chinese equivalent doing equally well, if not better—there is Baidu that substitutes for Google, Renren for Facebook, Tencent for Yahoo!, YouKu for YouTube, Taobao for eBay, Sina Weibo for Twitter and Alipay for PayPal.
In sharp contrast, almost all US tech giants seem to be doing well in India. In the e-tail space, the contest is between home-grown Flipkart and Amazon and, depending upon which metric you use, Amazon may well be India’s number one e-tailing giant. In the taxi-aggregator business, Uber seems to be behind Ola in terms of market share, but it is among the top two in the country. The upshot of this is that, though the Indian market is much smaller than the Chinese one, its transparent rules and open systems make it a much better investment destination—to the extent doing business is tough, it is equally so for Indian and foreign firms.
Data from the latest Unctad report on foreign direct investment corroborate India’s investment-friendliness. At $44.2 billion for 2015 versus $135.6 billion for China, India’s foreign direct investment flows are a fraction of China’s. In terms of net foreign investment—inward FDI minus outward FDI—India is ahead of China with net FDI of $36.7 billion in 2015 versus a much lower $8.1 billion for China. More important, inward FDI in China is a mere 3% of the country’s gross fixed capital formation (GFCF) versus 7% in India; in terms of GDP, the stock of FDI is 11.1% in China versus 13.5% for India. With FDI a lot more important for India than it is for China, it is not surprising India tends to be a more hospitable host—indeed, FDI as a proportion of GFCF has reduced from 6.9% in 2005-07 to 3% in 2015 in China but risen from 5.6% to 7% for India. It is this realisation that is driving more tech MNCs to India.