Perhaps there’s a sense that the domestic tech scene represents the ‘low-hanging fruit’, but Indian corporates can and should broaden their horizons internationally.
By Vatsal Gaur & Adam Salkin
Over the past 12 months it has been hard to keep up with the dizzying pace of growth in India’s tech sector. And Corporate India—led by the likes of Lodha Group, Bennett Coleman, Reliance and others—is getting in on the act through venture arms (so-called CVC or corporate venture capital). While the flow of capital from traditional ‘non-tech’ industries into the tech world is welcome, we can’t ignore how focused Indian CVCs appear to be on the domestic market, which has a disproportionate focus on B2C e-commerce products servicing local marketplace. The huge growth in India’s tech scene is part of a broader global story. This begs the question: Is Corporate India potentially missing out on global opportunities by focusing on domestic market?
Nowhere is this point better demonstrated than Israel’s tech ecosystem—the Silicon Wadi. Like in India, Israel’s tech scene saw exponential growth last year, with a record-breaking Rs 88,500 crore raised in first half of 2021. But despite the common growth story, there is a significant difference in the focus between Israeli and Indian tech companies.
In contrast to India’s e-commerce-focused tech sector, Israel’s ecosystem places emphasis on IoT, cybersecurity and deep tech (AI, blockchain, robotics, etc). According to the IVC, there were over 150 firms in Israel developing deep tech products. Israel has become a key tech corridor, and attracts global investors looking to invest in its start-ups. But not many Indian companies are investing in Israeli tech firms (except a few, like Paras Defence & Space Technologies’ investment in the Israeli drone tech company, High Lander, and tech centres set up by TCS and Mahindra in Israel). These are a drop in the ocean compared to the scope.
Historically, key foreign investors in Israeli tech companies are from the US and China. But the US administration’s toughening stance on China and changes in the Committee on Foreign Investment in the US pose a challenge for Israeli firms’ ability to accept investments from the Chinese. Without Chinese investors, the need for Israeli tech firms to diversify their shareholder base has resulted in a willingness to accept capital from other jurisdictions. Of late, there has been a rise in investment in Israeli start-ups from Japan and South Korea; following the Abraham Accords entered into last year, the UAE has started to follow suit.
The lack of traction in this area is all the more unusual when you consider that India and Israel boast warm ties, similar legal systems and, prior to Covid-19, the opening up of direct flight routes.
While Israel is mentioned here as a case study, the same argument can be applied to Corporate India’s involvement in other well-known tech corridors, from Stockholm to Berlin. Perhaps there’s a sense that the domestic tech scene represents the ‘low-hanging fruit’, but Indian corporates can and should broaden their horizons internationally.
In the current environment the most attractive start-ups have extraordinary bargaining power when raising funds, but when you consider that start-ups are now looking for the ‘value-add’ that an investor can bring beyond the cold hard cash, Indian corporates hold a competitive advantage. This is because tech companies globally have greater awareness of the attractiveness of India as a marketplace. But international tech companies are equally aware of the challenges to market entry and the onboarding of an Indian investor provides a trusted partner in the world’s fifth largest economy.
In the global arms race for deep tech, Corporate India simply cannot afford to be left behind in vital tech corridors such as Israel. Arguably, India is as well placed as others to take advantage of this proposition. All that is required is execution.
Gaur a partner at Pier Counsel, New Delhi; Salkin is an M&A and tech partner at Herzog, Fox & Neeman law firm in Tel Aviv