Would protectionism work well for Indian startups?
Can Indian Startups protect their market from foreign companies? we’ll need to build a firewall like China which cuts off access to technology companies from other countries. This may hamper years of progress made by Indian product companies that are now competing and winning globally.
By taking a protectionist stance India will signal greater risks to investors and threaten the vibrancy of India’s startup ecosystem. Some Indian startups have asked this before: can we protect our market from foreign companies like how China does? The promise is that if we have a market that puts the interests of Indian companies first, then we’d even have mega startups like Alibaba and Tencent. But what could go incorrect? Many things.
Firstly, to maintain a tech like China and the internet ecosystem, we’ll need to build a firewall like China which cuts off access to technology companies from other countries. This will be disastrous for the vulnerability of the web, ergo the digital economy. As Michael McLaughlin and Daniel Castro mean in their December 2019 report for the knowledge Technology and Innovation Foundation: “The general openness of the web supports the economic process by increasing international trade, productivity, employment, and innovation.
Secondly, we must ask what happens if all countries close access to their markets for tech companies from other countries? Can we win or lose? Within the short term, a couple of homegrown corporations will get the time to create the products unhindered by competition. Let’s play this out a touch into the longer term. Say our companies grow big and powerful under a protectionist policy environment. How will our companies access foreign markets? Companies built on the rear of protectionism are going to be seen as nationalistic entities and not as corporations built to maximize shareholder value. This will have terrible side effects as they struggle to travel globally. Consider instancing the troubles of Chinese company Huawei which grew to become China’s largest privately held company. Its global proposals are often thwarted on account of alleged ties to the Chinese government and national security concerns. The firm is banned from a number of the world’s most lucrative telecommunications markets including us, Canada, Australia, and several other European countries. Other Chinese companies including TikTok, arguably with a far better product, face similar challenges as they struggle to travel globally.
Since customers are now buying technology items online, India is additionally seeing a surge of startups that are born global and sell to enterprise customers across the planet. Many Indian companies are competing and winning their justifiable share of the market. But enterprise buyers tend to keep faraway from buying software from companies that come from protectionist regimes because it poses geopolitical risks for his or her business. This may hamper years of progress made by Indian product companies that are now competing and winning globally.
Moreover, taking a protectionist approach in India will strengthen the nationalist agenda in richer markets. They’ll argue that if India won’t allow us to, why should we let them? This excuse is going to be wont to boot out Indian talent, tarnish Indian products, and generally, create an anti-competitive environment for global trade. India’s $215 billion technology services industry that employs many workers already faces challenges during election years within the US, where politicians wish to attribute job losses to offshoring.
Homegrown companies operate under the idea that India’s bourgeoisie can support their businesses. India remains a poor country. Albeit many of us self-identify as belonging to the middle-income group, they're within the lower-middle-income group. To support domestic technology businesses at scale, India will need to have an outsized bourgeoisie like in China or Indonesia.
One benchmark is to ascertain when India will hit $4,000 in per capita GDP, an inflection point for sustainable technology businesses to require off. The International Fund expects India’s per capita GDP to say no by 10.5 percent to $1,877 in 2020. By some estimates, $4,000 is a minimum of 10-15 years away, if less. With the present economic contraction, it could take longer. Venture capitalists typically have a 10-year window to form money off their investments. By taking a protectionist stance India will signal greater risks to those investors and threaten the vibrancy of India’s startup ecosystem.
