Last week, the founders of two young companies that face significant competition from US rivals said India should protect its own, echoing sentiments expressed roughly two-and-a-half decades ago by members of the so-called Bombay Club who saw the opening up of the Indian economy as a threat.
The companies are Flipkart and ANI Technologies, which runs Ola, and the founders, Sachin Bansal and Bhavish Aggarwal.
I’ve heard the argument before. Here’s how it goes: Foreign companies do not have the best interests of India and Indians at heart. They will not encourage innovation in and for the local market. They will not build a network of local suppliers. Their founders will not nurture, mentor, and fund local start-ups. Look at what China has done. And more to the effect. The comments could well have been made by ageing patriarchs of yesterday’s business groups.
The comments should not have surprised anyone. India’s new economy companies are anything but new in terms of how they do business. Several Indian start-ups display the worst characteristics of companies from an earlier era (nepotism, misgovernance, a tendency to leverage regulatory arbitrage and traverse the interstices). Many, including Flipkart, have, at one point in time or another, had structures that would not have stood careful scrutiny by regulators (although, perhaps, in the interest of attracting capital and not getting in the way of business, the government chose to look the other way). Some still do.
Indeed when it looked like India’s rules on foreign investment would come in the way of Flipkart attracting any, the promoters incorporated a holding company abroad, in Singapore, to get around the problem.
That, and the quantum of stake held by foreign entities in Flipkart (well over 66%), pose an interesting question: Is Flipkart even Indian?
It is also evident that the company with the largest stake (and investment) in Flipkart, Tiger Global, calls the shots (at least, most of them) in the company. Tiger Global and Accel Partners midwifed the merger of Flipkart and Myntra. And some of the recent management changes at Flipkart, including the induction of Tiger executive Kalyan Krishnamurthy as turnaround manager, were effected by the hedge fund.
Ola, promoted by ANI Technologies, is registered in India, but, again, foreign investors including SoftBank, Tiger, and Sequoia, own a majority in it (again, over 66%).
When I posed the question of the Indianness of the two companies on Twitter, a fellow hack helpfully offered that maybe what the two founders meant was that they were “mentally” Indian, a play on the criticism directed at former Reserve Bank of India governor Raghuram Rajan.
I do not particularly care whether a company is Indian or foreign as long as it follows the law of the land, creates jobs, doesn’t discriminate between foreign and local employees (some Korean and Japanese companies that operate in India do), and is fair in its treatment of royalties (some multinationals operating in India are not) or repatriation of profits. This should be the government’s position too (and I think it is). If Xiaomi and Micromax are both making phones in India, it doesn’t make sense for the government to discriminate between the two. There’s a caveat to this. At a broader level, the government’s policies must be driven by self-interest and reciprocity.
This is the way of global business.
Much like Flipkart and Ola burning venture capital money to offer steep discounts to attract customers that their traditional rivals can’t match is also the way of global business. After all, if a pension fund in the US is happy to subsidise Mrs Ramamurthy’s footwear, why should anyone have a problem with it.
There’s a caveat to this too. The government should ensure that such discounting isn’t anti-competitive or an abuse of dominant position.
As young men who have helped build admirable businesses, Bansal and Aggarwal should be aware of the way global business works (just as they should be aware that saying “this is what China does” isn’t really a great way to win an argument, not just in India but anywhere in the world).
I am also not sure true multinational companies define themselves from the narrow ambit of nationality. Many see themselves as global citizens. Sometimes, they just happen to be headquartered in their country of origin. The older (and truer) multinationals are listed on exchanges in many of the countries in which they operate. The parent as well as the subsidiaries have a diverse and global ownership.
I see Flipkart as an unlisted global company with Indian founders and which operates in the Indian market. And I see Amazon as a listed global company with an American founder that also operates in the Indian market.
Bansal and Aggarwal should not have allowed competitive pressures to get to them, for it can be nothing but the breath of Amazon and Uber on their necks that could have prompted a plea for protection.
R Sukumar is editor, Mint