India vs China: Comparing Asia’s Two Largest Startup Ecosystems

India vs China

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India vs China: Overview

India and China are among the world’s top 5 largest economies with a GDP of $2.94 trillion and $14.14 trillion respectively. Both the countries have witnessed rapid growths since China adopted the Open Door Policy by opening the door to foreign businesses and liberalization of India’s economy in 1991. While the US is the world’s largest economy at the moment, both China and India are expected to overtake it by 2030 to become the world’s two largest economies.

During the early years, their growth was largely dominated by traditional businesses growing at a steady pace. But things changed when internet connected the entire world and smartphones further made the internet accessible to almost everyone on the planet. This unique combination opened up a whole new set of opportunities for businesses and provided a much rapid avenue for growth.

Now businesses have the ability to grow at an unprecedented pace by reaching customers anywhere in the world. That is exactly what the new age entrepreneurs did and these rapidly growing businesses we call startups are now transforming the world and both these economies.

To understand the scalability and speed that was provided by these new-age technologies, take the example of Infosys, one of India’s most successful IT companies. The company took 18 years to become a unicorn, yes that’s right, nearly two decades.

On the other hand, Udaan, which is known as India’s fastest startup to become a unicorn, did it in merely 14 months. The term unicorn didn’t even exist before 2013 and for good reasons because there weren’t a lot of companies with such massive valuations. Today, there are around 500 unicorns around the globe and India and China are home to nearly half of them.

There is no doubt that these startups are going to play an even bigger role in the development of these countries in the coming years. With that in mind, it is worth comparing how their startup ecosystems compare against each other. This comparison is even more relevant considering the growing clashes between the two countries, border disputes, anti-China sentiment in India and India’s bid to reduce its dependence on Chinese products in order to become aatmanirbhar (self-reliant).

Number of Startups and Unicorns

Let’s start with China, which is the world’s most populated country and also the second-largest economy.

With 206 unicorns, China has the largest startup ecosystem in the world and while we don’t know exactly how many startups there are in China, numerous reports claim that more than 10,000 startups are created every day in China. Some reports claim that there are more than 30 million startups in China, which is more than the entire population of Nepal. Imagine a country full of entrepreneurs. While most of these startups are Small and Medium Enterprises (SMEs), the sheer number of startups created every day in China makes it one of the largest startup ecosystems in the world.

As for India, there are an estimated 80,000 startups and only around 30 of them are unicorns. This is quite significant for a country that only had 19,000 startups and 8 unicorns at the end of 2015. While China clearly has 7 times more unicorns than India, they also have about 30 million startups. Which means that while one in 2,667 startups in India becomes a unicorn, only one in nearly 1,45,000 startups in China manages to become a unicorn. Even though India’s startup ecosystem is still in its infancy, it is already the third-largest in the world.

Startup Hubs and Incubators

One of the reasons that China has so many startups is because it also has the most number of incubators among the two countries.

An incubator provides all the necessary elements like mentoring, seed funding, working space and training to help the entrepreneurs grow their early-stage startup into a successful business. Since 90% of the startups fail due to a lack of proper business model, right product, right team, or funding, incubators ensure that these startups have a better chance of succeeding.

China has more than 11,800 incubators that have helped more than 6,20,000 startup companies in 2018 alone. In contrast to China, India has merely over 520 incubators which can support around 6,200 startups every year. At this rate, China can produce 100X more startups every year as compared to India.

Taking a look at major startup hubs in China, Beijing is known as the world’s unicorn capital. Which is no surprise, considering the city is home to 82 unicorns, which is 40% of China’s unicorns and 16% of all unicorns around the world. Shanghai, Hangzhou and Shenzhen with 47, 19 and 18 unicorns each, are also among the other top startup hubs in China. For India, Bengaluru, Delhi-NCR, Mumbai and Hyderabad are the popular startup hubs. Out of 30 odd unicorns in India, Bengaluru alone accounts for 14 of them.

Most Valuable Startups

Even in terms of size and scale of startups, China comes out ahead with startups giants like ByteDance, which is the owner of video sharing platform TikTok, being the world’s most valuable startup with a massive valuation of $75 billion (Rs 5.6 lakh crore). Followed by ByteDance, Didi Chuxing, China’s ride-sharing giant is valued at $56 billion (Rs 4.19 lakh crore) and Kuaishou, another video sharing platform, is valued at $18 billion (Rs 1.34 lakh crore). These are China’s top 3 most valued startups.

Apart from these startups, China also has rapidly growing technology giants like Alibaba, Tencent, and Xiaomi. These companies are not only enabling China’s internet economy by pumping in tons of capital but also expanding their presence to the world and reinforcing China’s technology dominance. All these technology giants were once just small startups with vast potentials. Today, they have achieved what every startup dreams. They have gone public and continue their rapid expansion across the world.

Comparing India’s three most valuable startups with China’s giants, we have digital payments company Paytm valued at $16 billion (Rs 1.20 lakh crore), latest edtech decacorn Byju’s with a valuation of $10.5 billion (Rs 78,000 crore) and hospitality chain OYO valued at $10 billion (Rs 75,000 crore). The combined valuation of India’s top three startups is $36.5 billion (Rs 2.7 lakh crore), which is less than half of ByteDance’s gigantic valuation of $75 billion (Rs 5.6 lakh crore).

Investments

In terms of investment, China again remains ahead of India but the trend is changing quickly. During the period of January to mid-November 2019, Chinese startups raised a total of $35.6 billion (Rs 2.6 lakh crore). This is significantly higher compared to what Indian startups raised during the entire year of 2019, which was $14.5 billion (Rs 1 lakh crore). However, what is interesting to note is that while Indian startups raised just $14.5 billion (Rs 1 lakh crore), this was the best year for India, compared to $10.5 billion (Rs 78,000 crore) raised by the startups in 2018.

As for China, the investors seem to be losing interest in China’s startup ecosystem which seems to have reached its maturity, compared to a young and bustling Indian startup ecosystem. Even the massive $35.6 billion (Rs 2.6 lakh crore) dwarfs in comparison to $94.4 billion (Rs 7 lakh crore) raised by Chinese startups in 2018. What’s more interesting is that not just global investors are looking towards India but even the Chinese investors are flocking to India to invest. Out of the $14.5 billion (Rs 1 lakh crore) invested in Indian startups, around $4 billion (Rs 30,000 crore) came from Chinese investors like Alibaba, Tencent and Shunwei Capital.

Ease of Doing Business

Out of 190 countries ranked in terms of ease of doing business by the World Bank. With a ranking of 90, China was somewhere in the middle during 2015. However, the country has since been making continuous changes to its policies and has made it considerably easier for entrepreneurs to start a business. Today, thanks to all the improvements, China is now ranked 31.

As for India, the country was on the lower end of the ranking spectrum as it was ranked 142 in 2015. Just like China, India has been making continuous reforms which have enabled the country to achieve a rank of 63 in this year’s Ease of Doing business report.

In 2015, on average, it took 31 days to start a business in China, while a person could start a business in 29 days in India. However cut to today, a person can easily start a business in just 9 days in China, while it still takes around 18 days in India.

The Chinese government has effectively reduced the barriers and cut down the number of steps required to start a business while the Indian government has been slower to remove those barriers so far. However, the Indian government is committed to reducing this time to merely 5 days. So, we can expect to see some more reforms in this direction in the coming years.

While in terms of investments, we know that India has been attracting more and more investments over the years and this is reflected in the report. The latest ease of doing business report ranks India 14th in terms of protecting the interests of minority investors, while China has a ranking of 28 for this index. This means that India provides more transparency and control to its investors as opposed to China which is another reason for the rising investment in the Indian startup ecosystem.

Startup Initiatives by China and India

The Chinese government incorporated ‘mass entrepreneurship and innovation’ program in 2015 and China witnessed what is known as the ‘fourth wave’ of entrepreneurship. The government focused on strengthening entrepreneurship in the country by providing funding support, creating technology infrastructure and revision laws and regulations, making entrepreneurship more accessible.

In 2017, after two and a half years of announcing the ‘mass entrepreneurship and innovation’, the government had implemented more than 400 measures. The reforms were clearly visible as the number of enterprises formed in China jumped by 19% in the year enabling more than 3.9 million companies, which meant that every day more than 11,700 companies were born in China. The government had also set aside $320 billion (Rs 24 lakh crore) for promoting emerging entrepreneurs.

Like China, India started its Startup India campaign in 2016 with the goal of promoting innovation and entrepreneurship in the country. Prior to Startup India, merely four Indian states had a startup policy in place, today, 26 Indian states and union territories have formulated a startup policy to support entrepreneurship.

The government had also established a Rs 10,000 crore ($1.3 billion) Fund of Funds to invest in emerging startups. Out of 10,000 crore rupees, Till date, Rs 3,582 crore rupees have already been invested in 338 startups.

We can clearly see the disparity between India and China. While the government plays a much bigger role in China’s startup ecosystem with massive investments and state-run incubators, India’s startup ecosystem is still largely dominated and supported by private investors. Also, India lacks homegrown technology giants like Alibaba, Tencent and Xiaomi that can strengthen India’s ecosystem by providing investment and mentorship support from within the country without relying on outside investment and also the growing Chinese investment in order to be more self-reliant.

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