Startups wake up to a post-China world !!

BENGALURU : Last week, after India abruptly announced a ban on 59 Chinese apps, TikTok’s CEO Kevin Mayer called for a virtual town hall with his India employees.

Over the past two years, ByteDance, which owns TikTok and Helo (also included in the list of the banned apps), had established a large presence in India. Despite the border conflict between India and China that led to the death of 20 Indian soldiers and the anti-China rhetoric that had been bubbling up here as the pandemic spread, the Beijing-headquartered Byte Dance had no inkling that a ban was coming.

Mayer, who had joined TikTok as its global CEO only in May from the American entertainment firm The Walt Disney Company, sought to allay the concerns of the India employees. Mayer, 58, told the ByteDance employees that he was known to look after his employees as if they were family and that he would fight for his team. TikTok would continue to pay salaries and avoid cutting jobs for now, he added. But Mayer’s address, which lasted a few minutes, failed to provide much comfort to TikTok employees, two company executives said.

“His town hall was really brief and there were no details on what the company can do to deal with this. No one was convinced … While we’re still hoping that the ban will be reversed, I wouldn’t say anyone expects it. Many have already started looking out for other jobs,” one of the executives said.

The government’s move, however, was cheered by local entrepreneurs and venture capitalists who expect startups in social networking, media and other spaces to benefit from the forced withdrawal of TikTok, Helo, SHAREit, NewsDog and others. Indian startups have faced existential threats mostly from American and Chinese companies that use their technology prowess and limitless capital to overpower local rivals. If the ban on Chinese companies stays, it’ll provide respite to local startups by permanently removing one set of competitors whom they believe were engaged in the unfair practice of “capital dumping.”

The ban was the second time in months that India had moved to put restrictions on Chinese companies and investors. In April, direct investments by Chinese investors into Indian companies without regulatory approval were prohibited . In that case, the impact on Indian startups was decidedly negative—Chinese investors have poured over $8 billion into startups directly or indirectly over the past decade, and in recent years, they had become the most important source of capital for small and large internet firms alike.

Put together, the two policy measures will lead to an immediate freeze on Chinese capital in India’s startup ecosystem that is likely to last until a political resolution of the latest border dispute. It will leave a huge funding gap for internet firms that are already struggling to cope with the slump caused by the pandemic. This blow easily outweighs the potential benefits to a handful of social networking startups.

There is a small possibility that if the two governments reach a compromise, both venture capitalists and the banned companies from China will return. Hence, the long-term impact of the moves remain unclear. ByteDance is pleading its case with the government and has offered to set up an engineering office and data centres in India, among other steps.

It is clear that India’s startup ecosystem has become a key geo-political battleground notwithstanding its small size—imports in sectors like smartphones and pharmaceuticals from China that dwarf startup activity involving the two countries. But as foreign policy experts have pointed out, India has few viable options to undertake substantial retaliatory actions against China. In this context, banning all Chinese apps and placing investment restrictions are seen as low-risk manoeuvres that could help the government save face.

One thing is certain: the startup ecosystem, whose development in the past decade had come largely in—and many say, because of—a policy vacuum, is now increasingly being shaped by the whims of the government. While it has been benefitted from moves to like demonetization and the Chinese app ban, the lack of consistency and stability in policymaking could easily swing the other way and hurt investor outlook over the coming years.


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