Ola, Flipkart seek market protection against global rivals Amazon, Uber

The founders of India's top two consumer Internet companies Sachin Bansal and Bhavish Aggarwal have called for enforcing protectionist measures against their global rivals Amazon and Uber, accusing these firms of dumping capital to buy customers to become monopolies in the country.

India is the world's last large open market where Amazon and Uber are pitted against local rivals Flipkart and Ola respectively. Both firms have committed billions of dollars to capture India, giving tough competition to the local leaders, who have mirrored the business models of these two US internet companies.

E-commerce and ride-hailing, similar to all business that uses the internet to connect consumers with suppliers, tend to be monopolistic in nature. The company that gets the most users and vendors tends to dominate the business playing on the network effect, with the rival being a distant second. Amazon and Uber dominate the US market and many other markets globally and the gap with their rivals is growing.

Both Bansal and Aggarwal cite this reason to curb the expansion of Uber and Amazon, calling the government to bring rules that only get foreign capital in India, but restrict foreign consumer internet companies from setting up shops.

In the past, India had policies for pharma, automobiles, IT and banking that encouraged local entrepreneurs to build a strong base before opening up for competition. Likewise, the country's Make in India policy for defence manufacturing looks at local development over foreign imports.

"But in the technology sector, this is not the case because it is naturally monopolistic. The cost of acquisition is zero, once you have something it happens to be accessible to everyone at the same time and that is the unique thing for which China's answer was to close down the market," Bansal said at a panel discussion moderated by T V Mohandas Pai at the Carnegie India technology summit on Wednesday. "I think what we need to do is what China did. They told the world we need your capital but we don't need your companies."

Uber, which burnt over $2 billion in China was humiliated by local rival Didi Chuxing forcing it to exit the Middle Kingdom for a minority stake in Didi. The resources, which Uber had set aside for China is being diverted to India, besides the capital that was already allocated from the $ 3.5 billion it raised from Saudi Arabia's public fund.

Likewise, Amazon has committed over $5 billion since mid-2014 to capture the Indian e-commerce market, which has been dragging down its international margins.

Bansal and Aggarwal say both these rivals are burning money to capture market share but not adding any value to the Indian ecosystem, while local firms such as theirs are generating high-value jobs in the country.

"When a ride goes to Uber for example in India, the higher-end jobs are being created in the US and not in India. The capabilities in the ecosystem are getting created in the US and not in India, while when it comes to Ola the capabilities are being created in India," said Bansal.

Increased competition from Uber and Amazon have not only hurt the Indian companies in expanding their business but also dragged down their valuations that have made it harder to raise fresh funds from global investors.

"When you see the capital story that's where the Indian ecosystem is at a disadvantage. Number one is that there's no local capital, we have to go abroad for capital and it's much easier for non-Indian companies to raise capital because they're profitable elsewhere," said Aggarwal. "You might call it capital dumping but it's a very unfair playing field for the Indian startups and something needs to be done about it. The consumer Internet industry because it largely carries a monopolistic stake, a lot of irrational capital is thrown into the land grab."

Not all buy the arguments made by Bansal and Aggarwal. Anand Rangarajan, who is the engineering director at Google's Bengaluru research centre, says local companies can give competition to multinationals such as Google if they are able to build trust with the consumers.

"This has happened in markets such as Russia and South Korea and other markets where local players are very dominant. I don't think they're doing well just because they got protection, they're doing well because they've won the consumer trust and we couldn't do as good a job," said Rangarajan. 

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