<Oct 28, 19> Deep Gap in Deep Tech: An Article by U. Sinha of Bexley Advisors in Business Week
Updated: Mar 30, 2020
The Indian play has to be on depth rather than breadth. DeepTech is not a winner take all space: already, Indian shoots are sprouting, and taking root in niches.
Deep Gap in Deep Tech
India has long been synonymous with Tech. Pick any sitcom, and the most playable Indian trope is a tech nerd: much to the chagrin of Kumail’s character on Silicon Valley. You are billed as an Indian even if you are from Pakistan!
That perception derives from India's traditional IT services forte. Rising Indian IT giants, strengthened by the flow of tech talent from Indian universities, were positioned to provide grade A quality of execution for a fraction of the price. As that ecosystem matured, wealth was created, in turn, seeding a healthy and active start-up ecosystem coinciding with the rise of the internet. Differentiation in this second round of growth - largely from the late 90s to the end of the last decade - was driven by a scale that a billion-strong market offered.
The rise of Chinese tech, comparatively, is a recent phenomenon. Traditionally, China was known as the de-facto manufacturing outpost for the world. With most value-add components imported from its neighbours or the West, it was mostly an assembly shop built atop its low labour cost base.
But over time, the forces of vertical integration helped develop a sustainable hardware ecosystem around this hub. And that attracted enough capital and skilled talent pouring out from China’s universities to build the associated software chops needed to pull this transition off. This ushered in the age of the Chinese knock-offs: and the global derision that the ‘Made in China’ tag received the world over. But, the very next step on this transformation was fundamental innovation.
The Chinese journey is not unique: the USA had the same reputation during the industrial revolution in Europe. Back then, 'Made in USA’ stood for low quality, inferior knock-offs derided in Europe. But brick by brick, China replicated what any advanced tech economy has: a full-stack tech ecosystem producing original intellectual property, and delivering it as real-world products and services.
Combined with the sheer scale of China, a giant is born. There is no arguing with 1.4 billion consumers: at that scale, a fraction is often larger than the rest of the world. And it continues to be the world’s tech drawer. The net effect: a Chinese tiger with an ever louder roar that is emboldened by the most protectionist government on the world stage today. One that is willing to back its picks, thwart foreign players, and deflate currency to stay competitive.
Cumulatively, this has led to a strong entrenchment in DeepTech ability in China: AI, machine learning, robotics, biotech, IoT, sensors, nanotech, etc. And to a gap between them and the rest of the world that is poised to widen. A BCG report identified roughly 4,200 DeepTech companies in the USA, growing at about 10 per cent annually. Contrastingly, India has 130. China is closer to us, with about 750: but growing at a breakneck pace of 80 per cent in the past three years. In terms of scale, China crosses the US in two years.
The Indian play has to be on depth rather than breadth. DeepTech is not a winner take all space: already, Indian shoots are sprouting, and taking root in niches. AI and BioTech, for example, and the ecosystems around them are growing stronger.
But we need to accelerate in hardware. I volunteer as the VC Anchor for iSpirt, where we are engaging deeply with early investors to back innovative drone startups launching on the back of India’s spectacular UAV regulations - the most comprehensive globally. We need to do a similar push for other fields: advanced materials, robotics, quantum computing. We need to marry Make in India with a concerted effort to engage financiers and bankers, funding Indian innovators. Finally, we must build some walls and some bridges: we want to protect some spaces to allow innovation to take root, and build mechanisms for them to have unfettered access to international markets.
DeepTech could well be India's next chapter of growth, with sustainable long term moats.