Internationalisation is the key to startups making it big.
In India, there are many firms which are particularly technology-intensive. They are ‘born global’ – this means they seek international market opportunities virtually from their inception.
Software service firms give way to software product firms and now, there is a whole generation of ventures leveraging the internet for e-commerce or other offerings, some of which have gone or are seeking to go international.
In certain cases, this has happened because the new venture has been acquired by an international company (for example, Redbus). In other cases, new ventures have begun their own operations using tremendous funding – and it’s too early to say for sure how well things are working out (for example, Ola). Others have made bold acquisitions overseas (for example, Zomato).
Remarkably though, the broad principles that lead to successful internationalisation have remained mostly unchanged, even though of course, the specific contexts and business models of different firms may vary. Here are three important lessons for internationalisation of Indian new ventures:
Innovation is an important starting point for a venture to have the basis to internationalise. In the older days, software services firms in Bengaluru, India, typically leveraged process innovation, including the offshore development model, to be able to gain business from international markets. Over time, software ventures came up with product innovation.
Mango Technologies provides an interesting example of this, as it developed software targeting low-end mobile phones, leveraging its deep knowledge of Indian conditions. Eventually, Qualcomm acquired Mango’s intellectual properties (IPs), deploying them for customers in numerous international markets, in particular, other emerging economies.
Over time, new ventures have developed business model innovations that they have sought to take to international markets. Ola, often referred to as India’s ‘Didi’, is now seeking success in markets like Australia and the UK. Given the perception that it is not an original business model, but rather one based on Uber, it will be interesting to see how this Indian venture fares against Uber overseas.
Oyo, a hotel aggregator targeting budget hotels, whose business model is arguably a more original one given that its target segment was previously rather underserved, has taken its business model to other Asian markets, most notably China. While it would be premature to declare success in a market like China until more time has elapsed, the venture has certainly made its presence felt. The sizeable funding it has received of course helps greatly in making bold moves in a market like China, which is notoriously difficult for foreign startups to succeed in.
Network relationships are vital to internationalising new ventures as a means to compensate for their limited resources. Not every new venture attracts the vast amounts of funding that unicorns do, which means that being resourceful — as opposed to the number of resources possessed — is important.
Network relationships can be a source of valuable information, ideas, and opportunity for the resource-constrained. Skelta exemplified how to adeptly leverage networks for internationalisation. They illustrate well how new ventures that are more successful at internationalisation tend to be more proactive in reaching out and leveraging networks. More importantly, Skelta was discerning and reflective on how network relationships were utilised. Discerning means recognising that different types of network relationships are good for different things. For instance, co-ethnic personal ties abroad could be helpful to identify opportunities, but inter-organisational relationships with a giant like Microsoft could help realise the potential of such opportunities.
Reflective refers to the learning outcomes that are accrued from network ties. Skelta’s then CEO and top managers understood that the most important long-term benefit of networks is the knowledge imbibed from them, and great learning — both technical and commercial — emanated from their dealings with Microsoft’s ecosystem. This matters greatly because learning in international markets is vital to success, as discussed next.
Arguably the most important aspect of internationalisation is learning. By definition, firms encounter novelty when they enter new markets — sometimes because they encounter surprising or unexpected differences and challenges.
A situation where learning is vividly noticeable is in the case of foreign companies, including Indian ones, operating in China. Most Indian firms have a much better sense of what to expect in Western markets such as the USA, the UK or Australia than they do in the Chinese market. Despite sharing a border and having a long-standing history of cultural and commercial exchange, China represents a major unknown for many Indian firms.
The learning that firms achieve in international markets can take various forms, including understanding what is unique or different about specific geographic contexts (including subnational ones), localising the offering and hiring local talent. Dealing with the Chinese market is doubly challenging because not only is the language different, but so also are the dominant ecosystems. For instance, Baidu and Tencent (WeChat) are the dominant search engine and social media platforms respectively, and not Google and Facebook.
Understanding the nuances of a market, in turn, helps firms figure out what adjustments they need to make. Oyo, which has made a major push into China and recently received funding from Didi Chuxing, has had to understand that Chinese customers have somewhat different preferences than their Indian counterparts, such as, for instance, expecting and valuing better infrastructure. It, along with Bengaluru-based InMobi, has been making strong efforts to attract good local talent, as ultimately it is these employees who have the deepest understanding of local conditions.
To conclude, resource-constrained small and young firms — indeed, not every startup becomes a unicorn and attracts vast amounts of funding — face distinct challenges compared to resource-rich large multinationals when addressing opportunities and challenges on the international stage. The key to success is resourceful internationalisation, that is how new ventures succeed at internationalising with a limited resource base.
An important focus, therefore, is on internationalising new ventures aiming to establish competitive advantage through network-based strategies that leverage opportunities or react to challenges arising on the global stage.
Also vital is harnessing innovation — in relation to the process, product or business model — as a basis of competitive advantage. And the capacity to adopt such innovations stems from new ventures’ learning outcomes in international markets: How well they learn is often a function of how efficaciously networks are harnessed.
Thus, the three lessons highlighted above are interlinked, and paying heed to them entails a non-trivial burden. Internationalising new ventures is clearly, then, not for the faint-hearted, but when pulled off the payoff can be considerable.
Shameen Prashantham is an associate professor of international business and strategy at the China Europe International Business School (CEIBS). His research primarily focuses on what he calls “dancing with gorillas” — partnering between large corporations and startups — and on international entrepreneurship. He is the author of Born Globals, Networks and the Large Multinational Enterprise: Insights from Bangalore and Beyond (Routledge, 2015).
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