By Ash Shrivastav
Technology companies in India are receiving millions in funding, but very few have been able to achieve the growth and sustainability expected by the investors. That’s because both culture and language stand in the way — something that foreign VC firms had not counted on.
India received more than $8 billion dollars of venture capital in 2015 — a 50 percent jump from the previous year, as investors scramble to enter the Indian market. But in a bid to capture the market share of this developing nation, investors have overlooked several factors that put technology companies at a disadvantage. As a result, venture-backed companies such as Jewelskart, Townrush, and TalentPad are their shutting doors while others struggle to survive.
India has two official languages, Hindi and English, in a country that boasts 122 major languages and 1599 dialects, according to country’s census. While Hindi is understood by most Indians, very few write or speak English. Yet most technology companies use English for their products or services, which poses a long learning curve for people who have not studied English.
With a literacy rate of 74.04 percent and only 10.35 percent literacy in English, Indian Internet companies have a much smaller target market compared with other industries, such as electronic device makers or automobiles.
India faces a barrier in scaling any service primarily because of literacy, one primary example being taxi companies. Most taxi drivers are illiterate. As a result, they tend to use bribes to obtain a drivers’ license. Moreover, cops exploit taxi drivers whenever officers’ pockets are empty. Cops will stop a car anywhere they want, for any reason. Taxi drivers are expected to bribe the officer, and cops will come up with any excuse to get what they want — from citing an inspection sticker than is not visible, to telling the driver that an out-of-state vehicle cannot pass through another state without a permit.
The Indian Customer Service
When a tech company acts as a marketplace, they have to satisfy the clients on the both sides, the consumers and the providers. When a customer books a hotel online, it effectively creates a contract between the consumer and the hotel. The contract is fulfilled by the tech Company. The challenge of this type of travel tech company in India is to find the quality service provider. But the problem is very few Indian companies understand and believe in concept of “customer service” or “customer satisfaction”. As a nation of population of more than a billion, companies realize that demand often exceeds supply.
A survey conducted by Economic Times reported that 90 percent of Indian customers face poor customer service and surprisingly, they have low expectation of receiving a great service. A Genesys survey backed this up and found that 90 percent of Indian firms ignore customer service.
You don’t need to visit Yelp or Zomato to find out the reviews. The businesses may have very bad reviews but still have enough customers that won’t make them worry about unsatisfied. In fact, very people Indians on the street even know what Zomato, despite a huge logo tacked onto a building in Gurgaon — a major tech center just outside New Delhi.
In fact, I have some experience with this. In February 2015, a friend of mine had a wedding in New Delhi, with many guests flying in from the United States. They booked five different hotel rooms for a wedding event. Three were booked using a major Indian online service, with one booked using Expedia and one booked in person.
Expedia had no issues. However, on the day before the event when the group went to check out how the hotels looked and find exact locations so that transportation could be arranged for the event. But they were shocked when they found that one of the hotels using the Indian online reservation service would not honor their bookings. They stated that they either didn’t know what the website was was or didn’t care that the rooms were booked through the site. They also expressed confusion and said they were not sure why the website had booked the rooms when their hotels had no vacancies.
The group showed them the printout of the booking and the payment made but they did not care. One of them was generous enough to recommend a sister hotel which looked very badly maintained and twice as expensive but they were willing to cancel the reservation of someone else to accommodate the group. Obviously, the group didn’t want to cause inconvenience to someone else. So they declined the offer.
Since they were out of luck with experimental online bookings, they chose to follow the traditional route – taking a local gentleman with them to the hotel that they had visited and booked in person. They explained what problem they had ran into. Thankfully the manager understood the situation and agreed to accommodate more people than what he would ordinarily have. Interestingly, this hotel was much better and cheaper than the ones they had booked through online platforms.
During a visit to Lucknow, the budget hotels refused to offer a room because they could not read the identification documents written in English. When purchasing a room online, it would not even cross many people’s minds that they may run into issues such as these. After the group failed to secure a room, they eventually had to knock the door of a relative past midnight.
Street Shopping
People primarily shop online because of convenience and online deals. The retail outlet has to be more expensive than the online price for the customers to buy online.
In India, there are two categories of retail outlets. One that caters to middle or lower middle class and the second that caters to upper middle or higher class. The poor class has barely anything left for shopping after they feed their family.
Typically the retail stores are more expensive because of the middle man — often the wholesaler. But it all changes depending on where you shop. For example, you would find a trouser and a shirt for less than 500 rupees on street shops, slightly more expensive inside the stores and much more expensive inside the shopping malls. Quality has always been debated because you may find same stuff frequently in all these places – except for discrepancy in prices. Other than shopping malls, business owners don’t add taxes which further lowers the total cost. I’ve discussed this issue in another article on the Indian food tech calamity previously.
The convenience of home delivery is also less likely to happen as Indian post office hasn’t been able to create or maintain physical addresses. You could expect a delivery man to call you to pick up the package at their offices, which defeats the whole purpose of shopping conveniently from home. You would end up spending the time –perhaps more than retail shopping – to collect your package. If you discover an issue with the order, you would hate yourself for ordering online as the process for return or exchange logistics is much more inconvenient.
Mobile Focused
Laptops are more expensive than mobile phones. Electricity is unreliable so it prevents many potential customers who want to get online using a Wi-Fi. So the traffic is driven by how many mobile users are and whether they are using a data plan that not only covers the “facebook plan” or “WhatsApp plan” as it is primarily sold by the telecom companies but also lets them browse other things. For example, a customer would be hesitant to turn data on for emails because it would eat the capacity within minutes. This also results in a low email open rate.
Struggling Tech
Technology companies with reach to Indians outside of India have an advantage over domestic operators. For example, online matrimony companies such as Shaadi, Bharatmatrimony and social dating company like Maangu increase their target audience by serving the people of Indian origin in foreign countries who don’t have the limitations of customers in India. People are looking for dates and eventually to get married. They charge a premium price from these members abroad and make up for the difference in losses in India.
Indian hotel owners are not much used to technology, honoring third party agreements or offering a great customer service. If you walk into a hotel and negotiate a rate, you would most likely find a better deal than what a discounted travel website could offer. Business is still done in-person in India and it doesn’t seem to change anytime soon.
The star hotels don’t need much training on customer service and the budget hotels are not much aware of the concept of customer service. Even if they become aware, changing habits and culture takes long time. Indian metro city streets are crowded with both the buyers and sellers and you are most likely to find a deal somewhere without any hassle.
Despite being a nation that boasts itself as the second largest population in the world, when factored in the literary, language, income, spending power, willingness to spend, customer service, street deals and culture, the target population size becomes very small for internet technology companies.
Ash Shrivastav is an M&A banker in Washington, DC, where he advises internet software & services companies. He has also led early stage technology companies and managed overall portfolio strategy. He can be reached at www.ashshrivastav.com
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