India and China: Frenemies with Benefits

The following is a guest contributed post by Josh Ong, ‎Director, Global Marketing & Communications at Cheetah Mobile.

China and India have long been pitted against each other as dragon versus the elephant. While the dragon has gotten most of the attention lately, it’s the elephant that’s on fire.

India’s gross domestic product is projected to grow around 7.7 percent next year compared to 6.3 percent for China. That’s not a huge difference, but India’s economy has been growing faster since 2015. The country has been viewed as the “next big frontier” for U.S. tech companies expanding abroad.

Of course, China’s GDP is five times that of India, but India’s growth story right now is compelling. Some three Indians every second experience the Internet for the first time. Over the next 15 years India will see more people come online than any other country.

So who will ultimately win this economic battle royale? That’s the wrong question. Rather than compete, the two are likely to join forces and present a formidable challenge to the rest of the world.

China’s head start

China and India may have comparable populations, but the former has a big head start as a tech powerhouse. Tencent and Alibaba are the fourth and fifth largest Internet companies in the world, respectively, by valuation, and several other Chinese firms make the list. Chinese smartphones are sold all over the world and dwarf Apple and Samsung in terms of shipments. Chinese brands accounted for three of the top five smartphone brands by global shipments in the second quarter of 2016, including Huawei, Oppo and Xiaom, according to Gartner data.

In addition, according to Cheetah Mobile’s Big Data analysis platform libra, at the end of 2015, China claimed eight of the top 14 mobile internet companies in terms of active users, versus four in the U.S., one in South Korea and one in Russia (if you include Cheetah Mobile then China has nine of the top 15 companies).

China’s ascendency has mostly come in the last five years. Looking back a decade or so, Chinese firms mostly imitated American firms. Now, China is innovating on its own, and, in many cases, the U.S. tech industry is taking its cues. On the other hand, Chinese growth has slowed recently to its lowest level of growth in 25 years as manufacturers have gravitated to cheaper labor markets and overseas demand has fallen.

India’s moment

In her 2015 Internet trends report, Kleiner Perkins Caufield & Byers analyst Mary Meeker wrote that India’s penetration rate was similar to China’s in 2008 and America’s in 1996. The implication was that India is in a position to produce its own Internet giants, equivalent to Tencent, Alibaba, eBay, and Yahoo, which were founded in those eras.

That’s certainly possible since India boasts some of the world’s biggest tech hubs, including Bangalore, Pune and Hyberbad, all of which have more LinkedIn members with tech skills than Silicon Valley.

According to the G20 National Internet Development Report, India’s internet user base grew by 51.9% in 2015, the fastest growth rate of all member states. Meanwhile, growth in China’s Internet user base has slowed greatly. Libra shows taht that the majority of India’s mobile app market is controlled by foreign app publishers, mainly American and Chinese publishers. Of India’s top 100 apps, only 29 are published by local companies. For U.S. and Chinese publishers, India is the land of opportunity.

That’s not to say that India can’t launch its own Internet giants. India’s No. 1 app, Zomato, is now in the Middle East, South Africa, South Asia, North America and Europe. In 2015 it acquired Urbanspoon, America’s second-largest restaurant delivery service, making it a direct rival to Yelp.

On the other hand, India’s purchase power still lags China. For instance, consumers spent some $14 billion on “Singles Day” while the Indian equivalent, Diwali, only netted $1.7 billion in e-commerce sales. India’s cash flow is a seemingly intractable issue. The new consumers coming online generally lack the purchasing power to fuel a full-fledged tech boom.

Not China vs. India, China and India

Though the two countries have their strengths and weaknesses, presenting India vs. China as a zero-sum competition is missing the point. For one thing, China sees India as a growth market for its own products. As India’s growth swells over the next few years, China has the opportunity to shatter the American monopoly on technology and mobile apps in particular. On paper at least, it looks like a good match: China’s market is maturing and is looking for growth from overseas. India’s population meanwhile, is quickly coming online.

As the Chinese market becomes more saturated, not surprisingly, India will become the first overseas market that China targets. At the same time, India will benefit from China’s investment and expertise. When Chinese president Xi Jinping visited India this year, he noted that China is called “the World’s Factory” while India has been dubbed “the World’s Office.” As the two sides strengthen each other and complement their advantages, it’s an open question as to where America fits into this vision.