Editorial & Opinion

Possibilities of Open Innovation between Japanese Companies and Indian Startups

Possibilities of Open Innovation  between Japanese Companies and Indian Startups 1
This is a guest post by Sachino Taki / 瀧幸乃
Assistant Director, Japan-India Startup Hub
JETRO Bengaluru  

Recently, innovative movement that Indian companies bring to Japan have become prominent. OYO, which entered the Japanese real estate industry and Paytm, which provided technology to Softbank and Yahoo’s mobile payment app PayPay, are both startups originating in India. These companies have grown rapidly to become unicorns with more than $ 1 billion value. Common things to these Indian startups are free-thinking, abilities which disrupt the existing framework, advanced development skills which can quickly shape ideas and energetic youngster who can effectively communicate with people around the globe. 

Possibilities of Open Innovation  between Japanese Companies and Indian Startups 2
Possibilities of Open Innovation  between Japanese Companies and Indian Startups 3
Examples of featured Indian unicorn startups  (Photographed by JETRO)

Why Bengaluru is called “India’s Silicon Valley”?

According to the annual report on the Indian ecosystem published in October 2018 by Nasscom, the number of startups has been reported to reach about 7,500 companies during 5 year period from 2013 to 2018. Also it has become the third largest producer of tech startups in the world after the United States and the United Kingdom. It is to be noted that 60% of new age startups are born in Bengaluru, around the Delhi Territory, and in Mumbai. The number of unicorn companies is also ranked third in the world (18 companies) after the United States (126 companies) and China (77 companies). In 2018, there were 8 new Indian-based unicorn companies, mainly in online services and marketplacewhere sellers and buyers can freely participate.

By state, the number of startups in Bengaluru, the capital city of Karnataka, especially in Southern India, accounts for the largest 25%. It is called “Silicon Valley in India” because of the year-round climate, abundant IT professionals, and the large number of tech startups. Karnataka, which has a population of about 65 million, currently has 1.2 million IT engineers, accounting for 30% of all India, with 90% concentrated on Bengaluru. Even if compared with the number of IT engineers in Japan (900,000, Ministry of Economy, Trade and Industry “Results of research on latest trends and future estimates of IT human resources in FY2016”), the size of IT human resources concentrated in this 1 state / 1 city can be easily recognized.

Looking at the breakdown of start-up industries in India, the companies which focus on  services comprise 16%, FinTech 14%, Marketplace 12% and Healthtech (8%) and account for half of the total startups(Figure 1). Among them, the number of companies that have introduced advanced technology is 1,200, which is 1.5 times the previous year’s level, and the advanced technologies used by these companies are data analytics, IoT (Internet of Things), artificial intelligence (AI) It occupies nearly 80% of the total with 3 items (see Figure 2).

Possibilities of Open Innovation  between Japanese Companies and Indian Startups 4
Figure 1
Source: JETRO created based on NASSCOM reports
Possibilities of Open Innovation  between Japanese Companies and Indian Startups 5
Figure 2
Source: JETRO created based on NASSCOM reports

Figure 1: Breakdown of Startup Businesses

Figure 2: Breakdown of technologies adopted by high technology start-up

Approach to leading startups, “Treasure Hunt” in India by top global companies

Many multi-national companies (MNCs) mainly from Europe and the United States are trying to incorporate IT talent’s development capabilities and innovative ideas, which startups in India have as their strength. According to Nasscom’s analysis, more than 600 MNCs, including Google, Microsoft, Amazon have set up in-house development bases and global strategic bases in India called Global In-House Center (GIC). These companies hire a large amount of IT human resources in India and promote in-house research and development, strengthens collaboration with external startups to incorporate new ideas and technologies, utilizing full resources internally and externally to create innovations. 

Possibilities of Open Innovation  between Japanese Companies and Indian Startups 6
Possibilities of Open Innovation  between Japanese Companies and Indian Startups 7
MNCs who are active in Innovation and engaging with startups  (Photographed by JETRO)

Direct investment or investment through VC to seek partners  

In business collaboration between Japanese companies and startups, direct investment for startups and investment through venture capital (VC) are most often seen. For startups that need funding, there are many that expect Japanese companies to invest. Among Japanese companies expanding into India, there are also cases in which they invest in VCs that can be distinguished in order to approach prominent startups.

On December 7, 2018, Nichirei, which is engaged in processed foods and other businesses, invested in Delightful Gourmet, a startup that operates Licious, ​​an online meat market place in India. The company is trying to build a cold chain and expands new meat distribution in India. Through cooperation with the startup, Nichirei aims to deepen its understanding of the Indian market, which is expected to grow in the future, as a foothold for the expansion into India.

Also, Dentsu, largest Japanese advertisement company has acquired 9 Indian companies in the past 5years and has ranked 1st place in the Indian market for digital advertising. The acquisitions also include digital advertising startups. Gaku Shinoda, The Chief Operating Officer (COO) of Dentsu Aegis Network India, who supervise these Indian companies, said, “Thanks to the contribution of the digital advertising company we acquired, we came to receive an award every year for the digital category of “Agency of the Year” organized by Campaign Asia Pacific (APAC), a leading advertising industry magazine.”

Sojitz announced on January 29, 2019 that they aim to create a new business in collaboration with prominent startups that handles AI and IoT through investment in Bengaluru-based VC “3one4 Capital”.

The Bengaluru-based Japanese VC such as Incubate Advisors India, BEENEXT and Dream Incubator are also actively investing in Indian startups. Access to prominent startups through information exchange and joint investment in collaboration with those Japanese VCs will be also effective for Japanese corporates.

Rapidly developing innovation ecosystem in Bengaluru 

Startup companies in India are attracted by rich IT professionals and high development capabilities and attract investment from the top companies in the world. On the other hand, in order for a startup to grow, it is necessary to have a business environment that can generate not only funds but also multi-faceted support and innovation such as technology, management and human resources. So how MNCs and Japanese companies are approaching to those IT talents or startups who have strong synergies with them?

One of the best ways to find India’s talented people and leading startups is ‘Ideathon’ and ‘Hackathon’. It is an event where creators and engineers gather and create new ideas or joint development within a certain period of time based on the task settings presented by the companies.

The only Japanese unicorn startup, Mercari, has enhanced the company’s recognition by hosting a hackathon in India, and successfully hired 32 talented engineers from the top universities such as IIT. Hiring these top talents is getting more and more competitive across the world, especially when it comes to IIT students; some global companies would be willing to offer them Rs. 2.03 crore as a starting salary. 

Recently, the number of companies who are hoping to host online hackathons in order to cover the whole of India is increasing. An Indian startup, Hackerearth has developed an online platform where companies can host hackathon in order to address such needs. The platform has already been introduced as a part of university classes across India and is used by companies, who want to recruit talented developers, getting more and more attention. 

In order to increase the chance of getting in touch with startups, it is effective to participate in large-scale startup exhibitions held in India such as TechSparks or Bangalore Tech Summit and to invest as a sponsor. There are many companies that lead to the improvement of publicity in the ecosystem, and also broaden contact with leading startups selected as VC. Another way for companies to seek collaboration with startups is to sponsor these events, partner with industry associations such as Nasscom and VC. Two Japanese companies, Panasonic and Yokogawa has become strategic partner with Nasscom and many other Japanese delegates have visited there as a first step to access to Indian tech startups. 

A unique acceleration programme that attracts startups in targeted areas

When a company establishes a startup relationship, it needs to attract a startup in a specific area with its own business and synergy and find the best partner. In order to attract more startups, it is important for them to be able to transmit the funds and networks that companies can provide to startups with low funding levels. Major European and US companies have implemented their own acceleration programs such as sharing their technology, know-how and investing for selected startups for a certain period. According to Nasscom, among startups participating in the Corporate Acceleration Programme, about 10% to 20% have reached actual business collaboration with the company that is the programme organiser. 

Maruti Suzuki Indian Ltd (MSIL), who has the largest presence in Indian automobile industry has started an acceleration program called Mobility and Automobile Innovation Lab (MAIL) in collaboration with Indo-Japan accelerator GHV accelerator in Gurgaon. According to Maruti Suzuki official the company has more than 50% market share in India. “We would like to continuously be an innovative company just like how we started our business in India. We have selected 5 Indian startups across India, who will address their problem statements related to connected car, mobility or safety,” states Maruti Suzuki official. 

Japan and India are “BEST FRIENDS” for business partnership 

As you can see from the intimate relationship between Indian Prime Minister Narendra Modi and Japanese Prime Minister Shinzo Abe, the tie between two nations is definitely strengthening year by year. The leader of India who has been re-elected with high approval rating from the citizen has described Japan as their “BEST FRIEND” and said that “Sky is the limit for India-Japan tie”. Clearly Japan and India have a strong synergy when you see both country’s forte; hardware and software respectively. Also, there is a complementarity in human resources between the two nations; severe labor shortage in Japan and high unemployment rate in India. 

When Hiroshige Seko, Minister of Economic Trade and Industry (METI) visited Bengaluru in May 2018, he has signed an agreement with Suresh Prabhu, Minister of Commerce and Industry in India regarding “Japan-India Startup Initiative”. The purpose of this agreement was to commit to accelerate the Innovative collaborations between the two nations. As part of the agreement, “Japan India Startup Hub” was established under JETRO Bengaluru, and the initiative of the Japanese government has begun. 

Possibilities of Open Innovation  between Japanese Companies and Indian Startups 8
Possibilities of Open Innovation  between Japanese Companies and Indian Startups 9
Kick-off event of Japan-India Startup Hub organized by JETRO (Photographed by JETRO)

The Japan-India Startup Hub is responsible for promoting innovation through business development support and matching support between Japanese and Indian companies. Since its inception, in addition to briefing and mentoring to Japanese companies interested in Indian business, it has also received a delegation of Japanese companies promoting open innovation. The most recent event was the “Indian Innovation Mission” sponsored by JETRO from March 4th-8th, 2018. JETRO invited 27 companies, mainly in manufacturing, information and communications, and trading industry, who are considering open innovation with Indian startups, and held seminars and B2B session. As a result, some Japanese companies have progressed in negotiation about collaborations or investment on Indian startups. 

The Japanese companies, who participated in this 5 day delegation program highly appreciated the open-mindedness of the Indians, high communication skills including fluent English and effective presentation, and the mathematical ability and strong logical thinking. Some companies felt that it was easy to establish a business, and they said that they would like to fully consider collaboration in research and development, and that they have seized valuable business opportunities.

Possibilities of Open Innovation  between Japanese Companies and Indian Startups 10
Possibilities of Open Innovation  between Japanese Companies and Indian Startups 11
B2B sessionswhich were organized during the delegation programs (Photographed by JETRO)

Through the mission, companies who have strong awareness of the company’s internal problems and gave effective pitches at the visited placesor met appropriate partners during B2B session have produced good outcomes. When dealing with Indian startups Japanese companies should keep in mind the following points:

(1) Clarifying target issues and partners that you want to cooperate with

(2) Speedy decision-making and the commitment to the Indian market

(3) Proactively disseminating the company’s strengths and the contribution to the ecosystem Business-like and open-minded South Indians can facilitate business negotiations quickly if the purpose and issues are clear.

On the other hand, start-up and MNCs in India said that “it is interesting that many Japanese companies show interest in India”, “in India there is a lack of Japanese information, There are many voices that “want to actively transmit information.” The image of India towards Japan is very positive, and there are many inquiries to JETRO Bengaluru office from Indian companies that want to contact or cooperate with Japanese companies. JETRO will continue to strengthen its efforts to increase the contact between Japanese and Indian companies that want to collaborate on innovation.

Two-way communication is the first step in Japan-India collaboration

Japanese companies often say that it is difficult to capture India, a complex and huge market. Understanding the diverse and complex markets also requires long-term commitments. However, Indian companies are very open and positive about their business with Japan, and they are seeking positive and clear information from Japanese side. As the first step of the Japan-India collaboration, it is important to take effective communication with Indian companies in two ways while making good use of the India innovation ecosystem. From there, a global business based on Japan-India cooperation will also be born.

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