Ola, Flipkart Want Foreign Funding – But Not Foreign Competition?

Why are Ola and Flipkart, both funded by foreign funds, suddenly feeling the need for government’s support?

(Photo: The Quint)

• Flipkart and Ola have sought the government’s help seeking protection from foreign competition

• Morgan Stanley reduced Flipkart’s valuation for the fourth time this year to $5.4 billion
  
• The majority of Flipkart’s capital is in the form of foreign funding. Founders Sachin and Binny Bansal together hold only a 30 percent stake in the company

• Ola’s Bhavish Aggarwal has secured sufficient foreign investment to the point that he and his partner Ankit Bhati currently own only 10 percent of the firm’s shares

Online retail giant Flipkart and app-based cab service Ola have reached out to the government seeking rules and regulations to protect them from competition posed by international rivals. At the Global Tech Summit 2016 held in Bengaluru, Flipkart founder Sachin Bansal and Ola co-founder and CEO Bhavish Aggarwal said the Centre should help safeguard domestic brands from foreign ones.

Bhavish Aggarwal and Sachin Bansal at the Global Tech Summit 2016 in Bengaluru. (Photo Courtesy: Twitter/Carnegie India)

Is Competition Making Them Uneasy?

The question that arises is: Why do the two companies, both of which are propped up by foreign funds, suddenly feel a need for the government’s support? Every start-up has so far asserted the need to end licensing and that rules should be relaxed. Is competition making Ola and Flipkart nervous?

Once a force to reckon with in the realm of e-commerce, Flipkart now seems to have been trumped by US e-tail behemoth Amazon. A total of $3.2 billion in foreign funds has been invested in Flipkart.

Also Read: Flipkart & Ola Seek Govt Protection Against Rivals: Is It Ethical?

However, it is now being overtaken by Amazon when it comes to growth. This has led Amazon to announce $5 billion dollar investments in India in the coming years. On the other hand, Flipkart’s market share is steadily declining.

Morgan Stanley has reduced Flipkart’s valuation for the fourth time in a year to a mere $5.4 billion. Last year, around June-July, Morgan Stanley had pegged the firm’s value at $15.5 billion.

Poor marketing have led to a fall in Flipkart’s valuation which, in turn, has resulted in difficulty in securing fresh foreign investments.

The majority of Flipkart’s capital is in the form of foreign funding. Founders Sachin and Binny Bansal hold only 30 percent of the company’s shares. Considering all this, it is hardly surprising that it is now seeking support from the government.

Also Read: Morgan Stanley Slashes Flipkart’s Valuation By 38 Percent

Weakness on the Performance Front

Both Ola and Flipkart managed to secure large amounts of funds on the basis of the novelty of their concepts and apps. However, the companies failed to perform well. After initial success, both the duo left far behind by competitors.

Flipkart is facing difficulty in holding its ground in the face of Amazon’s aggressive marketing strategy. Ola is confronted with a similar situation with the rise of Uber.

While appealing to the Centre, Ola and Flipkart said that even China has framed regulations for domestic start-ups. As a result of this, Uber had to exit the country.

A Strange Plea to Mount Pressure

Sachin Bansal (Photo Courtesy: Twitter/Sachin Bansal)

Flipkart’s Sachin Bansal has put forward a strange proposition, saying that after Donald Trump becomes US President, and post Brexit, domestic companies and permanent residents would get preference in the US and Britain. In the same manner, India should also have rules and policies to protect domestic companies.

Additionally, Bhavish Aggarwal’s plea specifies that there are rules to protect the domestic consumer Internet sector in China and India should follow suit.

So, the two firms’ stand seems to be that foreign investment is all right, but foreign companies are not.

Why the Double Standards?

Ola’s Bhavish Aggarwal has secured sufficient foreign investment to the point that he and his partner Ankit Bhati currently hold only 10 percent shares in the company. However, now they feel that foreign investment by international rivals can harm the Indian market.

But Mr Aggarwal, why the double standards despite the vast foreign investments in your company?

Going by the foreign funding yardstick, both Ola and Flipkart are international companies; Flipkart is even registered in Singapore.

What has happened now is that foreign investors are now asking the two firms for their accounts. The investors are mounting pressure to reduce expenditure and increase profits.

Owing to stiff competition and poor performance, the investors are also facing difficulties in selling off their stakes.

Focus Should be on Improving Promotion and Quality

Enforcing rules against foreign investment for the Modi government, which is so keen on attracting it, is a difficult task.

Flipkart and Ola should work on improving their promotional tactics and performance. That’s the only way to compete with Amazon and Uber, instead of turning to the government for support.

(This article was originally published in Quint Hindi. The writer is a senior journalist. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)