IELTS Reading Revision – India’s Tech Bubble is About to Burst

January 19, 2019

 

IELTS Reading Revision – India’s Tech Bubble is About to Burst

 

India’s tech bubble

 

Overvalued startups focused on growth over revenue are a problem that stretches far beyond U.S. borders, and it’s an even bigger problem in India. Granted, a tech bubble bursting in India isn’t going to send shock waves through the ecosystem worldwide, let alone the public markets in that country, as it would in the U.S. However, it will impact the pace of innovation and investor risk appetite in the short-term in India and other emerging markets (other than China, the behemoth outlier) who share similar market characteristics (like Brazil, Indonesia and Nigeria).

 

The successes — or failures — from what works for the Indian consumer in their home market translates to the rest of the world significantly more so than following the successful models of companies like Alibaba, Tencent and others in China. Even if you don’t care about other emerging markets, experts agree India will soon be the most important economy in the world.

 

Rural India goes mobile

 

Much of India’s future success depends on whether the government can leverage its demographic potential by training its workforce and providing adequate infrastructure for businesses. This challenge is compounded by where the growth in mobile consumers is occurring. According to The Economist, India will see more people come online in the next 15 years than any other country, with the majority of that growth coming from rural, not urban areas.

 

These new mobile consumers will generally be poorer and lack the purchasing power needed to support a booming tech sector. While India’s internet and smartphone penetration is growing incredibly fast, this does not directly translate either into users having the ability to buy voraciously like their Chinese counterparts or new companies able to deliver goods in a timely fashion to rural communities.

 

More to the point, mobile data plans in India, like other emerging markets, do not make the robust use of the internet possible for the vast majority of people. That is not a simple problem to fix, but it is certainly easier to resolve than trying to improve livelihoods and logistics from the top down. Plus, the regulatory context in the country leaves a lot to be desired — just ask Facebook about “digital colonialism” related to its “Free Basics” initiative.

 

An inevitable burst

 

Morgan Stanley released a report earlier this year estimating e-commerce sales in India of $119 billion in 2020 — a seven-fold increase from its 2015 prediction. Travel is expected to account for 60 percent or more of e-commerce, with electronics coming in at 30 percent, according to the Boston Consulting Group and Retailers Association of India. A four- to seven-fold increase in market size does not seem too crazy — until you pair it with e-commerce startup valuations in India.

 

Look at the top e-commerce company in India — Flipkart, most recently valued at $15 billion. That is just shy of Morgan Stanley’s estimate for the entire e-commerce market in the country, and does not even include the next two competitors, Snapdeal and Amazon India. Flipkart has approximately 45 percent market share, which means the company should have roughly $7 billion in gross merchandise volume (GMV) in 2015 using Morgan Stanley’s calculations. So the company is basically valued at more than two times its GMV. But GMV is not sales or revenue to Flipkart; it is total sales of online products.

 

Flipkart likely takes a nominal revenue share or take rate like Amazon does, but they also must shoulder significant user acquisition costs, meaning they are losing money on every transaction for the foreseeable future. Granted, this is not unlike Amazon’s past strategy, but Amazon was never valued at equal to the entire market’s value either. Add on the fact that approximately 40 percent of the market is non-travel and you have to wonder how these numbers add up. It is no surprise that Flipkart saw its valuation marked down by almost a quarter by three fund investors.

 

Another reason for the flood of investment into India is the fear of missing out — or FOMO — on something akin to China’s enormous success. In one camp, you have investors Naspers and Softbank whose portfolios include very successful bets in the Chinese and Indian markets (JD.com, Tencent and Flipkart for Naspers, and Alibaba and Snapdeal for Softbank). In the other camp, you have the investors like Amazon who misfired on Chinese growth and do not want to repeat past mistakes. Beyond that, there are local and international VC firms like Sequoia and Accel, as well as more opportunistic investors like Tiger Global that sense opportunity and do not want to be left out...

 

Source: TechCrunch

 

 

Questions 1- 6: Choose one correct answer only for each question.

 

1. A tech bubble bursting in Indian will affect:

 

a. The economic climate worldwide

b. Technological development and willingness of investors to take risk

c. Non-Indian emerging markets

d. The US

 

 

2. What do professional points of view share in common?

 

a. The Indian economy will play the most critical role on a global scale

b. What works for the Indian consumer affects the rest of the world

c. Indian growth is heavily reliant on of its workforce and infrastructure

d. Rural areas will be central to economically pushing India further

 

 

3. What is a drawback of mobile growth in Indian rural areas?

 

a. People are able to buy goods in large amounts

b. Delivery services of Indian companies become timely

c. Mobile data plans do not consist of great Internet access

d. Regulations are increasingly tightened

 

 

4. Commerce online in India:

 

a. Will be able to attract $119 billion of investment in 2020

b. Relies on the expansion of start-up companies

c. Will experience a growth of 7 times in 2020, compared to 2015 estimate

d. Will boost the sales of travel and electronic products

 

 

5. Flipkart, Snapdeal and Amazon India are:

 

a. Three biggest consumers of Indian exports

b. Three examples of economic monopoly

c. Three biggest Indian firms in the e-commerce sector

d. Using Morgan Stanley’s calculations in their businesses

 

 

6. An explanation for high level of investment in India’s e-commerce businesses is that:

 

a. Investors believe that the economic miracle in China will happen in India

b. Investors are confident that they will not make any mistakes

c. Investors want to take advantage of other competitors’ past mistakes

d. Investors made successful investments in India before

 

 

Please find the answers here.

 

 

How many correct answers did you get? Please share your result by leaving a comment.

 

 

Want to learn more about the tech industry of India? Watch this video from BBC Click to learn how it is planning to be a global dominant player.

 

 

 

 

 

 

 

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