1

India’s Booming Digital IndustryThe ICT sector in India is expected to grow by about 13% in 2015, fueled by a rapidly expanding domestic market, a thriving startup scene and a large talent pool of engineers.

This report is created and published by:swissnex India l Consulate General of Switzerland#26 Rest House Crescent Road, Bangalore, India 560001Tel.: +91 80 4941 2000 To download this report, visit: www.swissnexindia.orgTo order copies of this report, send an email to: innovation@swissnexindia.org Content partners: Excubator, Bangalore Date of publishing: May 2015Designed and printed in India swissnex India connects Switzerland and India in the fields of science, education, art and innovation. An initiative of the Swiss State Secretariat for Education and Research and Innovation (SERI) in association with the Swiss Federal Department of Foreign Affairs, swissnex India is part of the Consulate General of Switzerland in Bangalore (www.swissnexindia.org).

Table of Contents

EXECUTIVE SUMMARY

1 INDIA’S ICT INDUSTRY: CURRENT AND EXPECTED PERFORMANCE, SCOPE AND SIZE 1.1 Current Market Potential and Scope in India for ICT 1.2 ICT - R&D Scenario in India 1.3 ICT – Trends and Growth Drivers

2 IMPORTANT ICT TECHNOLOGIES: SCOPE, SIZE AND OPPORTUNITIES IN INDIA 2.1 Information Technology, IT - ITES and IT security scenario 2.1.1 Cloud Computing 2.1.2 Telecom/Mobility2.1.3 IT Security 2.1.4 Big Data

3 HUMAN EMPLOYMENT AND INFRASTRUCTURE SUPPORT IN INDIA

4 ICT INTELLECTUAL PROPERTY SCENARIO IN INDIA 4.1 Patents 4.2 Copyright 4.3 Trademarks 4.4 Protection of Integrated Circuit Layout Design (IC) 4.5 Industrial Design

5 INDIAN GOVERNMENT POLICIES AND REGULATIONS 5.1 Government Initiatives and Policies for ICT

6 OPPORTUNITIES IN BUSINESS SECTORS IN ICT 6.1 Education 6.2 Healthcare 6.3 eCommerce & Consumer Web

7 STARTUP SCENARIO IN ICT IN INDIA 7.1 Venture Capital/Investment Scenario 7.2 Success Stories7.3 Startup Scosystem and Support

8 CHALLENGES IN INDIA IN THE ICT SECTOR

9 CONCLUSION AND RECOMMENDATIONS

3

4 4

55

7 7 7

8 8

9

10

11 11 11 12

1212

13 13

15 15 16

17

18181920

22

23

2

Smartphone boomNumber of users

EducationExpected doubling of the online education market by 2017, from the current $20 billion

HealthcareMajor opportunities in tele- medicine, cloud computing, and service-oriented architecture

E-commerceAnticipated growth of 33% in 2015, driven by smartphone and broadband adoption

PuneMagarpatta

2013 2015

76 million

2017

HyderabadHITEC City

KolkataMillennium City IT Park

168 million

244 million

Mainly software services% of ICT sector revenue in 2014

Major IT hubs

Export-driven% of ICT sector revenue in 2014

Export67%

Fast-growing business areas

302 millionNumber of Internet users by December 2014; that’s about a quarter of India’s population

3,345Number of engineering colleges, which produce 1.5 million graduates every year

Nasscom 10,000 Startups

TLabs

The Startup Centre

Microsoft Ventures

Read the full CTI Startup report on the Indian ICT sector at

www.swissnexindia.org

India’s Booming Digital IndustryThe ICT sector in India is expected to grow by about 13% in 2015, fueled by a rapidly expanding domestic market, a thriving start-up scene and a large talent pool of engineers.

$130 billionICT sector revenue in 2014; that’s 9.5% of India’s GDP

NoidaDLF IT Park

Delhi Delhi IT Park

GandhinagarInfocity

MumbaiInfotech Park

BangaloreElectronics City

ChennaiCyberVale IT Park

TrivandrumTechnopark

Domestic33%

Thriving startup ecosystemExamples of startup accelerators

High-tech clustersTop ten Software Technology Parks

Softwareproducts

12%Business process

management10%

R&D10%

Hardware4%

IT services47%

E-commerce17%

3

EXECUTIVE SUMMARY: THE CURRENT STATE OF THE ICT INDUSTRY IN INDIA AND MARKET OPPORTUNITIES FOR SWISS STARTUPS AND SMEs India has witnessed a tremendous growth in the ICT sector over the past two decades with several multinational companies including SMEs and startups making inroads into the Indian market. India’s economy is expected to grow between 7 and 8 percent annually in the next few years and is among the highest rates of any big emerging economy.

Recently, India surpassed Japan to become the world’s third largest economy in terms of Purchasing Power Parity (PPP). India’s ICT sector is approximately valued at US$ 130 billion1 and will continue to grow in the near future. One of India’s most popular success stories entails the rise of Indian economy as a global ICT powerhouse. Its dominance in the IT sector worldwide has catapulted its economy into becoming one among the largest in the world. In this scenario, the opportunities both for domestic and international players in the Indian ICT sector have multiplied many-fold. Traditional markets such as commerce, healthcare, education, banking and finance, and governance are increasingly seeing the adoption of ICT to improve service delivery and productivity. The boom of the domestic ICT sector has spurred a wide range of opportunities for foreign firms to enter India. Uniquely, India offers two major advantages to international ventures:

� A large (and growing) domestic market for technologies, services and products in multiple domains such as Education, Commerce, Healthcare, Financial Services and Security, and Governance.

� A unique large ecosystem of young and reasonably well-trained employees, significant cost advantages and an environment of support from the government to enable international ventures to target overseas markets as well.

This report outlines India’s ICT sector scenario and is intended to give the reader a succinct overview of this sector, as well as specific areas of opportunities and challenges.

1 http://www.nasscom.in/indian-itbpo-industry

4

India’s growing economy has been much talked about in the past decade. According to the data published by the International Monetary Fund (IMF), India is the third largest economy in the world in terms of Purchasing Power Parity (PPP). A large part of this growth can be attributed to the success of the ICT sector (supported by a large and young workforce), which took off at the turn of the millennium. A report released by Statistia, the Indian Information and Communication Technology (ICT) industry contributed to about 9.5% of the national Gross Domestic Product (GDP), which is about six times its contribution in 2000. The Internet economy alone is expected to reach US$ 161 billion by 2018, accounting for around 5% of the national Gross Domestic Product (GDP). A large part of this is attributed to India’s demographic situation.

1.1 Current Market Potential and Scope in India for ICT

The ICT sector in India has been predominantly driven by software services. However, most upcoming Indian startups in the ICT sector are product-based companies. Overall, the Indian ICT industry registered a double-digit growth and clocked aggregate revenue of US$ 130 billion in the year 20142. The following three parameters outline the present and future scope for the ICT sector:

1) Personal Computers: According to India Tech Online, India’s PC penetration stands at 100 million. This includes both laptops and desktop computers and excludes tablet computers and mobile devices. According to research firm Gartner, laptop usage has exceeded desktop usage in India with desktops accounting for 44% of the total market3. A burgeoning middle class with rising income levels is expected to fuel this growth. Although the number of PC shipments is expected to increase in 2015, the annual growth rate is expected to reduce as most Indian consumers are shifting into a mobile-first world.

2) Internet: As of 2015, India has 302 million Internet users, of which 159 million are accessing Internet through their mobile devices. Internet penetration in India is slated to reach 330 million by the end of 20164, overtaking the US to become the world’s second largest Internet base after China. This trend is likely to continue 3G, and 4G adoption in particular, continues to increase.

3) Mobile Devices: According to independent regulatory body Telecom Regulatory Authority of India TRAI, India has 930 million mobile phone connections. Low handset prices are paving the way for India to become one of the fastest growing smartphone markets in the world: India will have more than 200 million smartphones by 20165. According to Statistia, Android has emerged as the winner for the most popular operating system for mobile devices with half the market share followed by Nokia’s series 40. Apple’s iOS is hovering around 2%. However, by 2017, mobile data traffic

2 http://www.nasscom.in/indian-itbpo-industry

3 http://timesofindia.indiatimes.com/tech/tech-news/PC-sales-slump-19-manufacturers-look-for-exit/arti-cleshow/30248511.cms

4 http://blog.bcwebwise.com/tag/mobile-internet-penetration

5 eMarketer - http://trak.in/tags/business/2014/12/23/smartphone-users-india-global-growth-chart/

1. India’s ICT IndustryCurrent and expected performance, scope and size

5

in India is expected to reach a whopping 900 petabytes per month, up from 15 petabytes per month in 2012 (projected by Cisco’s Visual Networking Index).

1.2 ICT - R&D Scenario in India

As of 2014, R&D centers in India (both foreign & domestic) contributed US$ 18.3 billion, a third of the global R&D services market. This figure is expected to hit US$ 38 billion by 20206. The entry of R&D sectors into India gained momentum in the early 2000’s. Currently, there are two sets of players deeply engaging in Research and Development in the ICT sector in India: large domestic players and subsidiaries of multinational corporations. Large domestic companies such as Infosys, Wipro and Tata Consultancy Services (TCS) undertake two kinds of R&D activities - internal and external. Internal R&D improves service delivery processes and is consumed by the firms themselves while external R&D involves tweaking the product or service that these firms offer to the international market.

There are a fair number of multinational corporations that have set up their R&D base in India such as Broadcom, Dell and Huawei while companies such as Twitter and Xiaomi are set to follow suit in the second half of 2015. A majority of these international corporations undertake external R&D activities. Consumer electronics and medical devices are expected to comprise a large portion of the R&D activity stemming from India.

1.3 ICT – Trends and Growth Drivers

Due to increasingly complex requirements of both domestic and foreign firms, investing in the latest technologies has become of paramount importance. Although highly penetrated verticals such as telecom and banking have invested heavily in technology since the early 2000’s, future investment is moving into next generation technologies to improve operational management, customer service and cost efficiencies to compete on a global scale.

With technology playing a bigger role in fueling the Indian economy, the deployment and usage of technology is moving beyond large enterprises. Small and medium sized businesses and startups are adopting technologies faster than ever before. This has become possible mainly due to innovative technologies such as cloud computing, which enables new generation business models such as SaaS (Software as a Service), PaaS (Platform as a Service), IaaS (Infrastructure as a Service). This facilitates smaller companies to deliver services to large enterprises across the globe in a profitable manner. These business models also have tremendous scope in the Business to Consumer (B2C) space in verticals such as travel, healthcare, consumer goods and financial services. With the Swiss startup ecosystem producing strong hi-tech ICT based startups in the financial services and healthcare sector, Indian ICT trends look favorable for the coming decade at least.

6 Zinnov Management Consulting - http://www.ibef.org/industry/research-development-india.aspx

6

In Europe, Hungary, Romania and Poland are the new trendsetters for serving the IT needs of the domestic European market. However, India has certain advantages that make it more appealing as an ecosystem for Swiss startups. There are a myriad of factors that are driving the growth of the ICT sector. The following three factors are largely the constituents of this growth:

1) India has a growing ecosystem of large domestic consumers, prospective investors and service providers. With the declining costs of technology coupled with innovative business models, India is fast becoming an organized economy for ICT products and services.

2) India’s demographic situation – Countries such as Japan, U.S. and some countries in the European Union are witnessing a decline in working age population. In contrast to this, two thirds of India’s population is between the ages of 15 and 64.

3) English education system provides graduates with a greater degree of employability by foreign firms.

7

2.1 Information Technology, IT - ITES and IT Security Scenario

The IT market (including ITES, IT Security and BPO) has grown exponentially over the past decade. Domestic firms in this sector have morphed themselves into strategic business partners rather than just technology partners. Global economic uncertainty has not tainted the growth trajectory of the IT sector in India.

The size of the IT sector (including ITES, hardware, eCommerce and R&D) in 2014 was US$ 130 billion and is estimated to grow to US$ 146 billion at the end of 2015. The following chart depicts the breakdown of the verticals in the sector:

2.1.1 Cloud Computing

The scope of cloud computing in India remains one of the hottest trends in the ICT sector. With a lot of components of cloud technology involving the ‘as a service’ model of delivery, many industry experts and analysts believe India could become the next hub in the world for sourcing technology services where digital information is stored, processed and accessed via the web. In a survey done by Information Week, 81% of organizations across sectors expect cloud services to help them compete more effectively. However, large enterprises are not the only market cloud service providers cater to. Healthcare and education are increasingly becoming important sectors that deploy cloud management solutions to run their business processes.

Source: NASSCOM IT BPM Overview - 2014

2.Important ICT TechnologiesScope, size and opportunities in india

R&D

Software products

Hardware

eCommerce

Business Process Management

IT Services

0.47

0.10

0.17

0.04

0.12

0.10

Indian ICT Sector vertical wise breakdown

Software Products

8

2.1.2 Telecom / Mobility

The telecom sector can be classified into the following: - Wireless - Fixed Line - Internet Broadband - Value Added Services (VAS) - International Long Distance (ILD) / National Long Distance (NLD): Enterprise data - Telecom equipment and infrastructure

With the sales of smartphones growing exponentially in India, there is sizable demand for each of the components in the telecom ecosystem. Current technology and business trends suggest that disruptive technologies such as cloud and mobility exacerbate the need to ramp up security software as well as system network management. Security concerns coupled with improved customer services is likely to drive companies to invest in these applications.

The mobile applications area is still nascent in the Indian market. However, there are only a handful of names in the market such as Ola cabs, PayTM, and Hike messenger, paving the way for a huge growth opportunity. The infrastructure and the ecosystem offer theability to develop high quality products in this area. However, a global perspective, that Swiss startups might be able to bring to capitalize on this large and growing base of mobile internet users, is missing.

2.1.3 IT Security

The Indian IT security market has been growing significantly over the past 5 years. According to Gartner, the market is expected to cross the billion-dollar mark in 2015 in terms of revenue. This includes security hardware, software and services. Security services (which includes consulting, support and implementation accounts for about 55% of the total revenue7. Enterprises in India did not traditionally invest in IT security. PwC estimates that the average Indian firm spends around $4 million on cyber security8. However, with an increase in their overall IT spends, enterprises are considering investing in IT security due to pressing factors such as:

- Hacker targeted attacks in the political arena- Financially motivated cyber attacks - Increase in security incidents in recent years

Opportunities in the IT security space mainly lie in specific domains such as banking and financial services, telecom, oil & gas, and utilities. With the advent of Internet of Things (IoT), there is an ever-increasing concern for security due to large chunks of data being stored, transferred and analyzed.

7 http://www.gartner.com/newsroom/id/2811517

8 http://articles.economictimes.indiatimes.com/2014-10-20/news/55236829_1_security-professionals-in-formation-security-survey-cyber-security

9

It is important to note that the market for IT security in the consumer segment is rather modest. The majority of Indian consumers are not cognizant of the importance of data security and privacy, which hinders the growth of IT security. Due to the deficit of skills in the security space, Swiss startups can find good opportunities in security consulting, implementation, and managed security services. Moreover, as the awareness of IT security increases in the consumer and enterprise space, Indian IT firms may not be equipped to fill the supply-demand gap, thereby presenting Swiss startups with more opportunities to bring in high quality expertise.

2.1.4 Big Data

The boom of the Indian IT sector has transformed big businesses by making them more data driven than ever. Due to the sheer amount of data that needs to be stored, processed and analyzed, startups and SMEs are developing capabilities to cater to the need to manage complex databases. According to a joint study from NASSCOM and CRISIL, the global big data market is expected to hit US$ 25 billion by the end of 20159. India will contribute to more than US$ 1 billion of the global share with a CAGR (Compounded Annual Growth Rate) of 83% from 2012 – 2015. This has spurred thousands of entrepreneurs to start up in the big data space such as Indix (www.indix.com), Spire Technologies (www.spire2grow.com), DataRPM (datarpm.com), Germin8 (www.germin8.com), and Crayon Data (crayondata.com).

Some of the key applications of big data are in areas such as data processing on the cloud, machine learning capabilities, consumer behavior and wearable technology. However, talent in the big data, albeit growing, is still lacking in the space. Swiss startups can take advantage of this opportunity to cater to the large domestic consumption of big data services.

9 http://www.crisil.com/global-offshoring/gra-nasscom.html

10

10 http://en.wikipedia.org/wiki/Classification_of_Indian_cities

11 Dazeinfo (http://bit.ly/1IM37Qx)

Human employment plays a pivotal role in shaping the future of any industry. It is one of the most basic resources an economy can use to stimulate growth in a particular sector. Much has been made of India’s demographic dividend in the past couple of years. Data taken from the Population Census in 2011 shows that India’s working age population (15 - 64) now constitutes 64% of the population. Added to this, globalization and market forces have contributed significantly to creating job opportunities in the ICT sector. As stated earlier, greater IT exposure to smaller cities10 such as Pune, Surat, Jaipur, and Coimbatore rather than big metro cities, are becoming the new areas of focus. According to Indian Brand Equity Foundation (IBEF). The ICT sector employs a total of 10 million Indians and continues to contribute significantly to the social and economic transformation of the country. This trend is likely to continue as the IT sector in general grows, adding jobs year after year.

India has approximately 3,345 engineering colleges as of 201511. However, out of the 1.5 million engineering graduates passing out every year, a third of them run the risk of not being employed at all. India has a large talent pool of senior engineers and managers. Swiss companies can tap into this pool of senior professionals who are not only experienced but also possess superior skill sets.

The demand for high quality skills training is bound to be a large opportunity due to relatively low employability within the Indian workforce.

3.Human Employment and Infrastructure Support in India

11

4.ICT Intellectual Property Scenario in India

10 http://en.wikipedia.org/wiki/Classification_of_Indian_cities

11 Dazeinfo (http://bit.ly/1IM37Qx)

India has taken strong steps in strengthening IPR (Intellectual Property Rights) in the country. The rise in Indian economy is a clear impact of strong Intellectual Property policies. The importance of intellectual property in India is well established at all levels- statutory, administrative and judicial. Indian patent laws were first promulgated in 1856. The new patent laws were made after the independence of India in the form of the Indian Patent Act 1970. January 1, 1995 brought with it the full impact of WTO (World Trade Organization) along with the Agreement of Trade Related Aspects of Intellectual Property Rights (TRIPS). The Indian Patent Act 1970 has now been radically amended to become fully compliant with the provisions of TRIPS. India is also a member of the Paris Convention, Patent Cooperation Treaty and Budapest Treaty. Recently, India signed the Madrid Protocol, which further enhances the applicability of Trademarks in 89 countries. India is a member of the Berne Convention, an international treaty on copyright. India is party to the Geneva Convention for the Protection of rights of Producers of Phonograms and to the Universal Copyright Convention. In India, intellectual property is broadly divided into two categories: industrial property and copyright. Industrial property includes patents, trademarks, industrial designs and geographic indications while copyright include creative works like books, poems, plays, films, musical works, computer software and artistic works.

4.1 Patents

The Patents Act of 1970 governs the laws pertaining to patent in India, and has twice been amended by The Patents (Amendment) Act. Both Indian nationals and foreigners can apply for a patent in India. Under the Paris convention an inventor/assignee can file a patent application within 12 months in other member countries from the date of priority. This period can be extended to 30 months under the PCT (Patent Cooperation Treaty) and the patent application is termed as Internal Phase application. The inventor/ assignee can file the National Phase application in each of the PCT member countries within 30 months from the date of priority. However in India, the inventor/ assignee can file the National Phase application within 31 months from the date of priority.

Software per se can’t be patented in India and there are explicit provisions against patenting of algorithms and business methods. Indian Patent System follows Trade Related Aspects of Intellectual Property Rights TRIPS guidelines as far as software patents are concerned. Term of the patent in India is 20 years from the date of priority.

4.2 Copyright

India has a very strong and comprehensive copyright law based on Indian Copyright Act (1957), which was further amended in 1983, 1984, 1992, 1994 and 1999. The general copyright term of protection in India is for the life of the author plus 60 years. Computer

12

programs and software are covered under literary works and are protected in India under copyrights. For cinematographic films, records, photographs, posthumous publications, anonymous publications, work of government and international organizations, the term is 60 years from the beginning of the calendar year following the year in which the work was published. For broadcasting, the term is 25 years from the beginning of the calendar year following the year in which the broadcast was made.

4.3 Trademarks

India has taken steps towards fulfilling its international obligations. Consequently, the Indian trademark law has now become fully compatible with the International standards laid down in the TRIPS Agreement. India’s obligations under the TRIPS Agreement for protection of trademarks, inter alia, include protection to distinguishing marks, recognition of service marks, indefinite periodical renewal of registration, abolition of compulsory licensing of trademarks, etc. As per section 18 (1) of the Trademark Act, 1999, any person claiming to be the proprietor of a trademark used or proposed to be used by him may apply in writing in a prescribed manner for registration. The validity period of registration certificate is for ten years but may be renewed from time to time for an unlimited period by payment of the renewal fees.

4.4 Protection of Integrated Circuits Layout Design (IC)

India has now in place Semiconductor Integrated Circuits Layout Design Act, 2000 to give protection to IC layout design. The term of the registration is 10 years from the date of filing or from the date of first commercial exploitation.

4.5 Industrial Design

The existing legislation on industrial designs in India is contained in the New Designs Act, 2000. The total term of a registered design is 15 years. Initially the right is granted for a period of 10 years, which can be extended, by a further period of 5 years.

13

5.Indian Government Policies and Regulations

5.1 Government Initiatives and Policies for ICT

The policy and regulatory environment is a critical factor to stimulate the acceleration of ICT in India. Economic liberalization in 1991 paved the way for elimination of duties on imports of technology products. Further, the government has provided fiscal incentives to set up Information Technology Investment Regions (ITIRs) Software Technology Parks (STP) and Special Economic Zones (SEZ). The details for each of these incentives are:

1) ITIRs: This fiscal incentive was first conceptualized in 2008 to cater to the infrastructure need. The IT investment regions will be supported with co-sitting and common infrastructure support services. Further under the Income Tax Act, companies are eligible for a 150% deduction of R&D expenditure that is disbursed in-house.

2) SEZs: This scheme is targeted at export-oriented companies in the ICT space. It reduces the complexities of clearances required from both Central and State governments. There is 100% exemption of profits accrued from exports for the first five years and income tax is tapered down for the first fifteen years. Until 2012, 589 SEZs were given official approval12. Some famous examples of Special Economic Zones are Manyata Embassy Business Park in Bangalore, InfoPark in Cochin, SEEPZ in Mumbai and Maharashtra Industrial Development Corporation in Pune.

3) Software Technology Parks: STPs are registered as societies set up under the ambit of the Department of Electronics and Information Technology. Since its inception, there are about 51 STPs in the country according to Invest India till the year 2012. Companies that set up shop in STPs enjoy benefits such as exemption from service tax, central excise duty and rebate on payment of Central sales tax. Similar to ITIRs, companies are granted 100% exemption from income tax of profits accrued from exports. Here is the list of 10 most prominent Software Technology Parks:

�ElectronicsCity,Bangalore �Magarpatta,Pune �HITECCity,Hyderabad �InfotechPark,Mumbai �CyberValeITPark,Chennai �DLFITPark,Noida �Infocity,Gandhinagar �DelhiITPark,Delhi �MillenniumCityITPark,Kolkata �Technopark,Trivandrum

12 http://indiainbusiness.nic.in/newdesign/index.php?param=industryservices_landing/369/2

14

Apart from fiscal benefits the government has taken steps to encourage the consumption of electronics hardware and boost manufacturing. Most recently, the new government has launched an initiative called the “Make In India” program (www.makeinindia.com/). The program intends to launch new initiatives facilitate investments, foster innovation, protect intellectual property and build best in class manufacturing infrastructure. Fundamentally, the program is based on the principle that a high growth economy must dovetail with the ease of doing business. Due to the comprehensiveness of the program, let us take a look at some of the salient features:

Processes: The government has released a list of processes that make it easier for domestic and foreign firms to obtain clearances, licenses, and compliances to either start new businesses or expand existing ones.

Infrastructure: The government has proposed setting up industrial clusters along with youth focused institutions dedicated to developing specialized skills. These including upgrading the infrastructure of current IT facilities as well as an online application process for the usage of facilities.

Sectors: The government has also proposed to change Foreign Direct Investment (FDI) rules in new sectors such as construction, mass rapid transit systems, and defense. Relaxation of rules in these sectors will provide tremendous business opportunities in these areas.

Finally, the “Make In India” program, according to the government, is intended to change people’s mindset from the government being a sheer licensing issuing authority to a business partner.

15

6.Opportunities in Business Sectors in ICT

Broadly, there are large opportunities across multiple sectors (education, healthcare, etc) for deployment of technologies such as security, cloud and big-data. With the rapid adoption of these technologies, it is vital to keep pace with the change of innovation.

However, Indian customers in the ICT industry have somewhat different characteristics from their western counterparts. While a majority of payments made in India in the B2C (Business to Consumer) space are made online – they are made either in advance or at the time of delivery of the product or service. In the B2B (Business to Business) domain, they work slightly differently. Payment cycles typically extend from 30 to 60 days. For example, if a startup is selling its product or service to a large enterprise like Dell or IBM, it can expect to collect revenue a month or two after delivering the service or product. Cash flows for Swiss ventures in the Business-to-Business space will need to be carefully managed. In the case of Business-to-Government transactions, cash flow periods from the government in return for products or services delivered can be long depending on the size of the project. Typically, small projects that involve IT systems or automation can have collection cycles of up to six months. It is recommended that early-stage startups have long-term strategy regarding payments in such scenarios. Finally, it is advisable that payment terms are signed off between the start-up and a business consuming the product or service through a legally enforceable contract.

India has a plethora of spaces for business opportunity. The growth areas in India are in the following sectors:

1) Education 2) Healthcare 3) Payments 4) eCommerce (web and mobile) 5) Consumer Web 6) Real estate 7) Internet of Things 8) Food and Beverage 9) Retail 10) IT services

However, being an emerging economy, we look at three of the largest markets for opportunities in ICT.

6.1 Education

Education in general in India has been on the rise over the last decade. The Census of 2011 conducted by the Government of India shows that the literacy rate in the country has

16

improved from 64.8% in 2001 to 74% in 2011. The market opportunity for education in India is vast: India boasts a network of approximately 1 million schools and 18,000 higher education institutes13. ICT deployment in these educational institutions can range from multimedia in private schools and usage of low cost devices in government schools to online coaching and electronic classroom content.

In India, online education has become a popular form of delivering education services. These range from online test preparation to online courses and exams to implementing school management systems for teachers to manage student grade databases. The market is currently valued at US$ 20 billion and is expected to double by 201714.

The application of ICT is not just restricted to offering courses online in India: schools and colleges across India have increased their investment in internet, video playback, productivity tools and programming applications to improve the educational ecosystem. Vocational training is an integral part of the education system in India. The education market in India is a hotly contested space, however large organizations such as Edurite, BYJU’s, Edunext, Simplilearn, NIIT and Aptech compete fiercely today for business in this space.

6.2 Healthcare

The healthcare industry in India is slowly morphing into a paperless system. According to the Indian Brand Equity Foundation, the healthcare sector, which includes hospitals, medical infrastructure, medical devices, clinical trials, outsourcing, telemedicine and health insurance, is expected to become a US$ 160 billion market by 2017. The usage of ICT in healthcare in the public and private sector differs widely. Although the private sector has adopted the use of the latest technologies into their healthcare systems, the aggregate spending on IT in the healthcare sector still remains small compared to other sectors. Presently, the majority of the IT is deployed in maintaining patient records, payroll processing, and billing / revenue management. There are three opportunities Swiss ventures can exploit while exploring the healthcare market in India:

1) Telemedicine: India’s robust growth in mobile phone and internet penetration helps patients to gain access to doctors over long distances. This is a large opportunity given that a sizable population does not have access to specialty healthcare in the country.

2) Cloud Computing: Cloud computing can be used to manage costs arising from stiffening competition and the need for better reach and better customer service.

3) Service Oriented Architecture: The integration of social networking tools to existing application functions will provide consolidated access to disparate pieces of information collected from various stakeholders such as healthcare service providers, pathology labs, and clinic doctors.

13 OSEC Business Network Switzerland 2011 - http://www.s-ge.com/fr/filefield-private/files/26498/field_blog_public_files/13700

14 YourStory (http://bit.ly/SbiKMF)

17

In the past year India has seen a wide range of startups in the healthcare sector scaling to great heights. Some examples are Forus Healthcare, Portea Medical and Nephro Plus.

6.3 eCommerce & Consumer Web

E-commerce (or electronic commerce) has been one of the fastest growing sectors within ICT in India. It is one of the few sectors within ICT that caters directly to consumers as opposed to businesses. India is said to be home to 4,306 hubs of e-commerce15. Almost all of India’s burgeoning urban middle class has access to internet, and broadband access can cost as low as US$ 12 per month for a 2 Megabit per second downlink speed. Rising income levels are also expected to stimulate demand in the products and services sold online.

In addition to various varieties of physical goods, consumer internet services in India have taken off with phenomenally high growth rates. With increasing numbers of smartphone adoption and broadband, services are being delivered in new ways enabling a cost effective operation for startups and large corporations alike. The most popular sub-domains in the Consumer Internet space are real estate, travel, recruitment and financial services.

15 eBay Census guide 2012 - http://pages.ebay.in/community/aboutebay/news/pressreleases/corporate/ebay-census-delhi-top-hub.html

18

7.1 Venture Capital/ Investment Scenario

India has a well-evolved investment industry that includes angel and venture investors, apart from debt funds (from a highly developed banking sector) that support startups in specific sectors. In the first quarter of 2015, India had more venture capital deals than China for the first time ever. Indian startups raised close to US$ 1.7 billion spanning across 147 deals16. The payments space took up most of the funding amount with PayTM recently raising around US$ 545 million from Chinese eCommerce giant Alibaba. There are many Angel and VC firms providing support from early to late stage ventures in India. Angel and Venture capital support will continue to grow especially in the Angel investing space on account of High Net worth Individuals (HNIs). HNIs are beginning to realize the opportunity of high returns and are becoming less averse to risk.

There has been a steep rise in venture capital investment over the last couple of years. 2014 alone saw an excess of 300 venture capital deals raking in a total of US$ 5 billion17. More than a third of this funding was disbursed between the range of US$ 1 million – 10 million per deal. Early stage seed and angel round funding accounted for only about 22% of total funding. The following are some of the internationally acclaimed angel investment and VC firms in India that have made some fairly successful investments:

16 http://yourstory.com/2015/04/startup-funding-report-for-2015-q1/

17 YourStory research - http://yourstory.com/2015/01/india-funding-digest-2014/

7.Startup Scenerio in ICT in India

Accel Partners(VC)

Sequoia Capital(VC)

Tiger Global(VC & PE)

IDG Ventures India (VC)

SAIF Partners (VC)

Indian Angel Network (Angel Investment)

Blume Ventures (Angel Investment)

Unitus Seed Fund (seed stage up to $100,000)

TeaBox, ChargeBee, CommonFloor, MobStac, Konotor, Taxiforsure

Fashionandyou, Octro, Akosha, Knowlarity, TinyOwl, Freecharge, Newshunt

Quikr, Ola Cabs, CarTrade, Flipkart, Grey Orange Robotics

Silveredge, Peel Works, MyNoticePeriod, e-Shakti, iProf Learning, FieldEZ Technologies

Appiterate, Bookmyshow, Touchtalent, Urbanladder, CapitalFloat

Fareye, Zippr, Hashcube, XSI semiconductors, Uniphore Software

Greytip Software, WeAreHolidays, Hashcube, Instamojo, VoxPop

Jiffstore, mGaadi, Medypal, Blowhorn, Milaap, Caravan

Nameofthefirm Investments made

19

18 http://articles.economictimes.indiatimes.com/2015-01-14/news/58066469_1_binny-bansal-mukesh-bansal-big-billion-day-sale

19 http://www.business-standard.com/article/companies/paytm-valuation-jumps-to-1-5-bil-lion-115011600025_1.html

20 http://www.gurufocus.com/news/324091/google-eyeing-acquisition-of-indian-startup-inmo-bi-to-boost-ad-revenue

7.2 Success Stories

After the economic liberalization of 1991, companies such as Infosys, Tata Consultancy Services (TCS) and Wipro rose to global prominence, turning India into an IT powerhouse. Considered as startups in the 90’s, the three aforementioned companies are now billion dollar businesses. But in the last ten years, there has been a new breed of startups that are making waves in the global arena today. Some of these are:

Flipkart - Headquartered in Bangalore, Karnataka, Flipkart is responsible for popularizing e-commerce in India. Known as the ‘Amazon of India’, Flipkart sells everything from electronics to clothes, initially focusing on just books. In the year 2014, Flipkart raised private equity funding of US$ 1 billion. Flipkart, as of March 2015, is valued at US$ 11.25 billion.18

PayTM – PayTM is the brand of Delhi – based company One97 communication. It provides payment solutions to eCommerce merchants and a semi closed wallet to consumers through its mobile application. Consumers can pay for various eCommerce products and consumer Internet services such as Uber. One97 raised US$ 625 million in 2014 at a valuation of US$1.5 billion19.

InMobi - InMobi initially started as an SMS based search application and soon pivoted to a more scalable model by creating a platform for mobile-based advertisements. According to the company website and technology website GuruFocus, InMobi has 1 billion users worldwide in over 200 countries20. InMobi raised a series C round of funding of US$ 200 million from Softbank in 2011. Today, InMobi is valued between US$ 2 – 2.5 billion.

Although Flipkart, InMobi and PayTM are featured frequently in the news, the startup ecosystem has many other emerging startups that employ between 20 and 50 people. Here are some examples:

UrbanLadder – The furniture market is one of the most unorganized sectors in India with fragmentation in design, manufacturing, delivery and retail. Urbanladder is an online marketplace for buyers and sellers of furniture with an integrated supply chain and delivery process. The company raised US$ 150 million in April 2015.

Housing.com – Housing.com was initially started when the founders were in college. Today, it is India’s largest portal for discovering commercial and residential real estate properties. The company recently raised US$ 90 million in December 2014 from Japan’s Softbank.

Manthan Software - Manthan provides analytics to product retailers, consumer

20

goods companies, and eCommerce firms. It has bagged McDonald’s and eBay as customers and offers 14 products that help companies set prices, manage inventory, and decide product assortment. The company raised US$ 60 million in February 2015 from Singapore based Temasek Holdings.

In addition, there are a number of European startups in ICT that are leveraging the opportunities India offers in multiple ways.

DeDuCo – DeDuCo is a Belgian company that develops and implements Customer Relationship Management (CRM) solutions. In the early 2000s they entered India due to challenge of retaining talent in Belgium - India was the safest bet to attract talent21. CEO Carl Dujardin says that in the event an employee leaves in Belgium, it is harder to find a replacement but in Bangalore it takes half as much time. Further, low operational costs ensured faster implementation of new features leading to shorter product development cycles. DeDuCo has opened a Development Center in Bangalore.

Valtech – Valtech is a French offshore software development company. Its success is attributed to its ability to match prepackaged offerings and internal systems of larger competitors. Also, the ability to enter into maintenance contracts and generate new revenue streams has contributed to the success of Valtech. The Indian ecosystem has helped the company to offer a more compelling value proposition.

Telelogic – Telelogic is a Swedish software development firm that has grown to more than 1100 employees and operations in 22 countries worldwide22. The core of its business is to help customers improve quality and predictability while reducing time – to – market and overall costs. The company chose to expand its business to India for a variety of reasons: 24/7 development support capability, well trained Indian engineers, onsite support for MNCs with Indian operations enabling new revenue growth.

7.3 Startup Ecosystem and Support

India offers a healthy start-up ecosystem for ventures in the ICT sector. While many academic institutions offer incubation support, the Government of India, through its many departments including the DST, the NSTEDB and the MSME, offers various forms of startup capital to specific ventures. The Government of India through NSTEDB supports more than 60 incubators across the country. In addition, the availability of trained engineers as employees for ventures in the ICT sector again supports the startup ventures in this space. Between the years of 2012 and 2015, the number of incubators and accelerators that support early stage entrepreneurs has grown exponentially. Incubators usually work with companies that are in the earlier stage and are often based in campuses of academic institutions. Accelerators, on the other hand, work with entrepreneurs that already have a

21 http://www.value-leadership.com/download/vlg_european_study.pdf

22 http://www-03.ibm.com/press/us/en/pressrelease/21687.wss

21

proof-of-concept and accelerate them to get customer traction. The following is a list of some of the well-known startup incubators and accelerators:

1) Microsoft Ventures (www.microsoftventures.com)2)GSFAccelerator(www.gsfindia.com/accelerator)3) TLabs (www.tlabs.in)4) The Startup Center (www.thestartupcentre.com)5) NASSCOM 10,000 startup warehouse (www.10000startups.com)

Service provider support for startups has seen a steady rise with the ecosystem. Many firms that deal in law, intellectual property, accounting, financial, and payroll services perceive an increasing demand stemming from startups. As the market size for providing ancillary services such as accounting and tax auditing increases, more firms are likely to enter the fray to cater to the ‘startup’ market. Attracting talent, which is another important component of services in the startup ecosystem, is done in largely two ways. First, companies conduct large campus recruitment drives across the country. Second, companies post jobs on job portals online.

22

While there are a number of advantages and opportunities for ventures seeking to enter the ICT sector in India, a number of challenges still remain. Building and scaling an enterprise in India is a serious challenge for European ventures. It is important that Swiss startups that are seeking growth opportunities in India have a long-term vision as far India as a potential market is concerned. Office and infrastructure challenges can be daunting for any new venture entering India. This, combined with the problems associated with geographic preferences (such as a location from where they can get the right work force or customers) can be compounded by availability of infrastructure. The skill level of ICT professionals is one area that needs improvement and presents a considerable amount of challenge before the ICT industry for better performance and improved productivity.

Recruitment challenges can add to the mix of issues faced by international ventures entering India. While India has the largest pool of English speaking professionals in the world, bringing in a quarter million engineers into the workforce and two million graduates every year, there is a shortfall of real, high-quality talent. With India becoming a center of all IT/Software/Services industry, the competition to attract the best talent has heated up. While India may be good at written English, they may still need some training in verbal and business communication skills, and business etiquette.

Notwithstanding these challenges, the opportunities for growth can offset the difficulties of setting up shop in India for Swiss startups. It is recommended that Swiss startups choose a local partner, albeit carefully, at the time of entry. The local partner can be key to address challenges such as acquiring infrastructure, and hiring the right talent. More importantly, a local partner can also give Swiss startups insights on local tastes and preferences in India. This becomes extremely critical while advertising and communicating the value of a product. Additionally, a longer Business-to-Business (B2B) sales cycle will also require patience.

8.Challenges in India in the ICT Sector

23

It is important that Swiss startups seeking growth opportunities in India have a long-term vision as far as India as a potential market is concerned. Rapid Internet and mobile penetration, increasing demand for technology related services, a large number of small and medium sized businesses (45 million, next only to China in the world), favorable government policies and regulations makes India one of the most favorable destinations in the world. Several international companies’ revenue in India has grown by 7 to 15 percent compounded annually in past ten years - almost twice the rate of the parent company in the same period. Several companies have succeeded only in niches and not achieved large-scale market leadership, while others haven’t maximized economies of scale or tapped into the country’s breadth of talent.

To be successful in India, the Swiss startups will have to empower their local operations, understand Indian culture and the need of the Indian consumer and businesses, and invest in local talent. Depending on the business model, the Swiss startups will also have to explore joint-venture approaches with Indian companies. Their success in India is more likely to be achieved by having a superior understanding of the market. The important factor to consider for Swiss startups will be to learn to do business the Indian way by understanding the Indian market, rather than imposing global business models and practices. As India’s ICT sector continues to grow year after year, it has presented a vast range of opportunities for entrepreneurs and startup companies to grow in India. Every component in the startup ecosystem including angel investors, incubators, large enterprises and the government has made the business environment conducive to achieve scale. The government has enforced various policies and provided fiscal benefits specifically for the ICT sector to maintain its momentum in the years to come. Further, the government has taken steps to pave the way for foreign firms looking to conduct business in India in the ICT sector. For example, the government allows 100% Foreign Direct Investment (FDI) in the ICT sector.

Thus, an amalgamation of factors such as economic growth, favorable government policies, and technical talent is making India a coveted destination for international startups. These trends are likely to continue for the foreseeable future and Swiss startups have tremendous opportunities to expand in India but must tread cautiously.

9.Conclusions and Recommendations

26