The a16z Show - a16z Podcast: The Tiger and the Dragon -- On Tech and Startups in India and China

Episode Date: December 12, 2015

India and China. The two most populous countries on the planet are also two of the most tantalizing markets for companies of all size, from startups to conglomerates. But those markets are also intensely, densely competitive: There's a lot of capital, a lot of players, and a whole lot of people. So do local players really have the home-court advantage here? Can they compete with the global players who have unparalleled execution ability and scale? And how does timing and structuring of companies entering those markets matter? Andreessen Horowitz partners Connie Chan and Anu Hariharan discuss these topics and more -- everything from logistics and infrastructure to design and talent -- on this episode of the a16z Podcast. As well as how domains like e-commerce, payments, and ride-sharing are playing out against the incredibly layered sociocultural backdrop of these two countries. Stay Updated:Find a16z on YouTube: YouTubeFind a16z on XFind a16z on LinkedInListen to the a16z Show on SpotifyListen to the a16z Show on Apple PodcastsFollow our host: https://twitter.com/eriktorenberg Please note that the content here is for informational purposes only; should NOT be taken as legal, business, tax, or investment advice or be used to evaluate any investment or security; and is not directed at any investors or potential investors in any a16z fund. a16z and its affiliates may maintain investments in the companies discussed. For more details please see a16z.com/disclosures. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Hi everyone, welcome to the A6 and Z podcast. I'm Sonal, and today we're talking about India and China. And we have two partners from Andrewson Horowitz joining us for this discussion. We have Connie Chan, who is a partner in the investing team and she covers Annu Hari Hurran, who is a partner in the deal in investing team and covers marketplaces, e-commerce and a bunch of other areas. India and China is obviously a really huge topic. So we're talking about everything from the nature of the competition that's playing out there right now, whether global players have an advantage of. or do local players truly have an advantage? We're talking about logistics and infrastructure. We're talking about the talent landscape, both locally and beyond, and whether that even matters, given the permeable boundaries between borders, and so much more. So we're just going to get started. What do you think are some of the biggest misconceptions that people have when it comes to thinking about China and India? At least from what I've heard in the venture capital community in Asia, India is a fascinating place to me because I have a whole group of investors who think India is the next.

China, and they believe that that wave is starting right now and they're eager to deploy money. And then I have a whole other camp of investors and advisors who are saying, oh, no, it's much longer. There are far bigger differences than you realize. And just because they're both countries that have massive populations doesn't mean that they're similar. So I agree with you. I think there are a ton of misconceptions out there about India, in particular how it compares

to China. Yeah. And I think, you know, not just in comparison to China, the other misconceptions. I have seen is also that, you know, a lot of the companies are easily classified as clones of U.S. companies. You know, you almost start seeing things like, oh, is this the Amazon of India? Is this the Uber of India? And, you know, they may not be completely wrong in saying that, but I do think there's a lot of elements in execution that's quite different and local to those markets that's very different from the U.S. So it's not necessary that a U.S. player going into those

markets has all the advantages. I think there are local advantages, which is why some of the local players who understand the ecosystem better if they end up executing have the potential to win those markets. Why is that for those who don't live in India or China, is it really true that that local advantage makes a difference or is that just a theory? Because when I think of businesses like Amazon who have the scale of operations to really be able to execute on doing something in India. And then I think of players like Flipkart and other companies who are basically the Amazons of India maybe having so-called local advantages. What would those look like? So let's take the e-commerce market in India since you brought up Flipkart and Amazon. So Flipkart entered the market or started in the market in 2007, so way before even Amazon entered

India. And it was actually started by two guys who worked at Amazon. And they, in fact, started with books as a category. Now, no doubt India is almost just at the beginning of the e-commerce wave. But to answer your question on what are some of the differences, online payments, right? In the U.S., I would say that credit cut penetration is higher, payments are more online. In India, cash on delivery is still the biggest component. In fact, I think there was a report that was recently quoted saying that credit cut penetration

in India is only about 4%. So you can't really think of doing transactions online. So Flipkut was one of the first players in India to roll out cash on delivery. The second is logistics and infrastructure. For example, Jeff Bezos has said this many times. And so when he started Amazon, he drove in his car the packages to UPS or UPS, and they took care of the shipping. You can't expect that to happen in India overnight. It's not, you know, national network is far and far and few in between.

Many of the packages are actually delivered by air, and then the last mile has to be fulfilled by two trucks. In fact, there was a recent post that said one package was touched by 30 people. Wow, in India. In India. And just to put this in context, for example, I think that same report, said that if you look at a percentage of net sales, 30% of net sales in India is delivery versus Amazon and the U.S. says it's about 10 or 11%. So you can just see the amount of delivery cost that goes in to make sure the last mile fulfillment happens. So those are some of the

reasons that the local market may have certain advantages or disadvantages, depending on how you look at it over like competitors coming in from other places. Connie, how does that play out in China? I think the bigger issue around this local expertise is a truly, understanding of the customer need. So, for example, like even on the e-commerce side, the same thing kind of played out in China where Alibaba really understood what customers in China wanted. And similar thing around payments, Alibaba facilitated various kinds of payment options, including cash on delivery as well. Logistics, I think, is a little bit more built out in China, is my guess, than India. I bet that's true. Having mentioned India myself many times, and I can test to that.

But also, you know, a concept that I think some Western companies didn't fully grasp, which is that a lot of Chinese consumers love deals. They love coupons. They love sales. They don't like paying full price for all kinds of things, right? Maybe luxury excluded. And so that understanding and how to market to that specific consumer is a really big important piece, I think about that local functionality and local expertise.

I completely agree with you, Connie. I think the local market needs, a deep understanding of the local market needs is critical to win. in those markets. Having said that, I think in India, it's not game over yet. Unlike in China, where you have Alibaba as a clear market leader, in India, the e-commerce is a hyper-competitive market. It has always been a hyper-competitive market. You know, it started off with about more than 50 e-commerce players in the market, and now, you know, the top four are actually FlipCard Snap Deal, Amazon India, and Ptm. And what's interesting about Amazon India is they came into the market only about three years ago. Of course, they have a lot of financial.

muscle because of the backing from the U.S. But there are many things I've seen that they're leveraging the learnings from the U.S., but still catering to the local market and executing pretty well. So, for example, logistics being the significant challenge, Amazon actually was one of the first players in India to partner with the Indian Postal Network. I thought which was really smart because if you look at distribution, they are the ones that have national distribution and the rural market in India is significant. smartphone penetration is increasing and the rural people in rural market are looking for purchasing

online and so you need to have that distribution points. Right. I'm actually waiting for the day where someone partners with the local Tiffin carriers because I don't know if you guys know this, but there was actually some famous business school case study that was done for the Tiffin carriers of Bombay or Mumbai. And basically the Tiffin carriers are people who carry lunch to people in the city and it's like an artery system that connects people riding on bikes. And somehow the tiffin goes all the way from the top of Bombay made in someone's home.

And it's basically full of all these food like roti, chapati, rice, you know, subji, whatever, all these like vegetables, dishes and makes it in these little medalleton containers, the tiffins all the way to the lunch place. And the logistics infrastructure for it is incredible, especially because this was before smartphones. Yeah. And just imagine taking those smarts and applying that for like the last mile to what you're describing. Yeah. I think what this is getting at is I think you need to have a baseline level of technology.

in order to be competitive with the local player. And this is true for both the global and the local player. Both of them need to have a baseline level of tech. And logistics is one, I think, where there's a lot of tech involved. On top of that, though, after their baseline tech is met, I think then it comes down to marketing, partnerships, distribution, and things like that. And that's where the local expertise is really critical. How about on the product innovation side?

And actually, more specifically, the design side. You know, there's a lot of things that people write about the differences in designing for a different cultural market. Are there any universals here? Are there like specific things that you guys have noticed in both China and India and how some of the design trends play out? I think that today, because of a lot of traffic between the two countries and a lot of people who live in the U.S. have moved to India and there's also brand perception. I think at least the consumers in India have an expectation for how that particular

fulfillment should work similar to how in the U.S. For example, you know, when Amazon came to India, they actually had a guarantee same-day delivery. And so immediately the consumer's expectation was, you know, all e-commerce players in India should offer that. Like, why is that not the case? Some of my friends who had moved from here to India wanted Amazon in India to work like how Amazon worked in the U.S. So there is that perception. In terms of unique product innovation specific to the country, you know, I'm not seen something in India like what Vechat has done in China, for example. I think in India it's still a lot more, it's quite early, to be honest.

And then I also think that the local players now in the e-commerce category, for example, to some extent, have actually followed Amazon India's approach by trying to partner with the postal network, by trying to offer same-day delivery. So I wouldn't say on the product innovation angle, I've seen a lot of differences. I'd say on the product design comparing Chinese apps versus U.S. apps, Chinese apps that I've used in general seem to be more complex. And I think it's important to recognize that it's more complex, but not necessarily more cluttered. But cluttered is often the critique that I hear from a lot of my U.S. friends when they're looking at a Chinese app. But it's really interesting when you go to China and you speak with the Chinese consumers, if they have an app that only does one thing or if there's a screen that only does one thing, that to them seems too basic. And they actually prefer the complexity and the ability to do a bunch of things per every inch of screen space versus the... States where I think they like the cleaner look. So for example, like that Google search page,

homepage where there's a single search bar, that kind of design would not do as well in China. And there's a bunch of reasons for this. I mean, one, even the mobile data plans there were structured very differently. And a lot of it was pay per use, right? Or there's a specific quota per month. And so having as much information per inch of screen space was much more important in China than it was here. That's a fair point, actually, because the mobile data speeds in India are really bad. In fact, if you look, the average data speed is like two megabits per second, and mobile is even worse than web. So some of the companies are trying to figure out how to handle that because smartphone is the ecosystem. And so how do we sort of design? Do we go for the best UIUX or do we go for utility? Right, which means sometimes it's not as graphical, right? Maybe you'll get a bunch of pages where it's just full of text links, but it's partially for that reason. Exactly.

So the constraints of the infrastructure or constraints and actually influence the design, some of the cultural expectations around how the design should look. How does this play out with payments and the philosophy around payments? I know you mentioned earlier that, you know, one of the things that the local retailers had was an advantage in the fact that they've designed for systems of. different payments. Yeah, I think in India it's still pretty nascent. So cash on delivery is still predominant. And depending on who you ask at any point in time, people would say it's as high as 50% or 70%. Actually, didn't Ola in India, which is a competitor to Uber in India, or sorry, Uber, actually

in India, didn't one of them actually allow for the very first time in that market cash instead of other alternative payments? OLA had cash on delivery. I think Uber recently started introducing cash on delivery and they did it by a city-by-city approach. The tricky part is two things. Fraud can be really high. So it's not an easy execution. And by fraud, you mean people just like collecting the money under the radar for themselves? Yes. And there's a lot of black money involved. And how do I, you know, how do I make sure I'm getting the cash delivered to the merchant at the end of the whole transaction? It puts a whole new spin on the whole concept of both leakage in a marketplace and shrinkage in inventory world where you're actually like just absorbing this loss.

Right. The credit card penetration is really low. And the Indian Central Government has a two-factor authentication protocol. As a result of which what happens is the conversion rate obviously gets impacted because you have more steps to close the transaction when it's online. You actually have to go through a few more multiple steps than how it is in the U.S. where you just enter a credit card and a transaction is done. And that has also sort of, you know, while it's helping solve the fraud problem on the online payment side, it has impacted the conversion rate of the user because it is more cumbersome and given all the data challenges that we talked about.

You know, it makes it harder to do an online payment. But people are trying to come up with more creative ways. And I think mobile wallet is just beginning and it has a long way to go. But I do think that if you ask any of the e-commerce retailers, they don't want to rely on cash on delivery. They would much rather rely on online payments. And I think you're just beginning to see early signs of that shift. It's nowhere close to maturity at this point. Yeah, I'd say in China, I don't know if mature is the right word I would use for it,

but I would say it's far more advanced than what I do see in the States and probably what's happening in India. I'm extremely impressed by both WeChat and AliPay's foray into payments. So there are so many places now when you go around China, McDonald's, KSC, where you can pay with your phone by simply showing a QR code from either of these kinds of applications, right? And the AlliePay app, if you even look at that app itself, it's so much more than just a payments app. You can use it to check your socks. You can use it to invest your money. You can use it to get your own personal type of Sesame Credit Score, which is equivalent to like a FICO score.

It is so much more packed with functionality than just the transaction piece. You can use it to order food, get coupons. And it's really more about wealth generation and wealth management and not just. payments. So why does that matter? Is it because it's all happening at the smartphone level? I mean, I mean, obviously you're talking about the fact that China is a very mobile first place, and that's a huge part of what's enabling a lot of this. And you're describing what's happening in the payments in China. Putting those two together, though. At the end of the day, I think transactions are very critical for any kind of business, whether they're selling products or services. And the more you can chip away at that

friction of transaction and make it more seamless, I think the faster innovation happens. So interesting, So you guys are describing a lot of interesting players and companies and the way things are playing out. What's a funding landscape like there compared to here in both China and India? There's so much capital in China right now. That's true here too, though. Yes, but I think people underestimate how much capital is available in China. And that's for a number of reasons. One, a lot of capital that used to be directed towards real estate or other traditional industries are shifting towards tech and shifting towards startups.

You have another dynamic where the big players, Tencent, Ali, Baba, and Baidu are all making large investments and acquisitions in the space. So there's a lot of capital coming from strategics. And the third huge dynamic is now there's a second wave of very successful entrepreneurs or executives from these companies who are now millionaires and are seeding a lot of companies. So, I mean, it is true. I've heard that in the last couple of months, funding has slowed down a bit, but it's still a very real ecosystem. I would say it's true for India as well. I think India is more recent than

China in terms of funding inflows. There is a lot of interest from global investors. One interesting thing that I learned in my recent India trip is that 90% of the funding is actually from foreign money and it's not from domestic. And so there is a lot of global interest. I do think that, you know, it is easier probably to get funded in the earlier stage in India than in the say C.E. see, and that's partly driven by almost every single vertical, is hyper-competitive from what I've seen. And a lot of these players, as a result, have focused on growth at the cost of profitability. And so you therefore start noticing sort of a crunch in funding when it comes to the, you know,

C.B or C.C stage and so on. On that point on, you know, foreign versus domestic, there's a nuance there when it plays out in China, which is whether the fund is a Rimming B, denominated fund or a U.S. dollar, And that also affects that particular startup's ability to go public in the States versus go public in one of the China stock exchanges. Why is that? Well, for example, if you are, it's all related to the company structure. It's very complex in terms of legal ramifications if you choose to set up a U.S. dollar fund versus a Rimming Bee Fund. It changes the kinds of companies you can invest in.

And for those companies, which indexes they can go public on. Is the ecosystem similar in terms of like VCs like Andrewson Horowitz or, you know, private equity players or like, is it like, you know, big conglomerates or big companies with like corporate venturing arms? Like, who are these players that are sort of providing this capital in these, in both of these ecosystems? So in the Indian ecosystem, I would say on the seat stage, it's probably similar. You have a lot of angel investors and you have venture funds. In fact, you know, Sequoia is quite an active investor and so is Axel and, like, speed. So it's very similar. As we were talking about, the series B and C is when it sort of changes. I think a lot of the money at the later stages have come from Tiger, DST and SoftBank in India.

So just to be clear, Tiger, which is U.S.-based, DST, which is based in Russia, or technically headquarter in London. They do global. Right. And SoftBank, which was originally Japanese. Correct. Yes. And recently Alibaba and Tencent have also entered the market. So we have investors from all over, I would say. So it is slightly different in terms, but you know, you do see a lot of similarities. And we have seen like, you know, Tiger especially now is doing investments in India at all stages. So they are also participating actively in Seed and CDISA. I think in China, the mix of domestic versus foreign is probably fairly steady between Series A and onward. Seed is probably the only one where I'd say it's mostly domestic players. Oh, so when you say steady though for the mix in the

early in the Series A. Meaning that there are funds that are both domestic money as well as funds that are headquartered. There's a lot of Chinese investors investing in India. Talk to me a little bit more about how that's playing out. Yeah, I think so they've recently entered the market. I mean, my, I would think that Alibaba entering the market is, you know, this is speculation, but I would think it's probably a strategic interest as well.

I mean, they are the biggest marketplace in China with a global ambition. And given the hypercompetitive space in India, India, and given Amazon India, is also actively increasing their presence, I can only imagine that, you know, at some point in time, they may want to make an entry. They're also proactively scouting for investments in other spaces. Consumer internet, I would say, is really hot in India these days across many, many verticals. So I'm sure, you know, they're looking at investments across to sort of also keep an eye on how is the landscape really evolving. And it keeps, you know, gives them more information on when to make an entry if they need be.

My guess is it's less tied to India and more just tied to the fact that these companies want to be global companies. They have global ambition. They are rock stars in their own countries and they have the capital and the execution ability to now figure out what their international strategy really should be. Tensen and Alibaba and a bunch of other Chinese companies are now looking at all kinds of international expansion and figuring out for each country should it be M&A, should it be go-to-market, what exactly should they be doing in that country? I know Southeast Asia is a huge target for both of those two companies you mentioned, but even in the United States. Both of them are very active here as well. Speaking of global ambitions, Chinese companies want to become huge, Indian companies want to become huge.

these innovations do not have to start from the U.S. any longer. But at the same time, U.S. companies are just dying to go to China and India. I mean, is it just because there's a huge large global market and that's it? Or are there other reasons that you think or other factors that are playing out there? I think that reason is good enough of a reason to go, to be honest. The size of the market, the number of consumers that are out there, I mean, you take the population of China, you subtract the population in the United States, you still have a billion people left. It's a massive, massive market.

And on top of that, the market's growing. No matter what your thoughts are on how quickly it's actually growing, it is growing, undoubtedly. And so that alone, I think, is reason enough to try and figure out what a China strategy should be. On top of that, though, I mean, if you really do believe that innovation can come from anywhere, it's a market where you can study an entire new ecosystem of startups that are in related spaces. And sometimes when studying your counterparts, you're going to learn that they are, are similar but extremely distinct, and there are always ways that you can learn from them. So I think interest from United States startups in Chinese companies or Indian startups

should only increase as they start to become aware that these companies are not exact copycats. I agree with that. I think if you look at internet usage globally, like the number one country is China. As Connie mentioned, it's like 650 million users. The number two is India. So United States is actually number three. So why wouldn't you want to go tap the market? and arguably China and India are still very nascent.

India has only, you know, about 20% penetration of internet users. And so it's only growing. And, you know, so I do think, you know, the reasons why U.S. startups are interested in expanding in India and China, there are really big market opportunities. But having said that, I would caution, though, on when to sort of enter. I think what you're also seeing is in India and China, there's a lot of innovation happening within those countries. And so they try to, they look at U.S. and they see which verticals are doing well and what business models are doing well. And so you start seeing companies being incubated in those spaces.

We've seen that in e-commerce in India. We've seen that in right sharing. We've seen that in grocery, right? So we're seeing that in almost every vertical. So what happens is then the U.S. startup feels they need to enter these countries right away. And what you often see is there is a right time to enter. And I think when you have cracked your own market, your domestic. market or your first market that you launched, it's actually easier when you have done that to enter

rather than fragment yourself across 10 or 20 countries when you're an early state startup because then you start, you know, you haven't really understood what it takes to execute in one and now you are in 15. So there's a difference between getting to a good outcome versus a great outcome. The classic example is Amazon India, right? They waited so long. 2007 was when Flipkart started. They entered the market only three years ago. But from everything we've heard, on the ground, they're doing pretty well. They're doing very, very well with respect to the rest of the comparative landscape. It's so fascinating watching all the players trying to compete with each other, both domestic and international, especially when it comes to ride sharing.

Like, what are some of the interesting things that are playing out there in terms of how to do business in China? Transportation in China is changing very quickly. It's always been a big need in China, just by sheer population. The largest subway number of, The largest subway in the world is in Shanghai. The second largest is in Beijing, and it's just because there's been massive urbanization happening in China. And so the kinds of traffic that you have to deal with now when you're in these cities is so much more painful than what you have to deal with even in a city like Los Angeles. And so the whole need for innovation and transportation has been a need that's been just bubbling in China for a very long time. As a result, I think that, that world is also changing very quickly and maybe innovating at a pace that's faster than what I see happening in Silicon Valley. So, for example, like D.D., they are going beyond just cars to also thinking about what are other services you can offer to drivers, what are other interesting sources of revenue that they can come up with, whether it's rolling out buses and not just personal cars,

or thinking about, you know, can you tackle on insurance or can you tackle on gas refills or whatever it is? They're starting to brainstorm these kinds of additional services they can offer both passengers and drivers. And the DD lived example of a company in Silicon Valley who really figured out how to work very well, very, very well with a Chinese company. There is true partnership dynamics happening where the executives are exchanging notes and thoughts and strategies on a very regular basis. And to add to that, DD also invested in OLA recently in their latest round. And so this just goes to show how a player in China also has, you know, global ambitions and it's no longer just the U.S. companies trying to enter the various markets. And the other interesting thing about Uber and OLA evolving in the Indian landscape, I would say, is, you know, OLA obviously partnered with, all modes of transportation.

In India, it was not just the taxi cabs. There was also the three-veilers, which we call the auto-rickshus. And so there are different levels, and you know, you have different price points, which they sort of innovated. But I would say right-sharing in India is probably still much earlier than in China in terms of where they are in their evolution. And Uber has sort of also entered the market relatively early. So it would be interesting to see how both of them sort of evolve as they grow.

I think the other key point I want to note here is both of the first of the market. these markets are really high-volume markets. So I don't think for a global pair, while their ambition is to be number one in all those markets, I think even having a significant presence and a good enough share will give them a great outcome. I totally agree with that. I think a lot of companies, if they want, if they go into China and they have realistic expectations of maybe only getting 5% market share, that could still be millions of users. Yes, exactly. Just one last question on the ride-sharing note, one thing that fascinates me is a cultural interactions with technology. And when I think of ride-sharing in the U.S., I think what's being really disrupted isn't just a

taxi cab industry. It's actually car ownership. But when I think of car ownership in countries like China and India, first of all, it's very expensive. Like the economics are very different, right? Because people don't have that kind of income. There's a huge poverty gap. But there's also this fact that owning a car culturally is still a huge status symbol in a market. milestone that maybe we culturally, not to homogenize it, but just generally speaking, could possibly move past now. And so I'm curious to hear your guys' take on how those things are playing out culturally. Like, are people just ride sharing in China and India because it's more about just an alternative to taxis? Is it because they never have aspirations to own a car?

So in India, I do think people are probably not making the tradeoff of owning a car versus relying on Uber or Ola yet. But the discussions are definitely happening. To give you more color on it, in India, it's not just about owning a car. Almost, you know, most people also have a driver. Employ a driver to drive a car. That is extra cost as well. And you're sitting hours and hours in traffic. So if you don't have a driver and you're driving the car, then that is unproductive time.

Because it could even take two hours to get to work each way in metros, given the infrastructure, is still far behind. I do see quite a few people, therefore relying on Uber or OLA, given the cost efficiencies, and therefore choosing that over you know, asking the driver to come to drop you at the airport and so on. I also see the senior population in India relying more on Uber and Ola, which is a very interesting phenomenon. That is interesting because I think that one of the most fascinating cultural shifts in China and India and compare to the U.S. is how people take care of and think about their elderly. So that's really interesting.

Yeah. I've seen a lot of, you know, people who are in, you know, above 60, for example, who really worry about driving in that traffic when, you know, there's not really really lanes in particular or rules in particular. And so they actually really appreciate Ola and Uber and those services and almost rely on those even for their day-to-day activities. I think in China, smartphone penetration for that particular age group is still a lot lower than what the smartphone penetration is for people in their 20s. So I wouldn't go as far to say that elderly folks in China are able to use D-D-D-to-get-around or Uber to get around that

easily yet just by sheer not having a cell phone. I would say that I think the answer to this question, at least in China, is going to be completely different if I think about a tier one versus a tier two city and also if I compare a different age demographic. In China, I think also the general trends around age demographics are also much more distinct than I would say even in the United States. People who are born in the 80s or 90s will behave very, very differently. And it's partially a cultural and a history-related phenomenon where people who are born in the 90s have never really experienced that much poverty. They're mostly all single children where they don't have siblings, and so they're either

inheriting a lot of money or they are responsible for paying for not only both parents, but both sets of grandparents, and they have a lot of financial burden. It can be one or the other. And so the behavior, I think, of age demographics in China is very, going to be really different. I do think a lot of people who are born maybe after the 1990s in China are probably much more eager to use DD and Uber as a car replacement. The older generations, I don't think, is fully there yet. Same thing about drivers is happening in China, or it's happened for a very long time. A lot of people who have the means do have their own personal drivers. And there's also

fun nuances here when I talk about tier one versus tier two cities. So, for example, in Beijing, even if you do have a personal driver, just by sheer law, based off your license plate, there is one weekday every single week where that car is not allowed to drive. And so you either have a second car for a second license plate or you are using DD or another service for that particular day. That's so fascinating. Well, on another cultural note, just to revisit a theme that's kind of popped in and out of this entire conversation, which is around copycats versus innovation and how we define

it because a lot of people when they think about China and India initially thought about the innovation happening as just duplicating what was happening here. And we're talking about a lot of local customization, but we're also talking about something more what other people have described improvisers versus just copycatters and then what comes next after that. Do you guys have thoughts on what innovation means in China and India? I think in India you improvises probably a characteristic of the types of innovation that you're seeing. So if you look at e-commerce, you know, the initial ambitions of these players where we want to be the Amazon of India. If you look at grocery, it's like, oh, it should be like Instacard, right?

So I think that it's more about rolling out those models, but then learning quickly what are the challenges of the Indian market. And so how do we sort of tailor to that to make sure, you know, we're able to satisfy the customer or delight the customer in the end-to-end experience? I think in terms of totally new innovation, which is like, you know, should the U.S. companies look at it and learn from it, I think we're still very early in that ecosystem. I would say, though, that in fact, because the resources in India, the labor cost is relatively cheap, what you tend to see is sometimes problems are handled with heavy operations versus technology. That is a stark difference I've seen when looking at U.S. startups versus Indian startups, for example, to give you an example, when you look at a CEDA, U.S. startup, but a C.S. B, if, you know, you sort of get surprised if they say I have 150 people or 200 people or 200 people. Like, that's a lot of people. In India, it's quite common to say I have 650 and 900 people in a CEDA. Wow. 900 out of series A. Yes. You can hear people say 650 or 900.

That's crazy. Yeah. And I think it's largely because you have a call center operations. for even getting orders. So even though we live in the online economy, people, you know, some of the consumer behavior is I'll use the website or the mobile app to browse, but I want to be able to call to place the order. And so people start investing in a call center of operations.

And so I think that because labor is cheap, people don't think twice about, you know, how should I optimize for technology and keep costly? The labor market really influences one of the resources that people use for how they actually innovate. That's just fascinating. Yeah, I'd say innovation is so hard to define, but in my mind, innovation is improving the status quo. And so in China, that can play out in so many ways, like with companies like Xiaomi, but a bunch of other hardware players. China has a lot of real innovation happening on the supply chain side and manufacturing. On the consumer internet side, I think a lot of the innovation is around business models, how do you monetize, how do you figure out what that Chinese consumer really wants, and how do you market it to them? So speaking of that, is the nature of the firm, like the definition of a company kind of different in both of these places? Because, again, one of the threads that struck me is so fascinating about the WeChat story is the role of the conglomerate versus like an individual company, like a small company or whether it's a startup or a huge company like an IBM.

But we're talking about a different type of firm, like a different organizing entity that has a different mindset. How is that kind of playing out with this question of innovation in both China and in India, Anu? Yeah, well, I mean, in China, Tencent, Alibaba, Baidu, but even companies like a Xiaomi or a Chihu are very active in areas that are outside of their core product. And they're very active in making investments. They're very active in doing partnerships. And I think that's a wonderful thing. I actually think that that just gets the ball rolling even faster in terms of innovation. And I really do think it's fantastic for the Chinese startup ecosystem as well,

that a lot of these companies are not just looking at what's hot and rebuilding it themselves. They're now spending a lot of their own dollars to partner and invest in these startups. I think the Indian ecosystem is quite different from that, and it's partly driven by the fact that it's still already. You don't have an Alibaba yet in India. You don't have the Google of India is Google, the Facebook of India is Facebook, right? So you're almost seeing the first wave of innovation only now, I would say. I would argue that it's very recent.

And so we have to wait and see how this ecosystem evolves. But I do see those entrepreneurs really helping out the other startups in the ecosystem and also keeping an eye out on potential acquisitions. Flipkart has done a lot of acquisitions. I mean, as I mentioned earlier, there were 53 commerce companies in India at some point, and they have acquired, you know, like lots of them in different verticals. So they're all consolidating. So I do think that you will see this phenomenon or this behavior only in the next wave

because we're still nascent in the startup ecosystem. And Tencent's mind or in Alibaba's mind. My guess is a big reason why they're doing so much MNA is because they understand the value of distribution. And in China, distribution is so valuable. if you have some kind of partnership with WeChat, that is almost instant guaranteed success for any startup. And I think it's very clever for Tencent to capitalize on that to really seek out partnerships at favorable terms and help these companies by sharing that distribution. So I have one question here then. How do you gauge the health of these businesses?

Like how do you measure and think about it? Because when I think of the fact that we always have this tension between going for growth and profit bill, profitability in the speed. You want both, obviously, but the speed at which you're growing. When I think of what Tencent did with WeChat, it essentially helped bootstrap and architect a lot of the cross collaborations that allow the payment system to get going and do a lot of that. So that was a case where that sort of subsidization of transactions was a very good idea because it allowed it to become what it is today. But on the other hand, Anu, you've shared that there are some cases in some of the companies you've observed where there are so many transactions are being subsidized at the expense of the

product innovation. So on the outside to all the users and the business people watching this, it looks the same on the surface. But how do you tell the difference between what sort of a healthy version of that and an unhealthy version of that? The way to think about it is you really have to look at your burn, right? And is your burn really subsidizing transaction or is your burn because you're investing for the long term? And the classic thing that you want to observe is if you're spending money on infrastructure in India and building that logistics distribution network so that you're set up for success long term in terms of improving customer experience and you own that, then it's okay to burn that cash.

But if most of your burn is towards customer acquisition cost and subsidizing that first transaction, the second transaction, the third transaction, then that's what I would worry about. And you hear two sides of the argument for that. One argument is, well, you know, you have to do that early on because you want to grow and you want to maintain market share. But how long, right? There's only so much capital you can raise. And capital is, even though it looks like it's infinite and available, at some point it will stop.

And so I think that's when the real test for these companies will happen. And so I think companies that invest in infrastructure, in making sure that their business is sustainable for the long term will have advantages in the long term, even in terms of becoming the market leader. That has been the case with the U.S. We've had lots of competitive spaces, right? Like food delivery is a classic example. It's extremely competitive. And I think the distinction you would have to make as an investor is, is this the company that's going to invest for the long term? Or is it all about subsidizing transactions?

Yeah, I think this is a global issue for sure. I don't think it's specific to China or India. And it's really, do these companies have a path to profitability? Is this subsidy program a short-term program or do they have to do it forever? And will these companies ever be able to make that product or service? profitable. Okay, so one more question then about that I think follows naturally from this. So let's talk about the talent ecosystem then. How does that play out? We were talking about these as three separate entities, the U.S., China, India, as if there's not these permeable boundaries and borders and people

aren't actually, you know, moving between them and you don't have like a huge base of Indian and Chinese engineers in the United States and vice versa, people going to various parts of the world, etc. But you also do have local pockets. So I'm curious to hear your guys' thoughts on And first of all, some of those movements, has brain drain reversed? And then secondly, about the talent markets in general and culturally their mindsets. Someone once recently told me that I think at Facebook, over 20% of the engineers are Chinese. I haven't fact-checked that yet. But, you know, I do think there are a lot of engineering talent in the Silicon Valley that is of Chinese or Indian heritage.

whether or not that trend has reversed, I think is a little bit early to say. But there have been a lot of Chinese companies that have been very successful in hiring top executives from not just Silicon Valley, but all over the United States and all over Europe. And I think part of it is they have the capital to do it. They also have very exciting growth markets that just individuals who love tech and innovation want to be a part of. So I even personally know a lot of Chinese companies that have been able to either set up. up R&D shops in Silicon Valley or convince people to actually move back to China. There's a lot of excitement in India. There's no doubt about it. I think, you know, this is sort of the inflection point where things can really take off and grow, and so people want to be part of that growth. And so you see a lot of interest from Silicon Valley as well in terms of Indian engineers wanting to move back and are working for the startups. I think the Indian ecosystem in general, I love the fact that there's so much energy in the startups and they want to really go build global marketplaces. I think one of the areas where they really need help

is on the product side and they themselves have realized that FlipCard is actively looking to hire engineers from the US. In fact, their chief product officer is from Google, who is based here in Mountain View. And they recently, in fact, made another announcement where they hired another senior Google exec to sort of manage their mobile offering. And so you, you're a very important. And so you are seeing that shift. I think the other shift you're beginning to see in India is people have a lot of excitement to join startups or, you know, graduating out of colleges. It's not before where it was, you know, I wanted to join multinational companies versus now it's like, you know, what's the next big thing that's going to be, what's the next big company that's happening in

India and they're willing to work in those startups. But the other phenomenon that I'm also noticing is if you look at the companies from U.S. that expand into India, take Amazon India, for example, Amit, who leads Amazon India, worked in Amazon Seattle for more than 15 years. And so he has, and he knows the Indian ecosystem. And so he brings the blend of both those markets and the execution knowledge of having worked through Amazon Seattle, that he can then bring that to Amazon India. So it's no longer a question of like a brain drain one way or the other. It's almost like this bidirectional thing. It's like people are just

moving in both directions and more importantly, blending some of those mindsets. What about the cultural differences in the talent markets? What do you see happening in China, Connie? Are there cultural differences in the talent market in China and down to the mindsets or other aspects of how they think about working at startups versus big companies?

I'd say the best students are still open to working at startups, just as they are working at an Alibaba or a Tenson or Baidu. And in addition to that, they're very excited to work for domestic companies. It's not just this halo effect of Microsoft or Google in China that those students want to go work at. A lot of them are very excited to work for domestic ones. And part of it is because they've seen, you know, other students work for domestic companies and become very successful and monetize that opportunity extremely well.

And so I think it's a misconception that some people have that you're always naturally going to get the best talent just because you're a global brand, that's definitely not the case in China. You still have to find that unique person who is very passionate, ideally fluent in Chinese, who is very excited to work at a global brand versus the domestic one. It's unclear now that you have a huge advantage of just being a global brand. I'd say another cultural difference is at least something that I noticed at Alibaba, which has been extremely successful for that company, at least in its early years, is a really strong sense of building company loyalty. And I think that paid off for Alibaba tremendously

versus the eBay China team in the early years because Alibaba was able to retain really good talent. They were extremely hardworking. They have this one rule, which is if you leave the company twice, you cannot come back a third time. I think they've only broken that role once in the tens of thousands of people they've ever hired.

And so they value loyalty a ton. And as a result, you have a bunch of employees there that have worked across different departments who have worked across different cities. And the same thing that Anu was mentioning about a person who was coming from Amazon, Seattle, going to Amazon India. That same kind of ability to pass on that culture, that history, that product knowledge happened at Alibaba for its early years very successfully. So this idea of building loyalty and team culture, at least for some of the big companies in China, has been. working out really well. That is very interesting because in India I actually see the attrition problems to be as significant as in Silicon Valley. You do see that a lot of engineers move across startups. They switch every two years or every three years and there's heavy competition in terms

of compensation and pay as well as a result. So it's very interesting to see how Alibaba was able to do that, build that loyalty that early on. There's probably still attrition happening in the Chinese startup ecosystem, but for the big players, I've been shocked at how how well they've been able to maintain their folks and inspire them and keep them motivated. I wish we had a lot more time to talk about it. I feel like the three of us just having a typical lunch conversation that we would have just talking about all these great things. Thanks for joining the 86 and Z podcast. There'll be many more ahead.

Thank you. Thank you.