“This sentiment against China is not a gimmick, it’s here to stay,” said a venture capitalist at a top-tier fund based in Bengaluru.
For consumer brands and electric mobility startups, this would largely mean finding alternative supply chain channels in India for manufacturing components and packaging materials, while social commerce players will have to relook at their suppliers’ backend procurement processes, the sources said.
“Interactions with unicorn stage portfolio founders tell us that large fundraising deals are stuck,” said the person quoted earlier. “At the same time, operations are also being affected for brands that source components from China or platforms that depend on brands that rely on imports from the country,” he said.
Even ecommerce companies like Flipkart and Amazon, which are heavily dependent on smartphone sales anchored by Chinese brands, are figuring out newer strategies. Amazon, for instance, is betting big on promoting local stores on its platform.
New-age brands like MamaEarth, Vadham Teas, PeeBuddy, Wow Skin Sciences, LifeLong, and Bombay Shaving Company (BSC) said shoppers are increasingly looking for products manufactured in India as a filter to buy online, across categories.
“Covid has clearly penalised companies with global supply chains, especially ones with strong China dependencies,” said Varun Alagh, CEO of MamaEarth, a fast-growing personal care brand. “For us, the movement of B2B supply chain to India has been an ongoing process for the last year. It has of course been expedited now.”
MamaEarth has grown 25% in May over its pre-Covid-19 average on the back of its capability to scale its India capacity.
Chirag Taneja, chief revenue officer at BSC, said, “’Made in India’ narrative is on the rise in the country. Over the last few weeks, we have seen significantly higher conversion rates for advertisements having such made in India theme.”
Funding rounds are also seeing an impact of the increasing anti-China sentiment following the killing of 20 Indian soldiers at Galwan Valley in eastern Ladakh and the ongoing standoff between the two countries along the Line of Actual Control.
Earlier this week, Zomato’s existing investor InfoEdge said the food delivery company is yet to receive $100 million from the $150 million it raised from existing backer China’s Ant Financial in January this year.
InfoEdge, which is a big shareholder in Zomato, said the effort is to bring on board investors from outside of China.
A person close to the matter said the food delivery platform did not want to get stuck in the current political whirlwind and therefore has not applied for approval of the investment.
NOT MANY ALTERNATIVES
Almost everybody, though, concede that it is not an overnight affair to reduce Chinese dependency and find alternative sources for both goods and funds.
“Where is the money to counter China’s deep pockets? There is no alternative,” said an investment banker who requested not to be identified. “The concern is similar across large technology companies like Paytm and Ola to growth stage and early stage companies like Pratilipi and DoubtNut.”
In the case of products, too, significantly reducing dependency on overseas supplies will take months, as India is not prepared to deal with the manufacturing capabilities required to scale end-to-end product development, industry insiders said.
“In quite a few sectors, India still does not have available manufacturing capabilities…(hence) while we would like to move, we still don’t have local options to move to,” said Alagh of MamaEarth.
Categories hardest hit include smartphones, electronics like cables and headphones, and refrigerators.
“Unfortunately, supply chains take longer to move once there is intent from brands/companies to make in India,” said Bharat Kalia, cofounder of Lifelong Online, a kitchen appliance brand that has seen business uptick of three times its pre-covid-19 demand.
“As part of our business model, we’ve always moved manufacturing to India once we see traction growing in a product,” he told ET. “In the short term, we are setting up a dedicated facility that can work as a multi-product assembly in India. We are looking at a three-month period to get that going.”