Connecting CommerceBusiness confidence in India’s digital environmentA report from The Economist Intelligence Unit

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India

No business executives have more confidence in their city’s digital transformation environment than those in Bangalore. Its scores in the Digital Cities Barometer are the highest of all 45 cities in every category. Not far behind in terms of confidence, in third and fourth place overall, are executives in Mumbai and New Delhi.

Such confidence would seem counter-intuitive given their cities’ infrastructure shortcomings and other weaknesses characteristic of developing world mega-cities. It is not a surprise, however, to Samiron Ghoshal, who is a Gurgaon-based senior partner at KPMG, a business advisory firm. He senses an enormous amount of “digital optimism” in India’s major cities. “There has been an upswell of enthusiasm across all sectors about digital transformation,” he says. “Whether it’s because of all the smart city initiatives, the push toward Industry 4.0 and smart manufacturing, or the digitisation of banking and health services —everyone knows that digitisation is important and everyone is pushing in the same direction.”

Respondents in all three cities are complimentary toward their universities and other educational institutions in their capacity to equip students with the skills that firms need, with large majorities stating that institutions are “effective” in this role.

Another factor contributing to the optimism, according to Asheesh Malhotra, a Bangalore-based partner with global advisory firm EY, is an expanding entrepreneurial support ecosystem that is forming around the growing legions of digital start-ups. Particularly in Bangalore, businesses of all sizes are likely to have at least some ties to such start-ups and to the wider ecosystem. Digital entrepreneurs, says Mr Malhotra, are getting a lot of financial and other types of support from corporate venture capital arms, from accelerators and incubators, and their digital enthusiasm is infectious, even if the ecosystem is not yet highly developed.

8.25 1st

7.65 3rd

7.59 4th

Bangalore

Mumbai

New Delhi

Score (out of 10) Rank (out of 45)

Figure 1: Overall barometer readings—Indian cities

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1 See, for example, the chapter on Bangalore in the Global Startup Ecosystem Report 2017 from Startup Genome.

A talent bottleneckThe respondents’ optimism does not blind them to the difficult challenges their digital transformation initiatives face. Many respondents, and up to one-quarter of those in New Delhi, say government policies and regulations pose an obstacle to the success of their transformation efforts. One-third of Mumbai respondents and 31% in Bangalore point to cyber security concerns as a challenge. But the toughest challenge—especially for firms in Bangalore and New Delhi—lies in finding the talent they need to push through their digital initiatives.

Talent shortages are a critical bottleneck for Indian firms, according to Mr Malhotra. Gaps are felt at both managerial and digital specialist levels. “These are people who share the senior management’s vision of the firm’s digital objectives, who can think with a business lens, pick up the relevant digital initiatives, and reach into the ecosystem where they have partners who can help them scale each initiative up and implement it.” He adds that Indian firms that mainly serve the domestic market find it difficult to compete for such talent with those that serve international clients, such as Bangalore’s IT service providers.

Cyber security and big data analytics are the skill areas Indian executives say they have the greatest need for today. Mr Malhotra sees numerous programmes in these areas, as well as in cloud computing, the Internet of Things and other disciplines, being established at universities and training institutes today. Many of these are not very advanced or comprehensive courses, he says, and they are far from sufficient to meet the demand for talent, but overall the training picture is changing for the better.

Mr Ghoshal agrees that the country’s educational institutions are adapting to the skills needs of its businesses. “In Bangalore and elsewhere, there is a training pivot taking place from the traditional technology capabilities IT service firms demanded in the past, to the digital technology capabilities all companies are demanding today,” he says. “Universities, colleges and training providers are all changing their curricula to focus on skills in analytics and other digital disciplines.”

Finding help in the environmentBy most accounts, the support components of the digital ecosystem in India’s big cities are blossoming.1 Companies in Bangalore, according to the executives surveyed there, make frequent use of innovation labs to get ideas and advice on digital challenges they are facing. Many also turn to accelerators and incubators, as well as hackathons, for the same purpose (see the next page, “How big companies use innovation forums”), not to mention events organised by local business associations. The latter are particularly frequent sources of help to companies in New Delhi and Mumbai.

Large US technology firms are major players in each city’s ecosystem. They have long been present, but in years past their role was primarily as service

or R&D centres to support their global operations. Today the tech giants are looking to tap into the growing legions of digital start-ups, whether for acquisition opportunities, sources of talent, or for new technologies or product ideas that they can build on. In Bangalore, for example, Amazon, Google, Microsoft, SAP, Qualcomm, Cisco, Oracle and others all run accelerators. Others are operated by US corporates that are not historically IT specialists, such as the discount retailer Target, and Lowes, a supplier of home improvement products.

Figure 4: The most helpful external groups in assisting firms’ digital transformation efforts

Bangalore

Mumbai

New Delhi

Innovation labs and centres

Business associations and events

Incubators/accelerators

36%

20%

25% 39% 18%

36% 18%

24% 20%

Figure 2: The toughest challenges organisations face in pursuing their digital transformation initiatives

Figure 3: Digital skills most needed by organisations to support their digital transformation initiatives

31%

22%

40%

Bangalore

33%

18%

31%

Mumbai

23%

25%

39%

New Delhi

Talent/skills shortagesCyber security concernsGovernment policies or regulations

33%

20%

40%

Bangalore

38%

20%

29%

Mumbai

21%

23%

38%

New Delhi

Digital securityBig data analyticsCloud computing

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Start-up ecosystems—consisting of accelerators, incubators, co-working spaces, innovation labs, venture capital firms and other structures—are expanding rapidly in all three Indian cities in the study, but no more so than in Bangalore. According to a recent study, about 40% of India’s 140 plus accelerators and incubators are located in the city.2 One-fifth of business executives who work there say that their firms use these structures to obtain digital advice and ideas. Their most frequent sources of support, cited by 36% of respondents, are innovation labs and centres.

According to Mr Malhotra, staff of Bangalore’s larger companies can often be found in the city’s co-working spaces, or attending forums organised by the aforementioned structures, at meet-up group events or at hackathons. Although

some (according to 24% of respondents) hope to meet potential new technology recruits, others (27%) look for referrals to sources of data. Many more (47% of respondents) say they are on the lookout for new ideas for products or services. The largest share (51%) use these forums to get advice on specific technology issues they are facing.

Mr Malhotra says that the advice or ideas companies seek at such forums are too often of a short-term or piecemeal nature, and as a result larger opportunities are often missed. “Companies often come to these looking for a solution to a burning problem they’ve experienced that week with, for example, their supply chain or customer engagement platform. A hackathon or other event may yield an idea that can help them address that individual challenge. These managers should also, however, be on the lookout

for bigger solutions to more strategic challenges they have.” If company representatives listen closely, Mr Malhotra believes, they will hear such solutions being discussed.

This is connected to a deeper-lying weakness of Indian companies’ digital transformation efforts, says Mr Malhotra—namely, that they approach transformation not with a strategic vision but rather as a series of individual initiatives to address immediate problems. “Such a ‘band-aid’ approach will not get companies very far in the long run,” he says.

How big companies use innovation forums

2 “India now ranks third globally in number of incubators, accelerators: Report”, VC Circle, May 6, 2017.

Policy changeIndian businesses have generally not, in the past, looked to city, state or federal government for assistance with their technology initiatives. Relatively few survey respondents, for example, point to government programmes or events as sources of support in the city environment for their digital transformation efforts. (An exception is New Delhi, where half of executives say they have obtained some financial assistance from government programmes for these.) The provision of open data held by governments, amongst other measures, could be a significant boon to developers of mobile apps and online services, but most survey respondents have a poor opinion of government efforts in this area. In Bangalore, for example, nearly eight in 10 (78%) say their city government makes poor use of the data that it collects.

In the past couple of years, though, governments at different levels appear to have recognised the importance of local ecosystems to the achievement of India’s broader digitisation objectives. Two major federal government initiatives launched in the past two years—Startup India and the Smart Cities Mission—aim to boost technology entrepreneurship and to integrate advanced technologies into municipal infrastructure and services. State governments such as that of Karnataka (of which Bangalore is the capital) are following suit with programmes of their own to support start-ups.

City governments on their own have generally not been as proactive, but they will need to become so in light of survey results suggesting that many businesses are prepared to relocate in search of a better digital environment. This is particularly the case in New Delhi, where 68% of executives say their firm has considered such a move within the past three years. (The corresponding figures in Bangalore and Mumbai are 58% and 53% respectively.) Second-tier Indian cities such as Jaipur and Bhubaneswar are making a concerted push to attract start-ups from elsewhere, and anecdotal evidence suggests that they are beginning to have some success.3

3 “India’s Startups Are Moving Into Smaller, Second Tier Cities -- Why The Sudden Shift?”, Forbes, October 5, 2017.

© The Economist Intelligence Unit Limited 2017 76 Telstra — Connecting Commerce