Why Indian Startups Are More Service Oriented Than Product Oriented?

Thanks to technology and the Internet, new startups are getting more disruptive by the day, making the business space more exciting. India is among the top three global startup ecosystems.

However, there is a clear pattern; Indian startups are almost exclusively service sector oriented while production/manufacturing sector has been ignored by them (and consciously so).

Also Read: Startup Taskbob builds online platform for day to day services

Let’s examine the reasons for the same:

Capital

Most of the times, product development is a capital intensive area. It costs a lot to develop a product and after development, the company would have to wait for the product to be purchased by the customers so that they can earn the revenue. The amount of funds that gets blocked is huge. Startups which normally run on a shoestring budget do not have such deep pockets. Whereas, the service sector requires a minimal cost for the establishment and gives revenues in a very short period of time with minimal risks.

Corruption & Red Tapism

Even during these haloed Modi Sarkar days, India has not yet thrown away the shackles of corruption and red tapism. Sadly, the socialistic legacy continues. The entrepreneurs shy away from anything that has to do with the government departments and typically production sector has to deal with all kinds of regulators. The service sector, on the other hand, is mostly modern and is much more liberated.

Legal Troubles

Product sectors are plagued with dystopian rules and regulations. Not only does a factory owner has to deal with inspector-raj, he also has to go through trade unions, hooliganism and a set of labor laws that pitch the system against him. A small timer (startups usually are) cannot afford all this. The service sector has liberal laws that allow things like third party hiring, hire, and fire, etc and has minimum regulations governing it.

Also Read: This is How This Pune startup Is Redefining Laundry Services

Lack of Infrastructure & Banking Support

In order to set up a production unit, you need to have the funds as well as infrastructure. Banks in India are notoriously conservative (as long as they are not lending to big business houses, who happen to be big defaulters as well). They won’t lend to small-time entrepreneurs, and startups are too fancy for them. Also, the poor infrastructure in India doesn’t have the power to support the industry.

Crony Capitalism

Well, there is no escaping this one, big businesses everywhere influence the government and manage to pull strings, more so in developing countries. The manufacturing sector has long been dominated by the big boys who won’t allow the little guy to survive. Right from lobbying for the licenses (remember the 2G spectrum case!!) to putting them through legal troubles, the gangs of India Inc. have used every dirty trick in the book to kill the competition and get rid of those who dare challenge them. And, their latest victim is our very own Thou-Who-Shall-Not-Be-Named RBI Governor.

Playing the Field

On the other hand, technology and the Internet give them a new playing field which is too agile and democratic for the cronies to manipulate. For example, in India Net Neutrality was rescued from the powerful clutches of Facebook-Reliance combo. The small timers like PayTM and AIB fought them hard by galvanizing the public support through the Internet.

While the government is standing on all fours, promoting the “Make in India” initiative, till the time the bigger things in the Indian economy are fixed, the best and brightest would continue to take the service route.

Long live the Internet!

Also Read: Uber introduces food delivery service, UberEats

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