At the Nikkei Global Management Forum held in Tokyo in November 2019, 36Kr Japan, KrASIA’s affiliate company in Japan, had the chance to talk to Arun M. Kumar, chairman of KPMG India, gauging his minds about innovation and investment in India.
Kumar talked at length about how the interest from Japanese investors in the Indian startup ecosystem can help both the countries. Talking about KPMG’s own role in innovation, Kumar mentioned how his team is working with companies to find creative solutions using tools such as Artificial Intelligence (AI), analytics, and cloud-based solutions.
The below excerpts are edited for clarity and brevity:
36Kr Japan (Kr): You talked about the cooperation between India and Japan, especially in terms of technology and innovation. A Japanese expert mentioned earlier in his panel, that he thinks Japan’s development in innovation is not the most advanced. What do you think?
KPMG: In India, we are seeing a lot of great Japanese technologies that have been put to use and work in smart cities. We see a lot of Japanese technologies being used in very important areas of the economy.
We certainly see Japan as a technology advance country that can help India in many areas particularly in areas such as telecom and nuclear. In the US, obviously Japan is highly respected as a technologically advanced country.
There are so many Japanese investments that are driving technology in other countries. Think about the phenomenal impact SoftBank has had on technology companies. It is driving innovation at an enormous scale around the world.
Also, the whole world respects Japan for its manufacturing technology and as we move forward, the application of AI into manufacturing technology. Japan is at the forefront in these areas.
As digital converges with manufacturing, the internet of things, etc. we would all expect to see the reach of Japanese technology.
Kr: You mentioned you started different companies in Silicon Valley in a lot of different countries in the world. What’s your opinion on emerging technology especially after what’s happening in China and India?
KPMG: I can speak about India. There are a lot of tremendous startup activities. I think after Silicon Valley, India has become the most dynamic place for startup activity. Thousands of startups in different areas, whether it’s e-commerce, logistics, the variety is rich. And VCs are taking note of that and I think investments that are happening in India are not limited to only Indian VCs, but global venture capitalists are also participating in these investment rounds.
Kr: In terms of innovation and technology what role does KPMG play in the whole innovation system and how is KPMG helping the key players to invest in innovation?
KPMG: We run a number of initiatives focused on digital and technology innovation. We have a solution called Powered Enterprise and related to this which is called Connected Enterprise. These really help companies to apply their solutions and transform the companies using cloud-based solutions. Today, you don’t need to set up your own data center as you can just use cloud technology. The goal is to allow companies to transform themselves using technology using cloud-based solutions.
Then we also have various experience centers focused on AI and analytics around the world. Companies can come in and see the potential of these technologies, brainstorm, design their own solutions around it, and we help them deplore those solutions. We call these experience centers as lighthouses.
Kr: What do you think of the trend of Japanese investments in Indian startups? And how do you compare that to the current Chinese investment heat there?
KPMG: The quantum of investment by Japanese companies in the Indian startup ecosystem has been steadily rising, with a series of large investments made by SoftBank in India’s unicorns in 2017.
Three features are driving the interest in India—a large, growing, consumption led economy, with the market opportunities it presents, and India’s rich pool of young, technologically talented professionals. Japanese companies and investors are leveraging India’s innovation capabilities. For instance, Paypay, a cashless payment scheme run by SoftBank, is utilizing the technology of Paytm, which is funded by SoftBank. Companies have also started establishing corporate venture capital entities to help identify start up opportunities in India which could help develop and grow their existing business; Sojitz is one such example.
Chinese investments continue to grow in India in sectors such as consumer, food-tech, logistics, retail, and artificial intelligence. Compared to Chinese investments, Japanese investors are interested in early-stage companies; they also take somewhat longer to close deals. However, once they are committed, the Japanese rely on the skills and experience of the individual entrepreneurs and enhancing their expertise.
It is important for Japanese investors to find investment avenues for their risk capital outside their country. Culturally and geopolitically, Japan has strong ties with India. Therefore, Japan investing in India’s start-ups is all about combining the core strengths of both countries.
Kr: India’s economy is gaining its momentum but still slower than many would expect. Do you think that will affect the startup investment scene due to investors’ concern over uncertain ROI?
KPMG: For many early-stage startups with a limited market share, any impact in slowdown should be minimal since investments are primarily made with a longer-term cycle. Even the e-commerce sector may not see a hit as such since large online retailers sell a range of products at a wide range of price points. The only impact, if at all, will be felt by larger players trying to consolidate their market share.
In parallel to this is the funding environment, which can vary depending upon the growth stage of the company.
Kr: Which sectors do you think Japanese VC will have more edge than its Chinese or Korea counterparts and why?
KPMG: Japanese investments in India have diversified from a sectoral and geographical point of view. The traditional sectors of auto, industrial, and consumer electronics, have been supplemented by investments in financial services especially in the insurance sector with players like Tokyo Marine, Sompo, Nomura, and Nippon Life being active investors.
Agriculture is yet another sector which has seen significant interest—with large investments being made in the last three years—by companies like Sumitomo Chemicals, Yanmar, and Kubota enhancing their presence. This a priority sector for both countries.
Newer sectors like healthcare and medical equipment, food logistics, and gaming are fast gaining ground. Japanese VCs can provide channels for Indian startups to collaborate with Japanese firms on product development, as well as open access to global markets including Japan.