What’s beckoning Indian startups to Singapore?
A recent trend witnesses Indian entrepreneurs setting up shops in the city-state. What are the factors responsible for such a move?By Shiwen Yap 07 Jul, 2014
A large wave of Indian startups and entrepreneurs have moved from the large markets of India to Singapore, according to Shruti Chakraborty, who wrote about it in an article for Quartz called ‘How India can keep startups from moving to Singapore‘. But why not Silicon Valley? Apparently, there’s a strong value proposition to having a Singapore base.
While it may be seem to be a brain drain now, there are benefits to growing the Indian diaspora outside the subcontinent. Just as the Jewish diaspora enables Israel’s success as a ‘Startup Nation’, so could the Indian diaspora enable the success of Indian startups.
Reframing the argument
Rather than a loss for India, this migration of entrepreneurs to Singapore has long-term dividends for India’s startup community. It resembles the waves of Indian talent that moved (and still moves) to Silicon Valley, many of whom eventually returned to India. It allows Indian brands to access international markets and talent more easily.
The trend of immigrant entrepreneurs can eventually drive development of the startup ecosystem within India, just as Silicon Valley entrepreneurs of Indian origin have driven the development of key innovations in Silicon Valley, according to Yale Global. Examples are Vinod Khosla (Sun Microsystem), Sabeer Bhatia (Hotmail) and Vinod Dham (Intel Pentium chip). This also highlights the value of Indian talent to global markets.
Entrepreneurs exposed to different cultures, systems and experiences in developing businesses overseas stand to mutually benefit Singapore and India down the line. Two Indian startups that have moved to Singapore are Flipkart (e-commerce) and Milaap (social crowd-funding). The compelling value proposition and brand value of Singapore are appealing: access to capital, simple tax structures and ease-of-business are among them, combined with the extensive network of FTAs (Free Trade Agreements) that allow Singapore-based ventures to internationalise.
Mayuresh Godse, the CEO of Medialink, an Indian entrepreneur with a Singapore-based startup stated, “I think Singapore is a multicultural society, and it’s a very good test market to validate a business hypothesis. You get people from all over, resulting in a microcosm of the world. In terms of expertise, you get different perspectives of how your brand is perceived. And in terms of connectivity, it’s so easy to get access to any financial market.”
Capital, talent and internationalisation
The Singapore government is highly supportive of entrepreneurship and technology startups, with various schemes such as the National Framework for Innovation and Enterprise, SPRING Startup Enterprise Development, the ACE Startup Grant, the Business Angel Funds and others, both private and public. Partnering with Singaporeans opens up access to this support.
Shifting to Singapore also has the benefit of accessing a broad base of international talent. There are multiple expatriate communities from throughout Asia, as well as from North America, Australia and Europe based in Singapore. While Singapore is mostly Chinese, 10 per cent of the population is of Indian origin, easing culture shock.
Although India has an extensive network of FTAs of its own, execution is hampered by the difficulty of doing business. According to the World Bank, as of June 2013, India ranks 134th in the world, while Singapore stands first in the world, in the ease of conducting business index.
Access to an international talent base, the ease of doing business and staff with the knowledge to navigate the complexities of different cultures and markets is beneficial to startups, as it creates opportunities to expand globally. One startup that has benefitted from this is SportMeNow, a Singapore-based firm founded by an Indian expat. Aside from Singapore, it has also established a foothold in Melbourne, Australia.
SportMeNow’s CEO, Honey Mittal, explained, “Singapore has been our base for roughly eight years now, including our university education and jobs. We’re comfortable here and we understand the market well. For the kind of marketplace we’re building, Singapore is perfect (lots of sports televising bars and restaurants), smartphone and internet penetration, and the whole culture to watch sports at a bar. The diverse crowd from pretty much all parts of the world brings diversity in terms of popular sports as well. Everything from soccer to AFL to cricket — brings a good crowd to the sport bars.”
He explained that the access to investors, ease of setting up a business, access to a big talent pool and similar-minded entrepreneurs made the decision to base themselves in Singapore easier.
Regulation, taxes and IP
The regulatory and legal environments in Singapore are highly conducive to business. Due to extremely low incidences of corruption and less red tape, time is cut down when doing business, especially when dealing with government agencies. India’s government, like Singapore’s, has schemes to support SMEs (small and medium enterprises), but information deficits and bureaucracy pose challenges.
In terms of taxes, Singapore-based startups pay no taxes on the first SG$100,000 (approx. US$80,000) of annual profits and half the taxes due for the next SG$200,000 (approx. US$160,000) of annual profits. Corporate taxes for profits of SG$300,000 (approx. US$240,000) and above average 17 per cent, compared to 30 per cent in India. Capital gains tax is also non-existent, easing investor exits.
IP protection is also strong, and is essential for technical innovation. While India has laws to protect IP, weak enforcement and judicial delays weaken the protection. According to the World Economic Forum’s Global Competitiveness Report 2013-2014, Singapore has the best IP protection in Asia and is ranked second globally, allowing Indian startups with a presence here to protect themselves.
The future that can be predicted is that the Indian diaspora in Singapore and Silicon Valley will grow, creating opportunities for the Indian startup community and serving as a showcase for the Indian talent, regionally and globally.
India is an enormous market with great potential, but also many low-income consumers with limited purchasing power. Developing and evolving innovation, that suit domestic needs, will initially be based on delivering effective and low-cost solutions. Potential applications arising from Indian consumer markets are global in scope, but need validation and internationalisation elsewhere. Singapore seems to be an ideal launchpad for Indian entrepreneurs to serve this need.