Improved Logistics, New Physical Products And AI Integration Needed To Drive Next-Gen Startup Growth

Since 2022, Indian startups have been facing a “funding winter” which was epitomized by a 74% year-on-year fall in investment during Q1 2023, according to Global Data. In addition to recession fears, cautiousness over startup valuations also contributes to investor uncertainty.

The need for a market correction in the tech sector is a global phenomenon. In a survey of 46 tech companies, Bloomberg reveals that hedge funds have marked down over 70% of them by an average of 35% in Q4 2022 and Q1 2023, while mutual funds decreased their valuations by a smaller percentage. Western startups with global ambitions such as Revolut and Stripe recently saw their perceived value drop by USD $18 and $28 billion, respectively.

This global mood change will inevitably continue to have an impact on India, where most prominent startups rose as competitors to global tech companies. At their core, the services and business models of Swiggy, Flipkart, PayTM and Ola are fundamentally similar to those of Deliveroo, Amazon, N26 and Uber. This is unsurprising as over the past decade, the rise of tech startups around the world was dominated by digital platforms, which create new regulated marketplaces.However, this growth stage is over as the physical delivery of products and services now has to catch up with that of ordering them.

The digital economy is built on applications which enable quick access to products and services.This provides greater convenience, which ishighly valued by users with a rising amount of disposable income. As the middle class of India grows, so does the user base of tech startups; the implications of this phenomenon will continue, as has happened in China, where online shopping has become a steady pillar of sustained economic growth.

Some services, such aspayment processing and online content consumption, can be provided online quickly and conveniently. But when it comes to shopping, user experience depends on the optimization of logistics and the digital infrastructure underpinning an online platform.Some startups built a market advantage in this regard; for instance, China’s JDoffers guaranteed same day delivery for a wide range of products. Innovative Western startups are also seeking to revolutionize logistics; for instance, Starship Technologies are building a fleet of self-driving robots to deliver goods within a local area within 30 minutes. Meanwhile, Dronamics raised USD $40 million ato develop a cargo drone airline which is eyeing the EU market.

The fundamental challenge for online marketplaces is providingefficient delivery services, at least for selected products. The next wave of fast-growing Indian startups will have to build or implement responsive solutions to this problem; hence, it is unsurprising that the Hero Family Office and Bajaj Auto recently invested USD $37millionin a logistics company.

For Indian companies to deliver products faster, the government must maintain its promise to ensure the continuous improvement of public infrastructure. For investors, this can be an opportunity, as well as an important indicator of the future trajectory that the Indian economy will take. Thus, the Indian business community must ensure it raises greater public awareness of the crucial role that infrastructure development can play in supporting the growth of its companies, and of the economy as a whole.

For Indian digital marketplaces platforms to operate smoothly, optimization will also be increasingly essential. This means that the implementation of AI solutions into existing applications is a necessity and must be accelerated. There is no doubt that theintegrationof AI in the supply chain is of great value, especially when employed for functional purposes such as logistics arrangements.

Smart assistants will certainly be of help to people in their jobs, although they are unlikely to make human labor obsolete. After all, the basic premise of AI is rooted in the rationalization of logical connections between ideas, while humanity is a deeply emotional species. However, AI might become an essential element of new products when it is integrated with physical technology. The decades of the personal vehicle, TV, computer and phone could conceivably be followed by that of

the assistant robot. For Indian startups, what this means is that innovation efforts should go beyond software solutions and move towards the creation of more new physical products, which are then efficiently delivered to customers.

The development of novel products does not have to be limited to robotics as there are plenty of other areas where new technologyis also much needed. For instance, electricity storage is a global pain point, especially with the rise of EVs and the recent breakdown in the relations between the West and Russia. Throughdrawing lessons fromlarge trends and important events, Indian startups should effectively position themselves in the market to raise capital and develop products which generate global demand.

Opportunities are vast and Indian entrepreneurs have the potential to benefit from them. On one hand, as Bain and Company point out, structural factors such as low leverage, tech adoption, and favorable demographics create conditions for India’s continuous growth. On the other, due to its relative market openness, bilingual workforce and global connections, India has strong soft power within the international business community. The potential of these strengths can be further amplified when combined with correct market positioning and strong leadership to fuel the next chapter of India’s growth story.

Dr. Ivo Ganchev is a Fortune 500 consultant and academic who is based in Beijing and London. He is the Founding Director of the Centre for Regional Integration, a Global Partner at Top Brand Union, Vice-Chairman at the Bulgaria-China Chamber of Commerce and Adjunct Professor at Beijing Foreign Studies University. Ivo has previously taught at Queen Mary University of London and Newcastle University. His work has been published in highly reputable academic journals, such as International Studies and World Affairs. To learn more about Ivo, visit www.ivoganchev.com.