Copy-Paste Of Western Business Model Works

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The founder of India’s largest discount brokerage Zerodha recently sparked off a debate on social networks by declaring that copy-pasting business models from USA and other countries does not work in India because there are many differences between the two markets.

@Nithin0dha: India is unique. Copy-pasting models from the US, etc, has hardly worked. Paytm’s speaker for Indian vendors that reads out payments is one of the best examples of a product made specifically for the Indian context by an Indian fintech.

Yes there are differences between markets but copy-pasting US business models has worked very well in India in rideshare, mobile wallet, food delivery, BNPL, room renting, ecommerce, and many other industries.

How come?

It’s because most differences are managed by tacking on localizations on top of the same business model that works elsewhere.

The key difference between business model and localization is described below:

  • Business model comprises source of capital (bank loan versus venture capital), GTM (feet-on-street versus digital acquisition), delivery model (asset-heavy / ownership versus asset-light / aggregation), source of labor (gig worker versus full time employee), source of product (inventory versus marketplace), etc.
  • Localization comprises price (e.g. adjusted by PPP in almost all industries), product assortment (e.g. SKUs in ecommerce), method of payment (e.g. cash on delivery in all industries), make and model of car (in rideshare), etc.

As we can see, most – even all? – successful startups in India have the same source of capital, GTM, delivery model and source of labor as their counterparts in USA. In other words, they follow the same business model. (More on source of product in a bit.)

So copy-paste has worked.

That said, the roster of successful startups have localized the business model to suit Indian conditions. For example, Uber supports cash on delivery as a payment method in India whereas it does not in France. Also, when you press a button, a Suzuki Swift comes to pick you up in Pune versus a Mercedes Benz in Paris.

But localization is not just a thing across countries. Companies localize their offerings in response to differences even within a city e.g. North Frankfurt versus South Frankfurt. I once saw a price of EUR 235 for an item in the North Frankfurt outlet of a big box retailer and EUR 265 for the same item in the South Frankfurt outlet of the same big box retailer. This is obviously because the retailer has observed a significant difference in purchasing power between the two halves of Frankfurt.

When you need to localize certain attributes of your product even within a city, localization across countries can’t be a big deal, right?

Localization most certainly does not mean different business model. Since rideshare companies use venture capital, digital acquisition, gig workers and aggregation in India and France, the industry follows the same business model in both countries.

Coming to the OP’s comment about PayTM SoundBox, merchants all over the world share some common pain areas and their local vendors have likely solved them before. While Sound Box solves a similar pain area for Indian store owners, the product is a copy-paste of CashApp’s audio / visual notification. For the uninitiated, CashApp is a mobile wallet launched by Square / Block in USA in 2013. According to many comments on Twitter and LinkedIn, SoundBox seems to be a carbon copy of similar devices from AliPay and WeChat Pay that make audio announcements of retail payments in stores in China. On a side note, these devices must be squawking quite a bit in China – last I checked, just Alipay did TPV (Total Payments Value) of $17 trillion a year, as against $1.6T of UPI.

That said, taking credit for ALL payments, whether they happen with PayTM or some other method of payment, may be an original Indian business model not lifted from abroad!

@GTM360: TIL: PayTM Sound Box announces all transactions as PayTM payments even if you make the payment with credit card or Walmart PhonePe UPI. Hope somebody is weeding out double counting of UPI volume & value!

PayTM is able to pull it off because Indians are blasé about technicalities and competitors BharatPe and Walmart PhonePe have probably not cottoned on (yet!).

It’s evident that copy-paste of business model largely works even if two markets have different attributes. However, startups have sometimes been forced to change their business model. This is not because localizations didn’t suffice but due to regulation. Foreign investment rules in India are a case in point.

Due to RegFDI, foreign companies are not allowed to operate in multibrand retail sector in India. As a result, Amazon and Flipkart, the top two ecommerce players in India, follow the marketplace (rather than inventory-led) business model.

(That said, they keep leveraging regulatory gaps by installing majority-owned sellers on their platforms and moving the domicile of those companies to Singapore, among other shenanigans probably in a bid to sidestep Indian regulations and thereby align their Indian business model as closely as possible to their parent country’s business model.)

Indian ecommerce companies like BigBasket are not subject to Reg FDI and have successfully copy-pasted the inventory-led business model of their overseas counterparts like Ocado in UK.

On a side note, Amazon started out with inventory-led business model in USA but has by now also established a big marketplace business there.

Arpit G commented as follows in LinkedIn:

Agree with all of it except BNPL was launched in India 1st and later in the US.

He was referring to Simpl, the BNPL launched in India in 2015 and comparing it with the spate of BNPLs in USA like Affirm that shot to prominence during the pandemic in 2020.

I pointed out that Bill Me Later, the first BNPL in USA, was launched in ca. 2005. He admitted that he’d forgotten about BML. For the uninitiated, BML was acquired by PayPal and relaunched as “Pay in 4”, which is now the leading BNPL in USA.

If not BML, Simpl and other BNPLs in India are copy-pasted from Klarna, the world’s first BNPL that launched in Sweden in 2005 and has subsequently expanded to USA, UK and other western countries.

That said, I must make a mention of VGP:

VGP Group of Companies was a consumer goods retailer in South India in the 1950s. The company pioneered installment purchase of alarm clocks, watches, wall clocks and Murphy transistors in South India in the 1950s. Thousands of people in my parents and grand parents generation bought these products on loan from VGP at the time.

– Don’t Ascribe To Generation What Can Be Explained By Age

Strictly speaking, this is not BNPL since it’s not offered by banks and fintechs. But I’m going to claim that it’s an original Indian innovation until somebody contradicts me by giving an example of a western retailer who offered installment purchase schemes 70 years ago.

Now let’s come to one apparent exception: Oyo.

Per Oyo’s backstory, its founder Ritesh Agarwal started out by copy-pasting the AirBnb business model of renting out spare bedrooms in India. For reasons related to consumer behavior (not regulation), it didn’t work out. Then Agarwal tried out another venture called Oravel, which was a website that enabled discovery of budget hotels. Oravel also flopped. Agarwal then pivoted to Oyo, which went beyond discovery and provided a consistent experience across budget hotels by standardizing on six amenities, as illustrated in the following exhibit.

The rest is history. Currently valued at $2.7 billion, Oyo is a major Indian startup success story. More at Request To Aggregators: Solve Your Customer’s Problems, Not Yours.

Oyo would seem to be a case of a startup that failed by copy-pasting a western business model and succeeded only after it made substantial changes (that went beyond localizations) aka Exhibit A of @Nithin0dha’s critique about the unsuitability of western business models for India. 

However, that narrative has been undermined by the fact that AirBnB itself entered India later and became successful. So it could be argued that Ritesh Agarwal’s copy-paste strategy failed due to poor execution – and not because the AirBnB business model was per se unsuitable for India.

This suggests that, since companies have different execution capabilities, you can truly compare the versatility of a business model only when the founder / leadership is the same.

When you do that, you’d find overwhelming evidence that copy-paste of US business models has rocked in India:

  • Google is the #1 search engine in the world … and in India.
  • SAP is the #1 ERP in the world … and in India.
  • Oracle is the #1 RDBMS in the world … and in India.
  • Salesforce is the #1 CRM in the world … and in India.
  • Facebook is the #1 social network in the world … and in India.

See Calling BS Of The “Indian Market Is Big Enough For Indian Companies” Myth for more.

Needless to say, all of these foreign companies have localized their prices to suit Indian conditions – but they have done so on top of the same business model that they use all over the world.

Contrary to the OP’s take, many people lament that Indian startups have not innovated to solve India-specific problems and have blindly copied western business models. In a follow-on post, I’ll speculate on the reasons for that state of affairs (Spoiler Alert: Known devil is better than unknown angel.)