MNCs on the startup highway

There is little to connect Brian Cornell, CEO of the $74-billion American retail giant Target, and Subrahmanya Rao, founder and CEO of Discover Dollar, a startup based in Bengaluru. But as Target wades through a challenging market where it missed revenue targets, and faces increasing competition from peers such as Wal-Mart, Cornell would understand the value that the small but nimble company in far away Bengaluru brings.

Rao’s team has developed a data analytics solution that helps retailers stop overpayments and revenue leakages like pricing errors and unclaimed allowances by analysing various data sources.

“It is quite a big problem for a large company like Target,” says Rao, who had earlier set up ventures with moderate success. “The leakage can vary anywhere between 0.5-1 per cent of the total revenue and even go as high as 5 per cent,” adds the Discover Dollar founder. The software was ranked as one of the top five most innovative solutions by German major SAP in 2014.

But despite having such as blockbuster product, Rao, who used to sell newspapers and give tuitions to meet expenses while growing up in Mangaluru, was sweating to find a client. “It is difficult to become a vendor of a large company. We don’t come with a historic achievement or client list. And because of this, there was a low trust factor when we pitched,” he says. While everyone would compliment the product, a deal would get stuck at this question, “Who are your clients?”

Target helped Rao bridge that gap. In July 2015, Discover Dollar was one of the five startups that were selected for Target’s Accelerator’s 16-week programme in India. Apart from getting access to Target’s considerable infrastructure in Bengaluru, where it has a business development centre, Rao got an inside view of how a big corporate worked. Target’s team led by Navneet Kapooor, President & MD of the India unit, helped Rao fine tune the product, brought in mentors and gave important lessons in building scale, raising funds and creating an organisation. “We also participated in an event organised by NASSCOM (National Association of Software and Services Companies). The exposure was important,” says Rao.

Most importantly, Rao got a client. Impressed by Rao’s product and team, Target signed a commercial agreement with Discover Dollar at the end of the 16-week programme, which is the retailer’s only such initiative outside the US.

For Target, the Accelerator experience has added an edge to its India operations. “We have come a long way from 2005, when we first started off in India with a global in-house centre in the form of a small technology unit that supported the US operations,” says Kapoor. “The Target Accelerator is our attempt, on one hand to tap the startup ecosystem in Bengaluru and on the other, to help in the retail transformation that is happening in the company globally,” he adds. Target has signed commercial agreement with another startup, House of Blue Beans, whose software helps in 3D visualisation of products, a handy tool in e-commerce.

Target’s engagement with startups is not a one off case. Increasingly, global in-house centres (GICs) of multinational companies are building on their India presence by making use of the world’s third largest startup ecosystem. According to a report by consultancy firm Zinnov, there are more than 40 accelerators in India and one-third of them have been started by the multinationals.

“For the first 10-15 years, the multinationals were setting up GICs here to save money. Then it was about talent and GICs became value centres. Now, by tapping startups, the GICs are looking for breakthrough innovations that will help their parent companies,” says KS Viswanathan, Vice President, NASSCOM. Viswanathan, who leads the Association’s GIC Forum, is an IT industry veteran with stints in Wipro and Dell.

According to data provided by NASSCOM, the number of GICs operating in India increased from 760 in 2012, to over 1,000 in 2015. “The GIC’s are spread across multiple locations accounting for $19 billion of export revenues, almost 21 per cent of the IT industry export revenues and employ over 7.50 lakh employees,” says the report.

Looking back, initial push for the GICs came from the reforms in TRIPS (Trade-Related Aspects of Intellectual Property Rights). “The reforms provided an IP (intellectual property) protection regime. And R&D centres mushroomed,” says Deepa Mani, Executive Director, Srini Raju Centre for IT and the Networked Economy, The Indian School of Business. Over 85 per cent of the patents filed in India emerge from the labs of multinational companies. “But even then, the development centres were about building scale through the low-cost labour available here,” she adds.

“Even as they continue to work with companies like Infosys, Wipro, the GICs are engaging in multiple ways,” says Preeti Anand, Associate Director, Zinnov. Some have tied up with educational institutes to tap talent, like Bosch’s engagement with Indian Institute of Science, or IISC in Bengaluru. The German auto major, focusing on its India story, signed an agreement with IISC in November, to take forward its research in areas such as mobility, energy and healthcare. Similarly, Pratt & Whitney, which is known for its aircraft engines, funds aerospace research at IIT Bombay.

The multinationals have also been attracted by the recent initiatives by the government, especially the Digital India, Make in India and Smart Cities projects. They are looking for solutions that help them break into this market.

Startups are the fastest to develop a product and make it ready for the market. And India’s emerging startup ecosystem is the third only to the US and the UK. The country has over 4,200 startups, and with 72 per cent of the founders below the 35-year age bracket, multinationals have been quick to understand the scope of this energetic community. Some like Google and Microsoft have a two-pronged strategy – invest, as well as incubate startups. Google Capital, the venture arm of the search giant, has invested in four Indian startups. At the same time, its accelerator programme, called Google Launchpad, recently inducted its second batch. But the six-month mentorship takes place in the Google headquarters in Silicon Valley.

Microsoft recently revived its ventures arm that had gone off the radar in 2014. In early June, Microsoft Ventures announced its comeback through a funding of Helpshift, a customer support platform for mobile devices. The company’s accelerator programme, which was earlier part of Ventures, is now a separate entity.

Another American major, the payments system provider PayPal, teamed up with The Indus Entrepreneurs (TiE) to launch its accelerator programme in 2014. “We wanted to leverage on TiE’s network of entrepreneurs and provide mentoring to our startups and expose them to opportunities in funding,” says Guru Bhat, General Manager of PayPal’s Chennai Technology Centre. In February, the second batch of its accelerator called Start Tank, graduated. The company also has a Development Centre in Bengaluru.

E-commerce solutions provider Pitney Bowes aligned its accelerator programme with NASSCOM’s 10,000 Start-Ups initiative. “NASSCOM’s platform helped us to search and filter the startups,” says Manish Choudhary, Senior Vice President - Innovation & Managing Director for Pitney Bowes India. “In five years, India has changed. We realised there were startups with whom we need to engage, especially in areas we operate,” he adds. The company has two R&D centres in India, in Pune and Noida.

We take a deeper dive into the accelerators of these two multinationals.