Tencent enters India, and its biggest rival turns out to be a Chinese company

The Indian Internet is being divided up by two Chinese companies: Tencent and Alibaba. Both companies have begun to make extensive arrangements in India and have infiltrated many of India's top Internet companies.

In addition, they also have their own allies. Tencent is mainly allied with its own investor Naspers, and Alibaba is mainly allied with its own investor SoftBank. These four giants have invested in almost all of India's most well-known Internet companies. They can hardly see local competitors, and their competitors are all American companies: Amazon and Facebook.

Before the rise of the Indian Internet market, American companies were successful all over the world, except in China; Chinese companies were successful in China, but their internationalization was not smooth. Now, Chinese and American Internet giants are about to compete in India.

So, how exactly do Chinese Internet giants plan their layout in the Indian market? Let’s take a look at the example of Tencent. LiveMint, a well-known local Indian media, interviewed several people who have close business ties with Tencent in India, revealing Tencent’s layout of the Indian Internet.

Here is the LiveMint article:

BENGALURU - In April this year, Tencent invested $700 million in Flipcart, India's most valuable internet company. This also represents a signal from Tencent to India's rapidly developing internet and investment ecosystem that the Chinese internet giant is serious about its investment.

Through this round of financing, Flipcart received $1.4 billion. In addition to Tencent, the rest of the funds came mainly from eBay and Microsoft. This event has symbolic significance for Tencent and India.

Tencent has arguably dominated China's internet economy over the past two decades, with more than two-thirds of the country's population using its messaging apps WeChat and QQ.

In fact, Tencent has so many users that it can compete with WhatsApp, the world's largest messaging app: more than 1 billion people use WeChat in China every day. (Editor's note: This figure is exaggerated.)

But even though Tencent has grown into China's largest Internet company in 20 years, the giant still faces severe challenges.

First, China’s domestic Internet market has reached a critical point, and there is not much room for large-scale growth.

Second, even with billions of users, Tencent has yet to achieve what WhatsApp has done, which is to have a truly international user base.

Tencent is aware of this problem and has billions of dollars to spend, so it has set its sights on India. That’s why it has invested in two of India’s most valuable internet companies: e-commerce platform Flipkart and ride-hailing company Ola.

Tencent has become the most influential and watched company in India’s venture capital circle. Tencent’s camp also includes Flipkart’s first major investor Tiger Fund and Japan’s SoftBank Group.

Internet giants

What’s more interesting is that Tencent’s series of investments have made it a direct competitor of another Chinese Internet giant, Alibaba, in India. Alibaba has also made several investments in India, including Paytm, India’s largest digital payment company.

For Tencent and Alibaba, India is naturally one of the most important markets outside of China. As the Chinese Internet market matures, Tencent and Alibaba must enter new markets if they want to maintain their growth rate to maintain their stock prices.

Moreover, according to two people familiar with Tencent's investment plans in India, considering that India is already the only huge country in the world with underdeveloped Internet, Tencent plans to invest billions of dollars in Tencent in the next three years.

Although India's Internet market is only one-tenth of China's, India has a large number of potential users, which is the most important indicator for Internet business.

Tencent has invested $1.5 billion in the Indian internet market so far, including $700 million in Flipkart. Tencent's first investment in India was in 2015, when it invested $90 million in Practo Technologies, a digital health platform. Tencent also invested in Indian messaging app Hike.

Ola, India's largest online ride-hailing company, announced in early October that it had received a $1.1 billion investment from investors including Tencent and SoftBank Group.

Ola said it is in discussions with existing and new investors for another round of $1 billion, which could bring the total to $2 billion.

"The services provided by Ola are very much in line with the travel habits of local Indians. Our strategic partnership with Ola will enable Tencent to become a part of India's rapidly growing online ride-hailing market. We look forward to helping Ola better solve India's travel problems," said Martin Lau, President of Tencent.

Ola announced in early October that it had received a $1.1 billion investment round, with Tencent participating.

Tencent now has a major presence in four areas: e-commerce, digital health, ride-hailing and communications. It plans to enter more.

Tencent also held talks with Indian online insurance company Policybazaar about taking a stake, two executives said, asking not to be named because the discussions did not lead to an investment.

As of this year, Tencent has not slowed down its pace in investing in India.

The two people familiar with Tencent’s plans in India also revealed that Tencent has hired Sequoia Capital executive Tejeshwi Sharma to help it expand into the Indian market. They also said that Chris Huskey, a Tencent executive in Hong Kong, is also closely managing Tencent’s investments in India.

However, Tencent did not respond to MintAsia’s email inquiry.

Tencent first opened an Indian office in 2014 with the plan to promote its own messaging app WeChat in India. But Facebook's WhatsApp quickly became the most popular messaging app in India, leaving WeChat little room for growth.

In 2016, Tencent shifted the focus of its Indian office to investment.

Tencent is now worth $400 billion, one of the two most valuable Internet companies in China (the other is Alibaba), both of which are based on building influence around the world.

According to Tencent’s financial report, in 2016, Tencent’s revenue was US$22 billion and its profit was US$6 billion.

For most Indian or American companies, Tencent's platform is something they have never seen before: Tencent's core businesses are WeChat and QQ, both of which are one-stop platforms for games, shopping, social networking and even payment.

"Tencent believes that India is 5-10 years behind China. It believes that India's position in the Internet market will be similar to that of China in the future, so it is willing to bet early. In the next two years, Tencent will not only invest in India, but will also participate in the operations of some companies. Tencent will support promising Indian companies and will also hope to increase its shareholding ratio." said one of the people mentioned above.

The competition between Tencent and Alibaba in India is also a continuation of their competition in the Chinese Internet.

Such competition is reminiscent of the competition between Amazon and eBay in the domestic and international markets in the United States around 2000.

Tencent + Naspers vs Alibaba + SoftBank

Tencent’s investments in India are closely tied to two companies: Naspers and SoftBank.

Naspers holds a large stake in Flipkart, and also has stakes in food ordering platform Swiggy and online travel site MakeMyTrip. It is also the largest shareholder of Tencent, and Naspers played an important role in Tencent's investment in Flipkart.

Tencent and SoftBank have also had a lot of cooperation in China and other markets. Interestingly, SoftBank is the largest shareholder of Alibaba.

Therefore, the combination of Tencent + Naspers and Alibaba + SoftBank will have a decisive impact on the development of India's Internet industry.

"Tencent is very good at choosing investment timing, and they often enter in the D round or later. A few years ago, early-stage venture capital firms were no longer viable, but there were many late-stage investments. At that time, there were many venture capitalists who specialized in mid- and late-stage investments. But now the situation is the opposite. Tencent can make good use of its advantages in mid- and late-stage investments, because there are not many companies investing in mid- and late-stage investments in this industry," said a venture capital firm partner who has co-invested with Tencent in India. He requested anonymity.

He continued: “Although Tencent’s investment in India is long-term and they are not in a hurry to pay back the limited partners (LPs), they still use the same strategy as ordinary venture capital firms when investing in India. For now, they are very satisfied with their strategic investments in Flipkart and Ola, and they may join Naspers to buy one of them in the next few years. They are really optimistic about the Indian market now and their goals are long-term.”

Flipkart is India's largest e-commerce company, and Tencent has become a major shareholder

Tencent is a Hong Kong-listed company that already has multiple businesses in China, including media, entertainment and e-commerce. Now, the challenge they face is to replicate their success in China in India.

"Tencent has billions of dollars on its balance sheet to spend at will. Moreover, China's Internet development has slowed down, so Tencent must make sure it does not miss out on the Indian market. They believe that India is the last huge untapped Internet market in the world," said one of the interviewees.

To ensure that it does not miss out on India, Tencent has done a lot to ensure that it can have a place among the top Internet companies in India.

It is already the most active overseas investor in Indian startups. The Shenzhen, China-based company has many investments in India, including Practo and Hike.

According to the five executives interviewed above, Tencent executives have visited India numerous times in the past 18 months and met with a variety of Indian entrepreneurs and investors.

Executives who have chronicled Tencent’s activities in India feel that even with Naspers, it will be difficult for Tencent to outperform Alibaba and SoftBank in India.

Alibaba and SoftBank have become increasingly intertwined over the past 18-24 months, especially after their investment in Paytm.

The timing for Tencent to enter India may not be the best, because India's Internet economy is currently going through a downturn and Internet entrepreneurship is not as active as before.

According to Tracxn, a data company that tracks startups, the number of new startups in India has been declining sharply for two consecutive years.

But despite this, it is difficult for Tencent to back down.

The five executives interviewed above all said that Tencent will spare no effort to gain the upper hand in India.

"They have billions of dollars. Even if Amazon plans to invest $5 billion in the Indian market in the next two to three years, this amount of money is nothing given their huge size," said an executive interviewed.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.