Hrishikesh Kayshap, Student, IIM Indore & Former Research Intern, ICS
China and India, home to the largest and the 3rd largest number of Unicorn (privately-held start-up valued at over $1 billion) companies globally, present an interesting case-study for a comparative analysis of start-up ecosystems. With 21 unicorns, India is 3rd in the list of countries with the most unicorn companies; China has around 206, which is more than 41% of the global no. of unicorns. As start-ups offer immense opportunities for economic growth and employment generation for almost all economies, it is imperative we study the ecosystems that encourage start-up creation and incubation. Incubation systems refer to business incubators(private) or government incubators(public), companies that help create and grow young businesses by providing them with support in the form of financial, technical and logistical services among others.
Incubation in China as described by the “China Business Incubation Development Report 2019” indicates there are around 11,808 business incubators in the country serving a total of 620,000 startups (206,000 of them were technology-based), employing around 1.514 million people. In 2018, around 62.18% of these incubators were private enterprises with business-oriented operations and around 15.9% of the total incubators were state-owned. This report also states that in 2018, the working income of start-up incubators was around $ 9.43 billion and that in the period 2016-18, China’s incubators achieved profitability for three consecutive years. It is important to note that out of 11808 incubators, 4789 were technology-based, the overall focus being on electronic information, advanced manufacturing, and cultural creativity. Also involved were bio-pharmaceuticals, artificial intelligence, new energy and upcoming industries. The Incubation 2019 report is an integrative report on the huge number of incubators, social enterprises, educational or job training centres and non-governmental organisations (NGOs) etc. As a diverse range of new businesses are now classified as start-ups, the number of Chinese start-ups and incubators seem to be relatively higher than other countries.
Incubation in India is primarily documented through Government of India’s “Start-Up India” programme which has recognised around 32,849 Startups, with 52,326 entities registered in the Start-up India scheme. While incubators under the Start-Up India programme have flourished with several tinkering and innovation labs being established, there are around 200+ business incubators in the country. In addition to them, the central government is establishing 7 new research parks to aid R&D for startups, adding to the existing 11, while twenty-six Atal Incubation Centres (AICs) have also been set-up. The Central Government has also scaled up the existing Established Incubation Centres (EICs), while each state has its own start-up policy and facilitator system, ranked under the “States Startup Ranking 2018” report. Examples of such incubators are T-Hub by the Telangana State Government, incubators in academic institutions like NSRCEL, CIIE, CIE and corporate incubators hosted by NASSCOM and SAP Labs.
|Total no. of startups(approx.)||10,000||10,000||4,752||N.A.||N.A.||83,000|
|Tech-based startups(2016 figures)||4,300||3,400||4,000||N.A.||N.A.||48,500|
|Non-tech based startups(2016 figures)||5,700||6,600||750||N.A.||N.A.||34,5000|
|Set up a new business (days)||17||9||12||2||11||6|
|Corporate tax rate (2019 figures)||25%(plus surcharge of 7% and 12% if income exceeds INR 10 million and INR 100 million respectively and a cess of 4% in all cases)||25%||23%||17%(100% tax exemption for startups)||31%||27%|
|Other taxes payable by||10.1%||8.0%||1.5%||1.1%||4.1%||6.1%|
|Businesses (% of commercial profits)|
|No. of Tax Payments by businesses (per annum)||13||9||28||5||14||11|
|Bank Lending rate (2018-2019||9.5%||4.3%||3.5%||5.3%||1.0%||3.9%|
|R&D spending as % of GDP||0.8%||2%||4.2%||2.2%||3.4%||2.7%|
Source: IMF, World Bank, KPMG, PwC and UNESCO.
Startups in India (upto 7 years since the date of their incorporation) that register with the Startup India Programme can avail benefits like self-certification, no taxation for upto 3 years, fast tracking of patent and IPR protection, exemptions on Earnest Money Deposit (EMD) among other benefits. However, this doesn’t extend to older startups, even though most startups take a considerable amount of time to become viable businesses. Unlike India, China does not have any nodal agency for startup registration or promotion and all companies including startups register with the State Administration of Industry and Commerce (SAIC) equivalent to the Registrar of Companies (ROC) under the Ministry of Corporate Affairs in India. In India, start-ups and business incubators are taxed at the same amount as other companies, translating to 13 number of payments and multiple direct and indirect taxes, and a corporate tax of 25% (plus surcharges amounting to 7% if income exceeds INR 10 million and 12% if income exceeds INR 100 million along with a cess of 4% in all cases). This is in contrast to the number of tax payments by businesses (p.a.) in China (9) and a corporate tax rate of 25% (10% or 20% for small scale enterprises, 15% for new/high technology enterprises), lower bank-lending rates for businesses and the integration and upliftment of business incubators, where private capital has become a major source of investment for entrepreneurs. These favourable conditions are what have resulted in the incubation/start-up boom. Incubators in China grew by an average of 20% annually in 2016-18 and in 2010-2014, new businesses grew by almost 98% in China.
Entrepreneurship and Incubation have emerged in China prominently along with the internet boom and even traditional manufacturing industries, finance, medical and agriculture sectors are now targeted to be integrated with technology and the internet through policies like ‘Internet Plus’ and ‘Made in China 2025.’ The impetus provided to startups and the incubation system, especially in emerging sectors like Artificial Intelligence, Biotechnology, New materials etc. puts the entire startup ecosystem at an advantageous position, where we can anticipate further growth.
Apart from the few incubators in India supported exclusively by the private sector (Venture capital funds, angel investments, other private companies, etc) a large majority receive some sort of government support but are still mired in strict qualifiers and regulations. A majority of these incubators remain solely tied to government academic institutions and conjoined-research parks, where private capital by citizens and investors from India have not significantly forayed into the incubation space. Chinese provincial governments’ direct investment in resources, capital and land result in partnerships with incubators and new businesses alike, where it is difficult to draw the line between state-owned companies and privately-owned enterprises. In China, there is now a new cultural acceptance of risk-taking owing to local government hand-holding in each step of the way, in what can be termed as provincial push.
Start-up India mimics China in the way Indian states have their own start-up nests. However, the centre’s role vis-à-vis provinces is very different from that of India. Chinese provinces have their own rules for funding, incubation and promotion of start-ups not directed by a central start-up body like in the case of Start-Up India. Examples for this include the city of Chengdu in Sichuan province which launched the Venture Tianfu-Jingronghui Project that aims to attract 100,000 startups by 2020. Additionally, despite this state-support, there seems to be a healthy influx of private capital fund in China. In the Indian ecosystem, the scarcity of funds, ideas and teams venturing into entrepreneurship, related incubator systems and the overall upliftment of the incubation would only work with a more business-minded approach and an influx of attention, awareness and investments from private bidders and citizens as a whole.