“Chinese Capability, Indian Brand”: An Entrepreneur on the Future of India-China Business

Ashwin Rastogi belongs to a small group of business leaders who have operated at depth on both sides of the India-China corridor. An engineering graduate of the Birla Institute of Technology and Science, Pilani, he began his career in finance — as a summer analyst at J.P. Morgan, then in public and growth equity at Premji Invest (the family office of Wipro chairman Azim Premji), where he worked on investments in Flipkart, Myntra, Snapdeal and Policybazaar, and later in early-stage venture capital at Eight Roads, the venture arm of Fidelity.

Rastogi then moved from investing into operating. As the first India employee of the Chinese cross-border e-commerce major Club Factory, hired immediately after its Series A, he built the company’s India franchise to a peak of 550,000 orders a day and roughly US$600 million in annual gross merchandise value, setting up warehouses, last-mile networks and brand partnerships. He went on to serve as India country manager for the fast-fashion and cross-border-trade company Urbanic. Today Rastogi is the founder of INCLUD, a consumer venture in the baby and kids space based in Gurugram. He travels to China roughly once a month, and estimates that he spends a tenth of his time on research, with China as his central focus.

Garima Arora and Mukul Pandya interviewed him for CKGSB Knowledge. The conversation has been edited for length and clarity.

Why China integrates and India does not

Q: China’s consumer internet is built around integrated “super apps,” while India’s runs on separate, distributed platforms. Why did the Chinese model never take hold in India?

In China it works on economies of scale, and you have a very large scale — much more than India — which brings costs down. And there is enough competition, because there is enough capital. Once you have the infrastructure layer ready, competing becomes easier. Anyone who is 10x larger than you, you can still compete, because the infrastructure layer is already there. It is built by the government — that is state, not private. So the state forms the infrastructure on which you play, and then there is consolidation and economies of scale.

The way China works is that everything is a super app. Everyone wants to become a super app, because everyone wants to own the customer in their own environment so they can eventually make more ad revenue. That has not happened in India. The reason is that the infrastructure layer is distributed. No e-commerce player has the same app where you can upsell tickets to a show, or sell tickets to rail or air. Companies thought of replicating it — which is why, when Chinese capital came into India, Alibaba and Tencent started buying out different entities and trying to merge them. But it did not work in India, because India has very low trust. You would still not trust a platform. Amazon, by that standard, has very high trust. Beyond that, people just take a lot of time to trust a platform.

Q: Why is that trust missing?

One reason is that we are not uniform. If you go across China — it’s the same language, same mode of payment, similar intent throughout. That does not exist in India.

Q: You have described the cross-jurisdiction integrator — the firm that can operate across both China and India — as the defensible, high-margin business of the next decade, yet you note it is mostly Foxconn doing it today. What does an Indian-owned integrator actually need to get off the ground: capital, government relationships, or certification capability? Is anyone attempting it credibly?

The large ones are — each in their own field, where they have existing expertise. Adani has infrastructure; Tata has technology to a certain extent, plus infrastructure; Reliance would largely index on new technology where capex is a moat, because it can raise large sums and execute really quickly. All of them are trying, right now, to build integrated systems. Foxconn came to India, and the idea was that it also has to partner with India to build an integrated system, because it is moving part of the supply chain. So parts are coming from China, getting assembled, and going back. And then there is a PLI [production-linked incentive] scheme in between, which subsidizes it and makes it lucrative for anyone to put in capex, because these are large investments.

A major part of this — we have to start somewhere. The government has taken some flak that the PLI scheme is burning money, but you need that scheme for manufacturers to have an incentive. That is number one. Number two, you eventually need to expand in the value chain, and that can happen only by putting more money into R&D. Unfortunately, we do not have a margin structure in our country where, even if we put an x percentage into R&D, companies have enough margins that they are willing to spend it to expand margins or protect market share. So that makes a classic case for technology transfer.

In China you call it the real economy. One part of the economy is the apps on your phone; the other is the actual phone and the hard tech. China today, I’ll be honest, is almost at par with most developed economies, and in a few technologies — wherever there is hardware integration, robotics, and so on — it is way ahead of Europe and the US. A small example is energy storage. We are putting capex into renewable energy, but we are unable to store it. You generate energy during the day, but you need to save it for the night, for residential peak load. That technology was to be transferred — there was a JV that was to happen between Reliance and another company in China, but it never happened. Those laws are a question of willingness between two governments. I don’t think even the companies can do anything about it.

There is willingness on both sides, by the way. I know enough Chinese companies that would be more than willing to transfer technology if there were IP protection and some form of royalty. There has to be some incentive. There is none as of now — royalty taxation happens at 28%, and a lot of times it is just not feasible.

Capital will not be an issue, because growth will most likely be in India for the next 25 years, and capital moves to where the growth is. The point is, what is in it for China if they transfer technology? That is not yet clear.

Q: Do you see things getting better, staying the same, or getting worse?

I think Indians have a large ego, and we do not have enough substance to defend that ego. The smart thing would be to invite anyone who wants to transfer technology — give them a layer of infrastructure, tax subsidies — and welcome them with open arms. Instead we are arrogant: we think that because we are such a large population, you should be taxed for the opportunity to be on this bus. That is not the right way. The right way is to allow people to set up, and then eventually indigenize — which is exactly what is happening in China now. Once there is enough GDP per capita and enough patriotism, the external incumbents eventually go out and the internal ones become stronger. That is inevitable.

Q: The “China plus India” production system is most visible in Apple — designed in Cupertino, optics engineered in Shenzhen, components from the Chinese cluster, final assembly in Hosur. Right now Apple is almost the only example. Which other sectors could run the same model, and which structurally cannot? Is this a repeatable pattern or an Apple-specific quirk?

It is a repeatable pattern, depending on how important the industry is. It will definitely happen in electronics, for sure, because the adoption of electronics only increases with time, and there is only so much automation you can do — you still need assembly. One thing about Apple is that it was large enough to need China-plus-one, and it could afford to enter India, go through all the red tape, and build something. There are enough industries within electronics where labour in India is still cheap, and should remain cheap for a while. And there is enough scalability, especially in the South, which is very entrepreneurial in manufacturing — you could have a 10,000-person plant and eventually 40,000 or 50,000, the way it happens across China.

Electronic components are a no-brainer, because the value you add in assembly is very low — but it is a good start. Eventually you would want component manufacturing to come in, and then design. We already do a lot of chip design, but the chip industry itself is so difficult — there is a monopoly of companies like ASML on the machinery — that it is hard to start in India. Assembly is low-end, and there was plenty of mobile-phone assembly in India even before Apple came; all the Chinese players were already here, even Samsung. Apple was one of the last large players to enter, and partly by force, because of what was happening between the US and China.

I do believe apparel will follow as an industry, but the supply chain is slightly different, because the fabric — a capex-heavy layer — will be owned by the Chinese, while garmenting happens across South and Southeast Asia. Wherever China is connected by its Belt and Road, it looks for labor-based industries; Bangladesh and Vietnam already have Chinese sister units exporting to the US and bypassing tariffs. But electronics is priority zero. What would also help is other industries like chemicals, which are core to a manufacturing base — and that requires relaxing certain laws. Rare earth is the classic example: we have rare earths, but not the processing, because it is not environmentally friendly. And we are not yet at the GDP-per-capita level where we can afford to lose that business while defending environmental laws.

Q: You have described Chinese LPs routing into India through Singapore-domiciled funds as “not verifiable, but widely known.” How does a founder distinguish genuine China-linked capital from capital when it arrives through a third-country vehicle? Are founders doing that due diligence, or choosing not to ask?

I think it is almost impossible, and as you say, they are choosing not to ask — because the onus lies on both the bank wiring the money and the company accepting it. The initial layer, where the bank sits, is where the scrutiny is highest. Obviously there are a few banks willing to take that risk. You can still get debt from China, if not equity. A lot of the larger companies that wanted to support their existing Indian investments but could not put in further money did convertible debt — and that debt will convert when the laws get relaxed. So it is still debt for now. But if you look at the cap tables of almost every successful Indian entrepreneur and listed company, a lot of that capital has origins, or structures, with capital from outside channels.

Q: Why would Indian founders want that capital back, given the cap-table risk?

Most Indian entrepreneurs would welcome Chinese capital with open arms. When you think of Chinese capital, you think of scale, and it is slightly more long term, because they have seen certain cycles in China. Capital from the US or Europe tends to be more transactional, and more short term.

Q: “Conglomerate 3.0” describes a group whose businesses share not just a balance sheet but a customer, a data layer, and a single unit-economic logic. What are the defining attributes of the conglomerate 3.0, and which Indian and Chinese companies are best positioned to evolve in that direction?

Within China you already have it — the larger ones like Tencent and ByteDance, with high user adoption and relatively high platform trust. There may be low trust for a product being sold, but that is what a marketplace is for; it promotes competition.

In India we still don’t have that kind of integration. Someone filling fuel at a petrol pump is not giving you the same data as someone buying at a grocery store, even if you own both — there is no correlation, they are two separate businesses. That integration hasn’t happened yet, because in terms of tech adoption we are still not that savvy, and the target user base is very small. That is why a lot of conglomerates have not moved in that direction — there isn’t enough critical mass. And other new-age companies cannot move there either, because there isn’t enough capital.

Q: On Reliance, specifically, you have said it has not succeeded at the compounding cross-sell that works for Ping An, pointing to single-digit penetration at its grocery business. Is that a problem of execution, sequencing, or something structural?

The good part about Reliance is execution — there is no one close to it. It has the capital and executes really quickly to challenge any incumbent. So execution is not the issue, and capital is not the issue. The problem is that the number of apps we use is such that even if something is one rupee cheaper on another app, the customer will go to the other app. There is no trust, no loyalty, no retention. They may be the largest consumer company on paper, but they don’t have the largest market share across consumer sectors. You would build the compounding ecosystem only if you knew the customer would stick for a very long time — and in India, they don’t.

Q: Your model has China upstream in IP and components and India downstream in assembly, distribution and the customer relationship. But you also warn that China could tighten technology transfer to stop India moving up. What keeps that equilibrium stable — why would Chinese partners accept being confined upstream?

It boils down to cost structure. Upstream requires a lot of R&D, building a product that has to come out of the accruals of a company already making money with healthy margins. Look at the automotive industry: the largest market share in India is about 55%, with Maruti Suzuki — a large number for a large market. In China, the largest company owns no more than 15% to 16%. The top 20 car companies there would be roughly 80% of the market, and they keep fighting to innovate because they have to make money. The larger ones protect their turf through regulation rather than innovation. That is the easy way out, and it is also why we do not compete on the global stage — we don’t sell cars in Europe or the US. Protection weakens you. We need to open up. But there are also examples where we opened up and destroyed an industry — look at cell-phone manufacturing, where there is no indigenous player.

Q: If “Chinese capability, Indian brand” becomes the dominant model, what could go wrong — for consumers, for domestic capability-building, and for the founders who bet on it?

If you build a business without IP, it will fail eventually. What I have learned from the Chinese is that they are always on their toes, always thinking ten years ahead, willing to bet for the next ten years. They never stop, no matter how rich they become — most of my friends in China have never seen a down year and don’t know what a recessionary environment is. In India, the moment people reach a certain level, they lose their hunger. We need to respect the fact that the Chinese have developed real technology now. You buy an Apple phone and a Huawei phone, and you don’t consider them at the same level — that perception needs to go, though China also needs to do a better job at branding.

As Indians we don’t have much choice, because even in India the largest social network is American — Meta — and the largest search engine is Google. We don’t have anything of our own. If the building blocks of a nation are not owned domestically, that poses a great geopolitical issue, and a problem in any negotiation. When I first visited China, people would say: first you have to become strong, and then you conquer. I didn’t understand it then. Now I do — you become stronger internally, with conviction and hard work, building technology on top, with a unified vision for at least two or three decades. That is the issue with elections every five years: the focus shifts every three to four. A 20-to-30-year vision is exactly the span of our demographic dividend.

Q: Is there anything we have not asked that you would like to add?

There is a trust deficit between the two nations, and that void needs to be filled. There have been many initiatives in the right direction that had to be turned back, because once a perception becomes ‘anti-national,’ there is no going back, especially if it lasts too long. We need to swallow our pride, work hard, and accept that business runs on the principles of capitalism, not social welfare.

My main thought is that there needs to be more cultural exchange. One of my friends in China, after his company did well, was asked what he would do with the money. The first thing he said was that he needed to buy his parents a ground-floor home, because his father could no longer climb stairs. That touched me, because our roots are not that different in what we value — I am 35 and still live with my parents. There is enough willingness among people on both sides; the Chinese love large markets, and India is one unified large market. That intent needs to be replicated by both governments. Business success will change government perceptions — successful businesses in each country making profits in the other are the constituency that can change the political thinking.