Manufacturers Find Homes with Startups in India
In early 2020, as the pandemic was shutting down global commerce, a Pennsylvania company was having trouble getting its usual steel parts out of China. It stumbled on another possible option—in India.
Zetwerk, a two-year-old startup connecting customers and manufacturers within the country, had never handled a U.S. order, but tapped its network of suppliers and delivered the parts. It is now a provider of everything from nail clippers to steel frames for U.S. customers, and is valued at $2.7 billion, with funding from Greenoaks Capital, Lightspeed India, Peak XV Partners and others.
India has been trying to lure some of the world’s biggest companies to set up new factories after repeated lockdowns under Beijing’s zero-Covid policy and rising geopolitical tensions with the West prompted many firms to look for alternatives to China, in a strategy referred to as “China plus one.”
Venture capital in India has taken note. Investors such as Peak XV, which was Sequoia Capital India until in June it announced a split from the U.S. firm, and Lightspeed are increasingly trying to back founders whose businesses involve boosting India’s global exports. Previously, they had focused on generations of Indian startups that primarily targeted the Indian consumer market.
Business-to-business e-commerce startups, such as Zetwerk, have seen increased deal activity in recent years, according to a PwC India report. Funding in that sector was more than three times as high in 2021 and 2022 as in the two years before that, according to data from Tracxn.
No one expects India to replace China’s dominance as the global factory floor. India has struggled to expand its manufacturing sector, as firms faced red tape and weak infrastructure, while policy reversals have stung investors in the past. But Indian government incentives coupled with broader efforts to source materials from India—Walmart said in 2020 that it plans to triple its exports from India to $10 billion by 2027, for example—have made the country more attractive for investors.
A Zetwerk electronics plant in the northern Indian state of Uttar Pradesh. Business-to-business e-commerce startups such as Zetwerk have seen increased deal activity in recent years.
India’s manufactured exports were barely one-tenth of China’s in 2021, but they exceeded all other emerging markets except Mexico’s and Vietnam’s, according to World Bank data.
Beijing’s tensions with the West have given Indian firms an opening to connect with specific industries in the U.S. and other markets, even if they aren’t able to match the prices Chinese providers can offer, executives said.
Source: WSJ.com