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Business News/ Opinion / What Flipkart can learn from TCS
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What Flipkart can learn from TCS

Flipkart needs to look for a differentiator much like TCS did when it cracked the offshore model

Illustration: Jayachandran/MintPremium
Illustration: Jayachandran/Mint

A few weeks before Flipkart announced its latest round of funding in which it has added a billion dollars to its war chest, Tata Consultancy Services Ltd (TCS), India’s most valuable company, scaled 5 trillion in market capitalization. At that number it is ranked ahead of not just its Indian peers but also such global heavyweights as Accenture. Collapsing time and vintage may seem like a travesty, but in this instance it could give the younger Indian company a few valuable lessons in building a world-class and world-scale business.

Indeed, it is tempting to dismiss TCS as the past while welcoming Flipkart as the brave new face of India’s technology sector. Except that TCS is no fuddy-duddy behemoth. Sure, there is an old world air about its success. Anyone who saw the vast cavernous offices of the company in Mumbai’s Air India building in the 1990s would know how it was run like a factory. But its model of earn before you burn is far more relevant in these bubbly times.

Flipkart is a typical product of its time, a me-too business which has edged ahead of its competitors with better fund-raising ability as well as superior delivery systems. TCS, founded 46 years ago, was so far ahead of its time that it is difficult to find a reference to it in the newspapers and magazines of the 1980s. Flipkart is of course a true blue entrepreneurial venture while TCS was at best a piece of canny intrapreneurship by its founder Faqir Chand Kohli within the venerable Tata group.

In 1998, TCS’s revenues were just about half a billion dollars, representing 12% of the industry revenues. Having gobbled up rivals such as Myntra and Letsbuy, Flipkart has the similar opportunity to pioneer a whole new market in India. For that though it must take a few leaves out of the TCS book.

In 1998, TCS set itself a simple target—to be among the world’s top 10 by 2010. It has done so successfully even while its margins are among the highest in the business. What would it mean for Flipkart to set a similar target? The company says it is looking at $100 billion in sales over the next 5-10 years. That’s a tall ask with the total Indian e-commerce business barely $3 billion at the moment. This forces the company to spend its way to market penetration.

In the last three years the e-commerce start-up has raised $740 million in funding from venture capitalists with another billion dollars added to that swelling kitty now. Its model of growth needs massive volumes but with the amount of cash it is burning, it also needs the funding to keep coming. It is in a desperate but audacious race against itself as well as Amazon, the big daddy of the global e-commerce business, which has just announced it will invest $2 billion in its India business.

In his autobiography The TCS Story…& Beyond, S. Ramadorai, the man who as chief executive officer of the company from 1996 to 2009 is widely credited with its growth, talks of the three waves the company had to ride to success. These were establishing credibility, scale and leadership. Given the confidence showed in it by its existing investors and the growth in sales, Flipkart looks like it has cracked that first wave. But it is the next two that are going to be its biggest challenges. At about $200 million of sales in 2013, it is a minnow in the global e-commerce rankings where number 15, Best Buy, had sales last year of $3 billion. Besides giants such as Alibaba, newer firms such as Tmall, Aliexpress and Rakuten are scorching the rankings and all of them are from Asia with Tmall and Aliexpress belonging to the Alibaba group while Rakuten is from Japan. The global tech bazaar is awash with funds buoyed by a booming stock market for tech stocks. Reading too much into Flipkart’s $7 billion valuation following its latest round of funding is risky. That is just a figure for the next round, whenever that happens.

The last few years has seen the birth of newer models of e-commerce and the foundations of market leadership are being laid now. Flipkart’s advantage of course is that it is operating in one of the fastest growing markets for e-commerce in the world. Unlike a TCS or its peers such as Infosys and Wipro, it doesn’t have to discover a market. What it does need is to look for a differentiator much like TCS did when it cracked the offshore model. Flipkart would do well to look for such a positioning with the cash it has just raised.

Can Flipkart gain competitive edge over its rivals? Tell us at views@livemint.com

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Published: 30 Jul 2014, 05:11 PM IST
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