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Start-up push: Strong real estate strategy critical for India

Evaluating one’s existing and future space needs will be a crucial factor for overall business efficiency.

Written by Ram Chandnani | Updated: April 30, 2016 2:15:07 am
The increasing IT penetration in the country, leading to direct employment generation of around 3.5 million till 2014-15 is another comfort, along with the potential of a young and educated consumer base. The increasing IT penetration in the country, leading to direct employment generation of around 3.5 million till 2014-15 is another comfort, along with the potential of a young and educated consumer base.

Corporate real estate (CRE) strategies play an important role in the business of start-ups across the globe. As start-ups look for new ways to reduce costs and remain profitable amid increasing competition, making the right real estate choices can go a long way in sustaining their innovative businesses. For a thriving start-up ecosystem in India, evaluating one’s existing and future space needs will be a critical factor for overall business efficiency.

Globally, India is today the third largest base for start-ups. The leading reasons for this are the strong macro-economic and demographic fundamentals of the country. India’s large youth population, as well as its thriving IT and e-commerce sectors ensures a captive talent pool. Moreover, increased instances of funding along with a growing propensity among average Indian entrepreneurs to take chances and start out on their own have also fuelled India’s position as a start-up hub in recent years. The government has also encouraged entrepreneurship by launching initiatives such as Start-up India, Digital India and Make in India.

Despite these factors, however, start-up firms still face several inherent challenges while establishing their businesses. Issues of funding, inexperienced entrepreneurs, limited support systems and brand visibility can lead to difficulty in sustaining operations. The following are a few key strengths and challenges for India as a global start-up destination, as highlighted by a recent CBRE report.

India’s strengths

A key strength lies in India’s sound economic environment, with an expected GDP growth of 7.5–7.7 per cent in 2015–16, coupled with recent proactive government initiatives to boost this segment. The increasing IT penetration in the country, leading to direct employment generation of around 3.5 million till 2014-15 is another comfort, along with the potential of a young and educated consumer base. India is currently home to the largest youth base, with more than 356 million people between the ages of 10–24 years (2015 Census figures).

India, moreover, houses the second largest smartphone user base after China across the globe, with an approximate user base of 220 million in 2015. Potentially high returns of the sector have attracted multiple investors in recent times. Prominent high net-worth individuals (HNIs), such as Ratan Tata, have invested in more than 25 start-ups across various industries in India in less than two years.

The rising affinity for niche, personalised services among Indian consumers has been yet another consideration in favour of India as a global start-up hub. Indian consumers have been increasingly relying on social media to make informed choices on their purchases, influenced by sites that include advertisements, product reviews, and new product launch announcements, among others. Indians have also lately been increasingly open to high risk-return careers, providing additional comfort to India as a global hub for attracting entrepreneurial and innovative minds to the sector.

Challenges

The country, however, faces a few challenges in the form of difficulty in brand visibility, leading to a small target consumer base. Limited support infrastructure, including online payment issues, fake orders, and inexperienced consumers, etc., are other concerns in this field.

Untested business models that may result in high cash burn rates is another concern area. In many cases, inexperienced entrepreneurs may pose challenges as well. The lack of adequate managerial skills in the country is a concern, particularly for nascent start-ups.

The abundance of a technically skilled workforce and India’s demographic and economic dividend have created immense opportunities for a thriving start-up ecosystem, however, and are likely to help override most concerns posing as challenges for India’s growth as an international destination for start-up firms.

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The writer is MD, transaction services, CBRE South Asia.

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