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Last Updated : May 26, 2020 07:41 AM IST | Source: Moneycontrol.com

Global is the next avenue of growth for FAANG and India is a core part of it

In today’s world, a company cannot have a global presence without having a sizeable presence in India. The FAANG companies have realized this and all of them have India as a core part of their global expansion strategy.

Moneycontrol Contributor @moneycontrolcom

Viram Shah

FAANG, an acronym coined by CNBC’s Jim Cramer in 2013 has become a household term not only in the US but across the world, also in India. For the uninitiated, FAANG stands for Facebook, Apple, Amazon, Netflix, and Google, the technology behemoths that are reshaping our world. Combined, these companies have a market capitalization of $4.1 trillion.

Apple, Google and Amazon have individually breached the elusive $1 trillion in market cap mark. To put that into context, a market cap of $1 trillion is larger than the GDP of 90% of the countries in the world.

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Throughout their lifetime, the underlying theme for all of these companies has been – growth and innovation. As Jeff Bezos alluded to when he said – ‘Your Margin is my Opportunity,’ these companies have disrupted multiple industries and competitors by out-innovating and out-growing them. Now as they look to drive the next leg of growth and innovation, one commonality that stands out is - their focus on global expansion.

In today’s world a company cannot have a global presence without having a sizeable presence in India. The FAANG companies have realized this and all of them have India as a core part of their global expansion strategy. Let’s look at some of the initiatives each of these companies are undertaking to expand their reach across the world and India.

Facebook

Facebook has recently been in the news a lot because of its massive bet on India via a $5.7 Billion stake purchase in Reliance Jio. This investment was also Facebook’s largest overseas investment. Facebook has long been bullish on the India market but faced multiple regulatory challenges earlier. This investment will not only help Facebook navigate the regulatory environment better (with Jio’s support), but it also gives the company access to millions of Kirana stores across India through the Jio network.

Screen Shot 2020-05-26 at 07.03.39

Facebook currently derives majority of its revenue from North America and Europe but with the recent investment in Jio, it has gained a strong foothold in the India market. The partnership aims to combine Reliance’s JioMart offering with Facebook’s Whatsapp to create a product that allows Kirana stores to go digital with the services they offer.

Apple

For Apple, geographic expansion is not only relevant from the demand side, but also from the supply side. Since the majority of Apple’s manufacturing partners are based in China, it constantly gets caught in the ongoing US-China trade war. To reduce this reliance on China, Apple started diversifying its supply chain, mainly across India and Vietnam.

Currently 30% of Apple’s Airpods are produced in Vietnam. Apple is also looking at potentially make $40 Billion worth of iPhones out of India. This would make Apple India’s largest exporter. On the revenue side of things, given the premium pricing Apple demands majority of its sales are still from countries in the West. To be able to penetrate the Asia market, Apple will need to tweak its product strategy for emerging economies.

Amazon

In 2019, Amazon generated $74 Billion (20% year-on-year growth) in revenue from its international business. This forms 27% of its total annual revenue.

Screen Shot 2020-05-26 at 07.04.21

Leading this international growth are five key markets – Turkey, Australia, Mexico, Brazil, and India. India remains the largest opportunity and Amazon realizes this. Jeff Bezos in his January 2020 India trip talked about how Amazon will invest $1 Billion in its India operations to boost its business (Amazon has invested $6.5 Billion in India since 2013). Amazon recently announced that they would be hiring 50,000 temporary workers in India to meet a surge in online deliveries demand. They also launched their food delivery service called Amazon Food. This service will compete against the likes of Swiggy and Zomato.

Along with India, Mexico and Australia are also important markets for the company and are estimated to contribute up to $2.9 Billion and $2.3 Billion to Amazon’s revenue by 2023.

Netflix

Netflix is the smallest FAANG stock in terms of market cap. The company faces very unique challenges in its bid to expand internationally. These challenges are in the form of local content licences and already existing competition. Unlike the other companies, Netflix needs to secure content deals region by region, and sometimes country by country to be able to launch their services in different markets. To add it, tough competition that offers home-grown content often already exists in many countries (for e.g. Hotstar in India).

Despite these challenges, Netflix has expanded across 190 countries in 7 years. Their international expansion strategy is an interesting one. They took a phased approach to expansion. The company first focused on adjacent markets like Canada, then used the learnings from the first phase to expand into 50 other countries and in the last and third phase entered the rest of the 190 countries. Now as the growth for the US business has slowed down due to competition, it is the international subscribers that is leading the growth for Netflix.

Screen Shot 2020-05-26 at 07.04.57

Netflix’s growth in India is still in its early days, however it is growing rapidly. The company’s India revenue increased by 700% year-on-year in 2019 and profits saw a 25x increase. Further, as one might expect, they have seen increased engagement on their product during the lockdown – the time spent per user in India shot up to 80 minutes a day compared to 50 minutes a day pre-lockdown.

Google (Alphabet)

Google’s core product its search engine is inherently global and already has a widespread global presence. It commands 30% of the $110 Billion global digital advertising market. Youtube is a large part of this digital advertising domination and is expected to contribute $9.3 Billion in 2020 revenues.

In terms of geographic expansion Google says that it has just begun its foray into India and Southeast Asia and its re-entry into China. Google’s partnership with JD.com (China’s second largest e-commerce player) will allow it to try and re-establish itself in China. Google is also looking to take advantage of China’s growing cloud market and is seeking to offer its cloud services out of data centers run by local Chinese companies. For countries like India, Indonesia, Brazil and Nigeria, Google is specifically focused on capturing users who are joining the internet for the first time primarily through their mobile phones. The company believes that there are exponential growth opportunities in this segment of users.

Particularly in India the company has undertaken multiple initiatives to widen their presence. They opened a research lab in Bengaluru to focus on the advancement of computer science research in India. Google Pay is one of the largest UPI payments platforms in the country and has more than 67 million users. The company also recently launched its India-first reading app across the world. The app used to be called Bolo app, it’s an app aimed at helping kids learn better at home. The app was rebranded to Read Along and launched in 180 countries.

Overall, as US growth saturates for these large technology companies, geographic expansion will be essential if they want to continue to out-grow and out-innovate other companies and improving their India presence will form a core part of this geographic expansion.

(The author is CEO and Co-Founder at Vested Finance)

Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.

The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on May 26, 2020 07:41 am
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