Issue #5. India's Hardware Drive, European Food Delivery Woes, & Ad Market Consolidation
India strengthens its foothold in computer hardware; while European food delivery companies face challenges and turn to consolidation; the global advertising market similarly consolidates.
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India's Push for Hardware Development
India is nurturing ambitions to become the next global epicenter for IT hardware manufacturing. By 2026, the plan is to ramp up its electronics industry to a staggering $300 billion in revenue from the $101 billion projected for 2023. As of now, India exports roughly 25% of its electronics, but there's an aim to elevate this to 40% by 2026.
Given the growing apprehension about China, India seems well-positioned to achieve these goals, especially when you consider the tools at its disposal:
Schemes for electronic manufacturing. India boasts four schemes to promote local electronics manufacturing. The first is the Production Linked Incentive Scheme (PLI) for Large Scale Electronics Manufacturing, targeting mobile phone and electronic components manufacturers. Eligible companies get 3% to 5% on their incremental sales of goods made in India. Another PLI focuses on the IT hardware market, specifically PCs, laptops, tablets, and servers, giving manufacturers 2% to 4% on incremental sales. The Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors targets component manufacturers, offering 25% on capital expenditure for plants and machinery. Lastly, the Modified Electronics Manufacturing Clusters Scheme encourages companies to help create manufacturing clusters by covering up to 50% of the project’s cost.
Import restrictions. In August, the Indian government declared restrictions on importing PCs, laptops, and servers. While brands like Dell and HP aren't heavily affected due to their existing manufacturing plants in India, others find it tough to penetrate the Indian market. There's talk that these measures specifically target Chinese companies. The truth of that claim remains to be seen, but it's evident that, at least in the short term, prices for these items will go up. Furthermore, India has set import tariffs on items like microphones, USB cables, and other related components.
Quality workforce. Each year, 615,000 Indian students enroll in electronics engineering programs, with the country having over 3,500 engineering colleges. Even if all these institutions weren't top-notch, sheer numbers would mean many qualified candidates emerge annually. But many are of high quality. Out of 533 engineering and technology universities in the QS ranking, India claims 14 spots. For context, Indonesia has 4, Mexico 3, and Thailand 2.
Competitive wages (to say the least). Data from Glassdoor indicates an electronics engineer in India earns about $540 a month. In comparison, Brazil sees wages of $1,000-1,500. The US figures are even higher, making this a tough competition.
**Local consumption. While there aren't specific projections for how much local consumption might grow by 2026, if today it stands at $155 billion and consumption of domestically produced electronics is expected to hit $180 billion, it's safe to infer that the overall consumption increase will hover around $35-40 billion. This surge is attributed to the steadily growing middle class. The middle-class population has expanded from 14% in 2005 to 31% in 2022 and is projected to reach 61% by 2047.
Goods manufactured in China once had, and to some extent still do, a reputation for being low quality. It's likely an unfair label, especially nowadays. But it makes me curious: how might electronics with a "Made in India" stamp be viewed?
European Food Delivery Market Faces Challenges
2022 wasn't the best year for venture-backed startups in Europe, or anywhere else for that matter. Investments in European startups declined by 15.9%, dropping to €91.6 billion. That might seem alarming until you discover that investments in food delivery plummeted 58.4% to €3.2 billion.
This sharp drop can be attributed to three primary reasons.
1. Food delivery market dip. Following the pandemic-driven surge and revenue growth from €53.3 billion in 2019 to €105.8 billion in 2021, the European food/grocery market slipped to €104.5 billion in 2022. This was a result of challenging market conditions in Europe and folks venturing outside after being cooped up for over a year. The number of people ordering food online decreased from 62% in 2021 to 56% in 2022, with only 29% doing so every month, down from 37%.
2. Profitability challenges. Food and grocery delivery are tough spaces to do business in. With steep marginal costs, the only way to increase profits is by having couriers complete more deliveries in a given timeframe, which is hard to do without the necessary scale and investments in technology. For instance, Gorillas, a big player in Europe, lost €1.5 for every €1 earned in revenue, with each order costing the company a whopping €8 in just marketing.
3. Intense competition. During the pandemic, competition took a backseat. Everyone needed food and household goods, so every startup got a slice of the action. Now, the game has changed. In Germany, for example, you can get your groceries from HelloFresh, Getir, Flink, Gorillas, and more. Would the broccoli vary much between them? Doubtful. Customers aren't loyal to any one app. When all five apps on your phone offer delivery from your favorite joint, with similar delivery times, it all comes down to price, which is often swayed by discounts and offers.
As with any industry undergoing a boom-bust cycle, the food and grocery delivery sector has seen consolidations:
Getir bought Gorillas for a cool $1.2 billion, even though Gorillas was previously valued at $1 billion.
Delivery Hero picked up Glovo for $2.6 billion after initially buying a 40% stake.
DoorDash acquired Finnish startup Wolt in a $3.5 billion all-stock deal. Initially, Wolt was pegged at $8 billion, but DoorDash's stock took a dive, slashing Wolt’s valuation by over half.
Some companies scaled back, focusing on their primary markets. Zapp pulled out of France and the Netherlands, American company GoPuff exited France and Spain.
Here's hoping this consolidation indicates the food and grocery delivery market is finally finding its feet.
Global Advertising Market: All-Around Consolidation
Advertising is the thing that drives purchase behavior around the world. In 2022, the global advertising market surpassed $800 billion, a notable increase from $433 billion in 2014. This market has seen consolidation among both corporate players and countries, particularly in the realm of digital advertising.
In 2020, a mere five companies — Google, Meta, Amazon, Alibaba, and Bytedance — dominated 46% of the global advertising market. Even more striking, they held 77% of the digital advertising market share. By 2022, just Google and Meta together accounted for 47% of the advertising market outside of China.
On a country level, the US and China together dominate $442 billion or 53.9% of the ads market. When zeroing in on digital advertising, their combined share surges to 57.9%. The relative positions of these countries have remained stable since the pandemic, with each market facing challenges at different times. However, if we rewind to 2012, the growth trajectory is impressive. Back then, the US and China were capturing 43.1% and 41.4% of the market, respectively.
While the US and China are giants in the global economy, together accounting for 43.8% of global GDP, their dominance in the advertising sector is disproportionate. Interestingly, unlike most industries, the global advertising market is heavily influenced by companies from these two countries. It could have been a gripping, if somewhat bleak, narrative to suggest that corporations from the US and China are instruments in a tussle for global consciousness. However, that's not accurate. For instance, Alibaba's advertisements are virtually non-existent outside of China, while Bytedance (TikTok) is primarily driven by Western advertisers.
It's intriguing that not only is there no internet company outside the US and China that has carved out a significant presence in the advertising market, but also the broader media sector lacks such representation. To illustrate this dominance: according to a 2021 report, of the top 25 advertising firms, only four hail from outside the US or China. Remarkably, among these, RTL ranks the highest, landing at 17th place. When evaluating the market share secured by US and Chinese companies, it's plausible to estimate that they command over 90% of the space.