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How Chinese tech startups in India are facing the impact of the coronavirus

The coronavirus outbreak is severely impacting Chinese businesses operating in India.

Photo by CDC on Unsplash

Until a few months ago, Hanusha E-Sports gaming parlor in Indiranagar, a posh neighborhood in East Bengaluru, used to bustle with the excitement of over 50 customers every day—half of which were Chinese—as they were glued to their computers playing popular games such as Call of Duty and League of Legends.

Ever since the outbreak of the deadly coronavirus that has taken more than 1,000 lives, there has been an eerie silence in this 6,100-square-foot gaming center, as now barely 20 people walk into the store per day and the staff can be seen wearing masks, even though there have been no confirmed cases of coronavirus infections in the city yet.

Devin Xia, the co-founder of Hanusha E-Sports, told KrASIA that at least 30 of his regular Chinese customers went home during the Spring Festival, but couldn’t return due to the coronavirus outbreak. According to Xia, about 85% of his regular Chinese clients are trapped in China due to the travel ban that the Indian government had issued to Chinese passport holders after the epidemic escalated.

As the number of customers is thinning for Xia, his business is suffering huge losses. One of Hanusha’s biggest expenses is the monthly rent of INR 720,000 (USD 10,000), which cannot be recovered. The absence of 30 regular customers is costing Xia an income of INR 100,000 every month.

This gaming shop is one of the few places that attract the attention of e-sports lovers in this tech city, also known as India’s Silicon Valley. Xia and his co-founders have spent up to INR 4 crore (USD 560,000) to outfit the store. Most of the equipment—including lights, desks, chairs, and keyboards—is imported from China. Xia has big plans for his e-sports company; opening a branch in Indiranagar, which hosts scores of Chinese companies, was a way to test the waters as he plans to raise money for more gaming parlors.

The virus’ outbreak is slowing down his plan to seek funding and expand. Venture capital investments in China are also in limbo. As most Chinese companies have prolonged their Spring Festival holiday or asked employees to work from home, it is almost impossible for representatives of any business to meet face-to-face with an investor, Xia said. And investors are not seeking stakes in new ventures for now, as they must focus on saving their existing portfolio companies that have been impacted by the epidemic.

“There is no hope we will receive funding for at least the next three months,” Xia said.

Despite targeting young Indian players, Hanusha’s business hinges on visits made by Chinese entrepreneurs working in the city, as e-sports is more popular among Chinese people. The e-sports sector is much more developed in China; playing video games as a team has been a means of entertainment and bonding for Chinese executives who are away from home.

On the same boat

Xia’s story is not an isolated one. Many other Chinese businesses in India have also been disrupted by this healthcare crisis, with scores of Chinese executives unable to return after going home in January for annual Spring Festival celebrations. The absence of key executives has stalled business growth, as companies’ daily operations are affected and product launches have been halted.

In the last few years, India has seen an influx of technology-driven lending companies from China. Since their team size is small and most of the important decisions are made by top management—almost always a Chinese person—these firms are bearing the brunt.

As a co-founder and the chief business officer for a Chinese online lending company in India, Jack Zeng planned to return to India in early February, but couldn’t due to the travel ban.

Hanusha E-Sports center lies almost empty in Bengaluru. Photo courtesy of Hanusha.

According to him, the impact a company might feel due to the absence of key employees depends on the local team’s maturity level. Most big companies that have a large team in India are managed locally, so the absence of Chinese executives will not make a life-or-death difference.

While Zeng’s tech team sits in China, the company has about 50 employees in India who mostly work in the collections team. The company’s daily operations haven’t stalled because the business has already matured, but according to Zeng, their new product launch and upgrade have been delayed since he can not be present in India for business meetings.

“Even if I was in India, the partners would have probably hesitated to meet me, since I spent my vacation in China,” Zeng said. Even before the travel ban, he thought about warning investors that business might slow down.

For younger companies, Zeng said, things can get ugly based purely on luck. “Most early-stage companies were planning to push their investments in operations in India after the Spring Festival vacation, but have not been able to do so, as key decision-makers are still stuck in China,” he said.

Most Chinese lending startups partner with Indian non-banking financial companies (NBFCs) to operate in the country. That’s why if Chinese executives aren’t present, they may lose partnership opportunities as Indian NBFCs will most likely choose another company that can move forward the collaboration faster rather than wait months for a representative to show up.

One Chinese executive, who did not wish to be named, said the impact of the Chinese employees’ absence is mostly felt when managing the local team.

Bleeding cross-border traders 

Just as people from China are finding it difficult to reach India, it has become increasingly difficult for Chinese products to enter the country. India has attracted a considerable number of Chinese cross-border e-commerce players from China, many of which have overtaken Indian players in supply chain and logistics technologies.

Gurugram-based logistics company Jusda India handles cross-border logistics for importers who trade with major Indian e-commerce players like Flipkart, Amazon India, and Meesho, including the multinational electronics manufacturer Foxconn.

It imports products such as apparel, home furnishings, kitchen items, and mobile accessories from China, and supplies them to various platforms. Jusda India used to import 100 tons of products from China to India every month.

A Jusda India employee, who handles cross-border e-commerce supply chains at Jusda India, told KrASIA that business has dropped to zero since the first week of January. “The coronavirus has severely impacted Jusda’s operations, as business for our e-commerce operations has been nil for 1.5 months,” the employee said.

At the beginning of the year, exporters in China were winding down for their holidays, so Jusda’s imports were already down. Few expected lengthy delays due to the viral outbreak in China.

Even though 20% of the merchants in China are restarting their supply slowly, the source quoted above said stagnation in cross-border logistics will stay for some more time. The fear of viral infection is also spreading among clients and laborers. “The laborers are scared of handling imported products,” he said.

As merchants in China return to work, Jusda India will restart business on February 20, but the damage is already done—revenue for Jusda has already plummeted in the first quarter.

With dwindling revenue and little hope of opening new branches of Hanusha, Xia has come up with an idea to attract people in his store. The gaming parlor is inviting women to play video games or use the place like a co-working space for free. “We hope this will provide an entertainment opportunity for female customers, as well as attract more male customers,” Xia said.