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Indian AI Companies do not see India as its Ideal Customer Base?

The Cost-First Mindset vs. Value-Driven AI Adoption

93% of small and medium businesses (SMBs) in India using artificial intelligence (AI) have reported an increase in their revenue growth - Salesforce's 6th edition of Small & Medium Business Trends Report.

This rosy picture is a mis-itepretation - The real number of Indian SMBs who are productively, systematically leveraging AI is likely between 15% and 25% depending on the sector and region—much lower than the supposed majority

When we imagine the future of AI, India, with its 1.4 billion people, a thriving tech sector, and global leadership in software, should be at the center of the revolution. Yet, Indian AI firms often look West for business, choosing to serve clients abroad rather than at home. What drives this paradox, and is it rooted in India’s enduring preference for cost-cutting over value-creation?

The Cost-First Mindset and Its Reality

Indian businesses are famously frugal, especially when compared to their Western counterparts. For decades, the IT and outsourcing boom taught Indian organizations to deliver “more for less.” This cost-sensitive culture extends across sectors—when considering new technology, the first (and sometimes only) question is: How much will this save me?

On gig economy platforms like Upwork and Fiverr, a glance at postings illustrates the phenomenon: Indian buyers post requirements at a fraction of Western rates—often seeking maximum output at minimum spend. In fact, the volume of Indian demand on these platforms is comparatively negligible when measured against our population size, reflecting both lower budgets and hesitation to invest in digital transformation.

This "show me the savings" attitude is not limited to small businesses. Even large Indian enterprises—banks, manufacturing firms, or retail giants—frequently treat technology spending as a cost center rather than an investment for future growth. Negotiations are driven by procurement, squeezing every rupee rather than pushing for transformational value.

ROI vs. Cost: The Western Contrast

Contrast this with Western clients, who are generally more open to experimentation and view AI as an enabler. In the US or Europe, companies adopt AI to unlock revenue, work smarter, and gain competitive advantage—not just to cut costs or replace heads. As a result, Western customers are:

• Willing to pay for proofs-of-concept.

• Open to trying new products.

• Attuned to “value delivered” over just “hours billed.”

• Quicker in decision cycles and more respectful of intellectual property.

This is why Indian AI startups often find it easier to close deals in Western markets, even when there’s a surplus of cheap labor in India. Western firms face severe talent shortages and expensive payrolls, so the ROI on automation is clear. Indian firms, shielded by inexpensive (though increasingly scarce) labor, see less urgency.

Surplus Workforce and Job Cuts: Is AI the Right Solution?

A major apprehension in India is the impact of AI on jobs. With headlines of layoffs at large tech and IT companies, and a shadow workforce always seeking work, many ask: Is AI the right solution for India? Won’t it make unemployment worse?

The truth is nuanced. While AI-driven automation can eliminate repetitive, low-value tasks, it also empowers workers to engage in higher-skill, productive roles. India’s abundant labor is not as cheap as it appears, factoring in inefficiencies, human error, and attrition. As the economy modernizes, there’s already a shortage of workers willing to do monotonous jobs in many sectors. Thus, AI is not about “replacing people” but making India’s workforce smarter, more productive, and globally competitive.

Is India a Bad Customer Base for AI Companies? The Real Challenge

So, why does India not excite Indian AI startups as a primary customer base? Based on interviews and market analysis1:

• Market Fragmentation & SME Reluctance: Most of India’s businesses are small, informal, and hard to reach. Budgets are tight, technical knowledge is limited, and inertia is strong.

• Bureaucratic Sales Cycles: Enterprise sales take too long, with procurement delays, lack of decision-makers, and payment issues. Many startups feel burned by extended negotiations for tiny deal sizes.

• Affordability over Ambition: Indian clients demand tangible, immediate ROI, want modular, affordable solutions, and often perceive AI as a “nice to have” rather than a “must-have.”

• Expectation Mismatch: Local buyers expect world-class technology at the lowest price, with high customization and support—an unsustainable combination for startups seeking scale.

• Growth Mindset Lags: There is curiosity around AI in India, but the drive to pay for cutting-edge solutions is often missing, especially outside banking/finance and new-age tech.

The Path Forward: Rethinking Value in India

If Indian AI companies are to win at home, the industry—and its clients—need a mindset shift:

• Focus on Value Delivered, Not Just Price Paid: Case studies showing revenue growth, efficiency, or competitive edge matter more than just “savings.”

• Modular, Scalable Solutions: Lower the entry barrier and grow with clients as they see value.

• Education and Hand-Holding: Help clients understand not just what AI is, but why it matters for their business, now and in the future.

• Performance-Based Pricing: Share in the upside with clients to align interests and demonstrate confidence in outcomes.

Conclusion

India’s cost-first mindset is both a shield and a shackle. It drives innovation in affordability, but can also stifle bold technology adoption. For Indian AI companies, this means looking abroad for customers who value ROI, agility, and partnership. Yet, as Indian companies mature and the true cost of inefficiency rises, the demand for high-impact AI solutions will only grow at home. The real opportunity is for those who can help India see AI not as an enemy of jobs or a discretionary expense—but as an engine for growth, resilience, and competitiveness in a digital world