In the context of startups Idea Arbitrage can be defined as re-using an innovative idea in one geographical region and replicate its success elsewhere with a local adaptation of the idea. Examples of successful Idea Arbitrage implementations
Naukri.com, A general purpose job site
Baazi.com , An e-bay like auction site
Then there are other not so well known knock-offs of popular successful ideas like
Bixee.com, uses the general idea from simplyhired.com
apnamarket.com a craigslist knockoff for local classifieds for free
Not all great ideas can actually have the benefit of a geographical arbitrage.
e.g. who would care for gmail.com locally adapted.
A higher form of idea arbitrage is second mover advantage for idea guerillas, look at all the good ideas in early stage(when these startups in the valley are funded with less than 5 million USD which doesn't last long in the silicon valley: VC portfolios are a great place to locate these) and do a cheap knock-off sitting in India with using the same general idea using "labour arbitrage". At the worst the Valley fat cats will need to buy you off, at its best you might be able to kill them or buy them. We live in interesting times.
Of course there is real innovation that needs to be done in the global marketplace but nothing beats turning the whole outsourcing game on its head.
Currently what happens is
Innovators in Valley create a product or think through an idea -> VCs invest into them -> The VC money is used rather inefficiently to outsource the product development to India with attendent troubles of communicating daily dose of innovation at the Silicon Valley office(or New Jersey or whatever) to Bangalore(or Noida or Gurgaon) -> Indians working for Outsourcing industry create these products or help create these products
Now if we could just change the whole equation a bit with
Indian Innovators working in India with a second mover advantage re-implement the idea on their own to compete with fresh ideas funded int the valley -> Valley VCs fund them( now what did you think was missing piece in India ) -> A more efficient eco-system ready take on the cyber-coolies and long distance communication in-efficiencies is born.
This doesn't happen automatically , the first wave of indian startups will necessarily need to do the damage without the benefit of valley VCs until they ( Valley VCs ) see the money they spent on valley startups going down against competition from second movers in India.
