«Microsoft Corp.will hire several hundred new staff at its new Indian campus in the next year, its chief executive said on Monday, in a move aimed at strengthening its presence in Asia’s fourth-biggest economy.»
(Reuters, November 15, 2004)
«Over the next ten years, Russia, China and particularly India will emerge as important hubs for producing services such as software engineering, insurance underwriting and market research. These services will be consumed at the other end of a fiber-optic cable in America, Japan and Europe.»
(The Economist, November 19, 2004)
India , the fourth-largest world economy after the United States, China and Japan is now known as the recipient of numerous foreign direct investments particularly for outsourcing purposes. Major information technology (IT) corporations see India as the place to take advantage of its skilled labour and relatively low wages. Call centres serving English-speaking customers mostly in North America and the United Kingdom are increasing their presence in the sub-continent. Banks outsource the administrative functions related to credit-card business and some other corporations do many human resources functions off-shore such as payroll work. This activity is commonly called business-process outsourcing (BPO). Other BPO includes work for foreign brokerage houses, software designers and other business-service-oriented companies. In India, BPO sales in 2003 amounted to $3.6 billion and it is expected to increase to around $23 billion by 2008.
With a population estimated at 1,065 million as of July 2004, India represents a huge potential market for exporters of consumer and industrial products. It is also an important supplier of textiles, chemicals, steel and software for importers around the world. The economy of India had a good growth rate over the past few years averaging around 6%. One of its main advantages is its large pool of well-educated workers that speak English which facilitates the export of software services.
All of this inflow of business activities seems to point to a very positive state of the Indian economy considering a sharp rise in stock prices, the growth of foreign exchange reserves and the influx of foreign direct investments. However all is not so rosy. The public-sector budget deficit runs at approximately 60% of GDP (2003). The stock market seems to be fuelled by foreign speculators who can withdraw these funds as quickly as they brought them in. The need for India to invest heavily in its deteriorating infrastructure such as roads, railways and ports could further decrease those foreign exchange reserves.
As with China, India is competing for the supply of fuel and commodities to satisfy their growing middle-class seeking a higher standard of living. As stated in The Economist ( November 6, 2004 issue) «the two [countries] are locked in competition for market share in common exports. Chinese textile and garment firms have handily dominated their India competitors…». However in the IT sector, India dominates. The city of Bangalore, perhaps the equivalent in Asia of «Silicon Valley», located in the southern part of the country, attracts most of the IT foreign investments from North America ( United States and Canada) and the United Kingdom.
India has a stable government but its numerous military skirmishes with its neighbours, particularly Pakistan and Sri Lanka, could have in the long run a negative impact on its economy. India however presents an enormous potential and exporters as well as importers should become familiar with the best ways to penetrate this market either as a business target or as a supplier of goods or services. Similar to other developing markets, doing business with India entails some risks:
So, exporters, importers and investors must abide by certain basic rules to succeed in this huge market. Some general recommendations would be:
Doing business in India is as challenging for its own business community as it is for foreigners. One must know the rules and show patience and perseverance and most importantly go through a local partner. The choice of the local partner is the key decision to take before tackling the business at hand. This applies especially to foreigners since trading with Indian companies requires a good intermediary familiar with the proper commercial surroundings. A well-chosen partner with the right connections will facilitate commercial transactions within a somewhat difficult legal, fiscal and cultural environment.
Professor Antoine Panet-Raymond
Vol.1, Newsletter 6