Press 1 for exports

It may seem extraordinary to those British finance directors whose only
experience of India is a call centre in Bangalore, but the health of the
country’s domestic economy still relies, at least partly, on a good monsoon
season. That’s because 65% of Indians still depend on agriculture for their
livelihood.

Last season, the rains were satisfactory and so the economy continues to
thrive. Even so, the latest estimates suggest that real GDP growth will ease
back from the 7.2% of 2005 to an estimated 5.6% in 2006 and 5.4% in 2007.

Shahzad Farouq, a senior economist with D&B Country Risk Services,
predicts that the Indian economy will trend at around 6% real GDP growth a year
for the next 10 years.

FDs who like to take both the long and the broad view, might care to note
that India’s population, currently totalling 1.09bn, is forecast to outnumber
China’s before 2050. India’s middle class is already larger than the population
of the UK, opening up a market for many different consumer products and
services.

Political and regulatory environment

The World Bank ranks India as the 116th easiest country in which to do
business. Not a good start. Worse is to come. India is ranked 124th for dealing
with licences – important in the bureaucracy-bound country – and 138th for
enforcing contracts.

“On average, it takes 89 days to start a new business in India,” says Farouq.
“The average for south-east Asia is about half that.”

FDs starting up an Indian business are likely to have to pass through 11
different administrative processes. Regulatory authorities include the Foreign
Investment Promotion Board, a key organisation for firms planning to invest in
India. It helps to clear proposals for foreign investment and monitors their
implementation. The Foreign Investment Implementation Authority helps cut
through the stifling bureaucracy, and the Secretariat for Industrial Assistance
keeps firms up to speed on government policies relating to investment and
technology.

But don’t imagine that’s the lot – bureaucracy thrives everywhere.

Doing business there

With its large English-speaking population, healthy economic growth and open
society, some businesses reckon India could be a safer long-term bet than China.
But doing business is never that easy in India.

FDs should start by deciding on the type of approach they use to move into
India. They might just want a traditional supplier relationship, but they could
also be attracted by a joint venture or a hybrid, such as the “build, own and
transfer” model common in the business process outsourcing market.

Given the difficulty of enforcing contracts, it’s especially important to
know all about prospective partners before signing on the dotted line. “You
should have a framework to evaluate and measure performance continually,”
advises Sanjoy Sen, a partner with PwC India. “More and more organisations are
now putting in place various contingency or exit plans upfront to address
situations where the venture does not work out or meet objectives.”

Management/accountancy staff

One strong plus for any business moving into India is the abundant supply of
high-quality business and accountancy people. There are 96,000 chartered
accountants in India, regulated through the Institute of Chartered Accountants
of India.

There are 30 MBA schools among the country’s 220 universities and 10,500
colleges, which have seven million students. There is no shortage of quality IT
personnel, and more arrive on the labour market every year from India’s 140
engineering colleges.

Making a success of business

To succeed in India, companies must learn to think like the locals. “Lack of
cultural alignment and understanding of mutual objectives have so far been two
of the most common reasons why offshore ventures to India have failed,” says
Sen. “This is important not only for day-to-day operations but also customer
service.”

Sen also says it is essential to manage HR issues well. “They have a
significant impact on staff attrition rates, which can be very high in India if
not appropriately managed.”

Another problem is dealing with the “yes culture”, says Chris Gentle,
director of research at Deloitte. Politeness makes it difficult for Indians to
say no, so yes sometimes means no. “If you ask somebody to do something they
will say yes, but they may not do it.”

Malcolm Staff, managing director of Halifax Fan, which set up a joint venture
in India (see case study below), says adapting to the business culture was one
of the keys to his company’s success. “Indian business people make decisions
extremely quickly and expected us to make decisions just as quickly,” he
recalls. “They harass you like you have never known before. It wasn’t just our
partners – they all seem to be like that.

“You have to be really prepared to understand what your objectives are before
starting a discussion. Be sure that you are firm and fixed on what you want out
of that meeting because otherwise they will bully you along to get what they
want.”

Case study: A place in the sun

Inflows and outflows