The new market capital of the east

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 on a good monsoon season.

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 average around 6% real GDP growth a year
for the next 10 years. FDs might like to note that India’s population, currently
totalling 1.09bn, is forecast to outnumber China’s before 2050.

Regulatory environment

The World Bank ranks India as the 116th easiest country in which to do
business. 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.’

Businesses starting up in India are likely to have to pass through 11
different administrative processes. Regulatory authorities include the Foreign
Investment Promotion Board, a key organisation for companies planning to invest
in India that 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.

The right approach

With its large English-speaking population, healthy economic growth and open
society, some businesses see India as 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.

Given the difficulty of enforcing contracts, it’s especially important to
know all about prospective partners before signing on the dotted line.

Skilled workforce

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 been two of the
most common reasons why offshore ventures to India have failed,’ says Sanjay
Sen, a partner with Pricewaterhouse-Coopers in India.

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.

Malcolm Staff, managing director of Halifax Fan, which set up a joint venture
in India, 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. Be sure that you are firm and fixed on what
you want out otherwise they will bully you along to get what they want.’

This is an edited version of an article that first appeared in ‘The
Financial Director Guide to: Emerging Markets’