When our companies look East they find two colossus that without difficulty are going to play a fundamental role in the economy of the new millennium: China and India.
From the distance we see two Asian giants, with a population of more than a billion inhabitants, high rates of growth, low productive cost, and a market potential of fantastic dimensions, but away from these similarities we confront two very different countries.
China is way ahead in regards to economic development, level of technology, infrastructure, productive capacity and lifestyle. From the managerial point of view, we find a very attractive market for some sectors and an ideal base for industrial subcontracting. However, by the experience of numerous western companies, it is a complicated destination for foreign direct investment.
To produce in China is cheap for the local companies that often can “evade” part of the tax load and legal, intellectual property and environment requirements. The foreign companies, however, have to abide strictly with the rules and meet with serious difficulties to compete in price with the countless local suppliers that operate in this market.
India, way behind in economic development, with shortage of infrastructure, limited industrial capacity and excessive bureaucracy, offers, nevertheless, more attractive opportunities of investment.
The number of foreign establishments is especially limited and the majority generate positive performances. We find a country of incalculable possibilities.
Recently, the head of an international insurance company in India summarized this potential from his own experience: “We landed in Mumbai eight years ago and today we employ, between our staff and independent agents, nearly 200,000 people, we are the market leaders and this with an exceptional profitability from the first year of operations”.
Not all projects reach this magnitude, but their experiences illustrate well how this market can be in fact profitable for the pioneers.
The main attractions that India offers are summarized below:
- An internal market of great potential, well developed in areas like construction, infrastructure, energy, telephone and communications, automotive… that is, in general, in a stage in which a new comer can take a sensitive solid strategic position which will generate substantial profits in future.
- The growth in demand of Global Sourcing of western companies, that set India as a priority center for searching of suppliers of competitive prices, the same way as the aggregate demand of various countries of the geographical environment like Western Africa, South East Asia and Middle East.
- Additionally, to consolidate a center of production or of services in India guarantees the access to:
-A base of production where to produce and to subcontract components at low cost, which is important to maintain the competitiveness for a long period.
-Professionals and skilled workers with whom to develop other sustainable competitive advantages. The human resource team of the subsidiary, once they know the processes and the technology, can carry out R&D activities, marketing, systems development…that will be of benefit to all the companies of the group, to costs surely lower to those that might have in the headquarters.
These elements are framed in a socio – cultural environment that, although at first can seem unintelligible, is closer than we imagine. We can´t forget that western culture is “indoeuropean” and our languages and mental structures have a common base.
If we add the presence of the British for three centuries in India, with a decisive weight in the establishment of English as official language (English is used for university teaching and is the main language for business) and a industrial culture, administrative organization and judicial system of western type, we can find numerous elements of common reference. This represents a big advantage with respect to China, where the difficulty of language makes us lose market transparency.
We finally should take into consideration, the solid bet that the United States have taken, for strategic, geopolitical and economic motives, to develop India, which has been so decisive in the past for the development of other Asian economies, included China.
Mario Gil Medrano
Director
INDOLINK Consulting