A world of opportunity and contrasts.
March 14, 2012
by Mark Drake
India! What images come to mind? Taj Mahal and other top tourist attractions; the world’s largest democracy; a huge population; and great wealth alongside extreme poverty? All of these for sure, but for me it also brings back memories of three years spent there as a young marketing manager. An exciting place in which to live; but to do business? Not so much.
India is now on the list of major potential markets for Canada, so what has changed in the last 40 years? In the 1960s India was a sclerotic, centrally governed country, well described by The Economist as “the licence Raj: a surreal mix of Soviet stupidity, British pedantry and Indian improvisation.”
Licences were required for almost everything (especially imports and exports) and its bureaucracy beat all others. Corruption was everywhere – especially in the contracting and construction sectors.
The tourist sites are still as wonderful, but the population has tripled to 1.2 billion, and above all the business climate has changed following a significant move towards liberalization in 1991. There followed an immediate influx of foreign investment, especially in the consumer goods area (think of all those consumers and abundant cheap labour), and also in telecoms, technology, air travel and health care.
However, government still looms large (40% of the top 100 companies are state-owned) and dominates in energy and finance – but (surprise!) usually with pathetically weak operations. Nevertheless, a strong entrepreneurial culture has developed under the new business climate and many company operations are vertically integrated to overcome the appalling infrastructure (especially transport and power).
Large Indian companies (many of them privately, even family owned) went international – think Infosys (ICT), Novelis (aluminium), Corus (steel), Tata, Mahindra and Reliance (conglomerates). In a further move towards liberalization, India has promised to open up its huge retail sector to global chains like Wal-Mart (51%/49% with a local partner). One challenge for them will be supplying profitable products that can be bought by the very poor while appealing to the growing middle class.
But that is not the only challenge. There is still plenty of red tape to untangle, the courts are slow and often corrupt (a problem for intellectual property or contract enforcement issues), and restrictive import and export regulations remain. In spite of recent efforts to eradicate it, graft is ever-present. As Canada’s Department of Foreign Affairs and International Trade (DFAIT) so delicately puts it: there’s “low transparency in the contracting process.”
On the other hand, India continues to be a source of abundant cheap labour, which IBM has taken advantage of with 100,000 local employees. DFAIT points out that India also has some excellent higher education establishments that lead in mathematics, science and engineering, and they’re producing a large core of well-educated English speaking professionals.
Trade deal underway
DFAIT’s forecasts suggest India will be the world’s third largest economy by 2050 and the Canadian government is keen to promote the country as a good market. Currently, annual two-way trade is only about $4 billion, but a Comprehensive Economic Partnership Agreement (CEPA) covering trade in goods and services is under negotiation. This should open things up, creating GDP gains of more than US$6 billion for each partner, particularly in the primary agriculture, resources, chemicals and transport equipment areas. For India the agreement would open up the Canadian market primarily for textiles. There is also a Foreign Investment Protection Agreement (FIPA) in place and both countries encourage mutual investment in goods and services.
As always, there is a wealth of information available at the click of a mouse. First stop should be Foreign Affairs and International Trade Canada for a direct link to the Trade Commissioner Service. You’ll find information about trade agreements, bilateral relations, travel advisories, economic conditions in the market, plus detailed reports on important sectors of interest to Canadian companies. For example, recent reports (2010/2011) cover agriculture, automotive, life sciences (bio-industries and health care), education, power generation, environmental, ICT, metals, oil and gas transport and financial services. Register for these reports online.
Excellent economic information is also available from Export Development Canada. EDC offers all its usual services in India and has offices in Delhi and Mumbai. Another useful organization is the Canada-India Business Council (C-IBC) which has been going since 1982, and has among its 100 members most of the major players trading and investing in the Canada-India corridor.
Toronto is said to have the largest Indian population outside the subcontinent, so there should also be some good opportunities through links with this diaspora.
Finally, you’ll find a regular source of up-to-date information from Canadexport – a free monthly on-line publication by the Trade Commissioner Service. In the Nov. 10 issue, for example, two important trade shows were listed: Petrocoal Congress in New Delhi, Feb. 15-17, and an ICT (primarily TV/broadcasting) convention in Mumbai, March 14-16.
India is a massive market, but like so many developing countries, it has challenges. Of course that’s what makes international trade such fun, and a visit to the Taj Mahal would certainly provide relief.
Mark Drake is former president of Electrovert Ltd. and the Canadian Exporters’ Association. E-mail firstname.lastname@example.org.
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This articles appears in the January/February 2012 issue of PLANT.