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Podcast Transcript: Is India on your value chain?

Host: Michael Mancini

Today we’re going to explore India and its place on the global value chain. I’m Michael Mancini, editor of CanadExport, the government of Canada’s magazine for entrepreneurs who want to compete, partner, and prosper in the global market place. Look for our magazine at CanadExport.

India is more than just a big market for Canadian exports. The country has made a remarkable climb up the market chain, and companies everywhere are seizing the opportunities. In this podcast, we’ll talk to a Canadian company that has done just that. Sigma Systems turned to India to develop products destined for the North American market. We’ll also speak to an Indian multinational executive who has some great advice for Canadian entrepreneurs. And then we’ll be joined by our senior Trade Commissioner in New Delhi in what it takes to find your way in what many say is a key link in the global value chain.

Toronto based Sigma Systems is a high tech company that developed its own satellite operation in India. Tim Spencer, the co-founder, president and chief operating officer of Sigma Systems learned that if done right there are a lot of benefits to going into India. Welcome Tim.

Tim Spencer: Hi Michael, thanks for having me.

Michael Mancini: Pleasure to have you here. So tell me, why India?

Tim Spencer: To us India was an obvious choice when we decided to start an offshore operation. Availability of quality technical manpower, improved infrastructure that has occurred there since 2000, and awesome advantage to working from India were all very important factors.

Michael Mancini: Now why did you decide to set up your own operation rather than getting a third party to do it for you?

Tim Spencer: If you’re invested in India for the long term, setting up your own operation is much more cost effective. And you know a couple of other things, it insures much more control over resources. You’re not competing with other companies to obtain or maintain better resources. And you’re not into a vender-customer sort of relationship. You’re all one team, which changes loyalty, commitment and drive to those resources because they’re part of a larger team, as opposed to being a vender to you. And I also think the other issue is intellectual property. I can’t tell you how many companies have come to me looking to provide me off-shoring skills, and the first thing they tell me about is how they’re working with all of my competitors already. Well that’s not actually attractive to me, that’s very, very unattractive. You know, I’m concerned that that intellectual property that I’m building in their business is flowing to my competitor.

Michael Mancini: Well, it’s easy to assume that India reaps all the benefits of your moving to that country, but what have the benefits been for your Canadian operations?

Tim Spencer: You know, I think its three principal things. One is we now have a broader coverage model. We have a support organization there that allows us to give round-the-clock support to our customers, is one thing. Costs are an obvious thing. We couldn’t be competitive in our space if we didn’t have that resource space that we’re dealing with in India. And another thing is resource availability during rapid ramp up times. There’s just a much deeper set of resources available on breadth in the Indian market, in Pune specifically, and Bangalore as well. So when I put out a request to ramp up 30 or 40 new head count, they can do it very rapidly, much faster than I can do it here in Canada.

Michael Mancini: What were the main challenges that you face in setting up an operation on the other side of the globe? And what were the main barriers?

Tim Spencer: Well, certainly distance is always a challenge, being sensitive to time zone differences, setting up meetings at mutually convenient times. You tend to have to be more formal in your communications and your processes; you have to have more formality in your processes to ensure that there’s a clear communication between the organizations. And there’s a lot of very regional and local issues that have to be understood. You know, we took it slow, we built a team of about 20 people originally. And basically cast them and used that as a model to test our ability to operate in a remote development, or offshore model, and then grew that over time. We now have well in excess of 200 people there, but that growth came in stages as we sort of demonstrated success to ourselves.

Michael Mancini: Okay, so in terms of lessons learned, what’s your advice to Canadian companies looking to expand to India?

Tim Spencer: I think people need to take it slow, they need to hire local talent, they can’t just supplant somebody from Canada there and expect it to work. I’ve seen that fail multiple times. They’ve got to focus on process, and corporate alignment between organizations. And you also have to develop a culture, you have to instil the culture in both organizations, both in India and in Canada, around sensitivity to time zone differences and making sure that you collaborate, willing to extend your day maybe a little bit earlier or a little big later in the day.

Michael Mancini: Tim thanks for speaking with me today.

Tim Spencer: Thanks Michael, it was a pleasure talking to you.

Michael Mancini: I’ve been speaking with Tim Spencer, co-founder, president, and chief operating officer of Sigma Systems in Toronto.

Of course the flow of commerce isn’t one way. Canadian companies are indeed expanding into India. But business is also flowing out of India. Earlier, I interviewed Paddy Rao, head of the Canadian unit of Indian multinational InfoSys. It became clear that his experience in Canada could apply to any Canadian company looking to India. I took this opportunity to ask him how Canadian companies could best prepare for the Indian market. Welcome Paddy.

Paddy Rao: Thank you very much. Thanks for this opportunity.

Michael Mancini: Our pleasure. What kind of things do companies need to keep in mind when growing their company globally? In other words, what concerns to businesses share universally?

Paddy Rao: Since we started a global company we’ve realized there are two or three things that are of prime importance for our clients worldwide, and in particular since we are discussing Canada. One is intellectual property rights. We have a very robust legal system, both in the company as well as the country, which protects the intellectual property rights of any individual in the world. That’s one assurance which we bring. We're sometimes seen as a risk with companies as well as a concern. Similarly, there are data security and information security which are very vital for the competitive advantage of our clients. We are extremely paranoid of protecting these things for our clients.

Michael Mancini: So what was the key to your success when making the move into Canada?

Paddy Rao: when we started our company we said that we had a global mindset to start with. And therefore we keep in mind that there will be a difference. And therefore, we train our staff with the mindset to accept this difference and start working.

Michael Mancini: Now what myths do you think Canadians might have about India?

Paddy Rao: There are certain popular myth conceptions that people might have in North American and European continent about doing business and outsourcing more in general, and India in particular. What you get to see perhaps is on the television some problems with the roads or transportation, but here we get to talk about the disappearance of the differences due to time and distance because of the technology, namely the internet. Therefore those infrastructure problems which people do talk about are certainly no relevant more than a kind of all sorts of partnerships with Canada and India in terms what would be doing.

Michael Mancini: Tell us about the kind of employees that are available to Canadian companies setting up operations in India. And how does our talent pool here compare?

Paddy Rao: You know, recently there was an article which said that it’s a lot more easier to get into Harvard, than to get into some of the premium schools in India. It is so competitive in India today. And therefore, there's no anxiety at all whatsoever in getting the best talent. In fact, the whole conversation in North American continent which I'm seeing in the last few years is that we need to catch up with India. That's the conversation going on here. And therefore I would straightaway tell all our clients and small and medium enterprises not to have any concern whatsoever about the technical or intellectual calibre of the people coming from India because, frankly, India is leading and showing us the way. One of the great advantages in Canada is that there's an enormous talent pool here. We have been very fortunate to have recruited people from great universities like Waterloo, Toronto, McGill and Queen. And people have been ?? with us very well and it's exciting to work with those people. The local government, Ontario government that I work with, government in Nova Scotia, it's very refreshing. It's like you have a different opinion about what a government is. People are very friendly, very proactive, helpful; it's been a wonderful experience for me dealing with the government here.

Michael Mancini: Are Canadian companies missing the boat? Should they be more present in the global economy?

Paddy Rao: If you would permit me, I would draw your attention to one of the finest school department of businesses in the University of Toronto, Professor Roger Martin, dean of the school. He wrote a very interesting article, he was quoted in the New York Times, in saying that with the cash rich, budget surplus economy, rich in resources, it's time for Canadian companies to wake up and understand that they have a legitimate position in the global economy and play up to that. And therefore I would say all the companies in Canada, small or big, must realize that they have a great opportunity, and a right, to establish themselves as leaders in the global market and they should do that.

Michael Mancini: So this goes beyond outsourcing for the production of goods then. There's more to it than saving money.

Paddy Rao: It's not about outsourcing; it's about global partnering, which is a common theme which I always talk about, which we always talk about. It's not about just setting up a shop in India or in the Indian market, it's about, sometimes at least, partnering with entities like InfoSys to have the global talent pool as well as the global market. You know, one of the things which you always firmly believe is that if you want a global market, you better put a global talent into play. Therefore my suggestion, I would say I would like to advise them, understand your legitimate position as great Canadian economy in the world, and stake out your claim.

Michael Mancini: Thanks Paddy for speaking with us.

Paddy Rao: Thank you very much. Thanks for the opportunity.

Michael Mancini: Paddy Rao is head of the Canadian unit of InfoSys.

So far in our program we've learned that India offers great potential for Canadian companies. But at the same time, we've learned about some particular challenges and issues that entrepreneurs might face. Now, a good way to tackle these challenges is to speak with the Canadian Trade Commissioner Service. With me on the line is David McKinnon, our senior Trade Commissioner in New Delhi. Thanks for joining me David.

David McKinnon: Oh, it's my pleasure.

Michael Mancini: As we've heard, one of the biggest challenges for Tim Spencer of Sigma Systems was finding the right people, especially those 20 year professionals. How difficult is finding the right people in India?

David McKinnon: Well, actually with the economic boom here, it is becoming a bit more difficult, and people can't come here expecting a limitless supply of inexpensive talent. You can expect to pay for good people, but you will get value out of them. And you will also find good talent here still. I think part of it is to think about finding the right location, and depending on the business, you might want to look outside of Mumbai, Delhi or Bangalore. You should be open to second tier cities like Pune and Chandigarh. In fact, Chandigarh, which is about 4 hours from Delhi, was just rated top destination for IT investment in India by one of the local business publications.

Michael Mancini: And tell me what your role as a Trade Commissioner is in helping Canadian companies to find the right talent.

David McKinnon: Well, we can help by giving them a good sense of what the market offers and what might be a good fit of them, where they can find value here. We can help them find the right partner, we can provide some insight into the market, give them some sense as to what the other options outside the traditional business centers might be and look for partners there.

Michael Mancini: Tim also talked about running your own operation as opposed to having third parties do it for you, and Paddy also reinforced that idea. What do Canadian entrepreneurs need to consider when faced with these different options for how they set up abroad?

David McKinnon: Well, I guess the first thing I should say is that intellectual property is not a huge issue in India. It's not something that there's an enormous concern about, but common sense always applies and you need to take the time to find the right partner or staff that fit your needs, and do with due diligence. Also, setting up your own operation is not necessarily the right approach for everyone. To a great extent it depends on whether you're looking to do something that's core to your business, and how important it is to keep that expertise in house. I can think of examples, such as some Canadian banks that have used Indian firms to develop their online banking interface, while other Canadian financial services companies have preferred to set up their own office services in India. It really depends on where your business model is.

Michael Mancini: And you can help them figure that out?

David McKinnon: Ya, that's exactly right. We can provide some insight into the market, again, help them also negotiate through the intellectual property issues, get the right local legal advice, and also the practical advice on that front.

Michael Mancini: Paddy spoke about how easy it was to deal with Canadian provincial and federal governments. How can Canadian companies make it go as smoothly with India governments?

David McKinnon: Well, India has opened up considerably to foreign investment in recent years, as a result of the major economical reforms that began in 1991. At the same time, it's important to understand the particulars as a result of India’s robust democracy, where various stakeholders need to be heard. Public sector decision making here typically remains slower than it is in Canada. At the same time, I should add though, Canadian companies are often struck by how quickly Indian private sector will make decisions, even very major ones. In many circumstances, the Trade Commissioner Service can play an advisory and advocacy role when getting necessary government approvals. Although, as the same time, strong local representation and understanding is key to any company's success in this regard.

Michael Mancini: So, how can the Trade Commissioner Service help Canadian companies to steer clear of possible legal roadblocks that they may find in India?

David McKinnon: Well, there's a well established common law legal system that would be very familiar to many Canadians, although the application may differ. You need to take your time to do due diligence, you don't necessarily have to go with the first person you meet. The Trade Commissioner Service has a list of good local lawyers that are used to dealing with international companies and we're happy to share that with Canadian companies doing business in India. But we also, in terms of due diligence, we're looking for people to make sure that they retain adequate control of their operation here. I think that the important thing to understand with your local partners you need to trust them, you need to have a very good relationship with them, but you also shouldn't leave everything simply to that personal relationships, and that's where corporate structures and the legal arrangements become important. That said, don't come in with your lawyers first off, because that is something that is often complained about by Indians about North Americans. They'll come in with their lawyers before they've developed their personal relationships. And I think you can develop the personal relationships, develop a good understanding of how you want to do business with someone, and then you make sure you've got good legal advice to put in place with structures, to allow that relationship to prosper.

Michael Mancini: In North America, there tend to be more absolutes in the legal view of things. How does that differ from India?

David McKinnon: Well, I think one of the things here that's important to understand is that part of finding the right partners in investing is in getting the personal relationship right. And then you get a great lawyer. And so one of the things we do warn people is that you're never going to have absolute certainty, you're never going to remove all risk here. North Americans often want things to be black and white, but in India that's difficult, and people really need to get used to dealing with shades of gray. If you can learn to live with this, you can do very well. And I think one thing that's important to realize is that this is a place where improvisation is almost an art form, there's even an expression in Punjabi, Jugare, which means just that, which is finding the right fix, the way to make things work.

Michael Mancini: What are Canadians usually surprised by when they set up an Indian operation?

David McKinnon: It's important for Canadian companies, and this might be stating the obvious, but it's important for Canadian companies to understand that cultural barriers exist and they need to be understood. This is a place with hundreds of different cultures, with very different languages; English isn't the first language, although many speak it, and sometimes the prevalence of English, I think, can lead people to think that the cultural barriers are not necessarily there. I think another thing is that Canadian companies need to realize that if it's your first time coming to India don’t' expect to sign a deal. It's going to take a little while to develop the relationships and conclude your first deal. The thing we say over and over again is that you need to know who you're doing business with and how you can make money, and if you understand that you'll go a long way.

Michael Mancini: David, I appreciate the time you've taken to speak with me today.

David McKinnon: Oh, it's certainly my pleasure. Thanks very much.

Michael Mancini: I've been speaking with David McKinnon, Senior Trade Commissioner at the Canadian High Commission in New Delhi.

Well, that's it for this edition of CanadExport. I'd like to thank my guests for their insights into doing business in India. Do visit us online at CanadExport, to subscribe to our twice monthly magazine. Or you can visit Trade Commissioner Service website to learn more about the benefits of the Canadian Trade Commissioner Service.

I'm Michael Mancini. Listen for our next podcast in October.

To download our other episodes, just go to www.canadexport.gc.ca or go to iTunes and use the searchword “CanadExport.”

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