India: If you can make it there, you can make it anywhere
There is no doubt that India is one of the most challenging places to do business. It's big. It's complex. And it's unpredictable. This isn't news to Canadian businesses already operating there; nor is it for those companies considering India.
What is perhaps surprising is that while India's growth has slowed to 5% from 9% as in previous years, there is a renewed confidence. So what is behind this new energy? And should Canadian companies be paying closer attention to this market of enormousopportunity?
With me to discuss this is Ravi Venkatesan, author of Conquering the Chaos: Win in India; Win everywhere. He was also chairman of Microsoft India and Cummins India, a manufacturer of diesel and natural gas engines. He's on the phone with me from his office in Mumbai. Ravi, thanks for speaking with me today.
Ravi Venkatesan (Chairman of Microsoft India and Cummins India): Hello.
Michael Mancini: You've made the case in a series of recent articles that the business climate in India is about to change fundamentally. Why do you think this is the case?
Ravi Venkatesan: Well, it's because we have a new government. There are a number of aspects about this new government which are worth noting. First of all, it's the first time in 30 years that a single party has a clear majority in Parliament. So they aren't these unwieldy coalitions with conflicting ideas. So a very clear and stable mandate for change.
Number two, the prime minister, Mr. Modi, has a very strong business mind. And he has put fixing the economy as the number one priority on the agenda for himself and the new government.
He also comes with a number of good ideas about the economy. He was a very successful chief minister of the western State of Gujarat for something approaching 13 years.
He's absolutely acknowledged that India needs to be a much more attractive and friendlier place to do business, whether you're an Indian business or a Canadian business. He's putting a huge focus on making it easier to manufacture in India so that India can finally take its place beside China as one of the world's great manufacturing nations.
So, you know, I think all these have given people a tremendous degree of hope and some degree of optimism. But the next five or ten years are going to be a real departure from the past and a very positive one economically.
Michael Mancini: OK, so now, make the case for India. There are probably thousands of Canadian companies listening to this podcast right now. And many of them might see too much risk in India, especially for SMEs. Why does India matter right now? And what's in it for an SME?
Ravi Venkatesan: Right, even during the last five years where the growth rate had slowed and, the bureaucracy was numbing, and India was becoming more and more famous for corruption scandals, more than anything else, I made the case for India in the following way:
First of all, it's a trillion dollar economy, that even with a growth rate of five percent and does no better than it is currently, you can't ignore it, OK? Particularly when many parts of the world are not growing at all.
You also have very large population: 1.2 billion people. And you know, more than half of whom are under the age of 25. This is important from the perspective of consumption; and as India becomes steadily wealthier, the consumption appetite will soar.
And thirdly, from the point of view of talent, India is hugely important. So if you want to do IT work, it's already the world's top destination. If you want to do a lot of engineering work, if you want to do legal process outsourcing, or any business process outsourcing, India is probably the top destination, just because of that large pool of talent. So my very simple argument is even in the base case of no real improvement, this is an economy and a talent pool that is too large to ignore.
And if Mr. Modi and the new government actually deliver some part of what they're promising, which is to make India a much easier place to do business, a much better place to manufacture at scale, then, you know, the sky is the limit in terms of the potential here.
You know, I use chaos as shorthand for all the things that make life difficult for a Canadian company or any foreign company, right? What are those things? You know, huge regulatory hassles; a bureaucracy that takes excruciatingly long to give approvals and decisions; a high degree of corruption; bad infrastructure. All these kinds of things...and the argument that I make is that these certainly apply to India but they apply to almost every emerging market. You can’t go to Indonesia. You can’t go to Brazil. You can’t go to Nigeria or any of these countries without encountering all the same issues. These are the countries where the growth is for the next few decades.
So if you're a Canadian company and you're saying: "Hey, you know, things are getting saturated in North America. I need to be in some of these markets.” Well, get used to the chaos. And there's no better place to learn how to deal with chaos than India; because we have chaos but we also have a very large market. Some of these other markets have chaos but not a whole lot else. So my point is: treat India as a place where you learn to deal with these difficult challenges of doing business and then you'll find it's easy to succeed as you go to all these other places, particularly Africa, Southeast Asia and South America. So that's the second argument.
And then what I found was very interesting was that the companies that had actually done all that, and found a way to succeed in India at scale, found it easy to succeed in every other place in the world; which is why I called the subtitle of my book: "Win in India; Win Everywhere".
Michael Mancini: Can you give me an example?
Ravi Venkatesan: So there is this mid-size construction equipment company out of the U.K. called JCB. The founder was J.C. Bamford. The company is probably number 10 in the construction equipment industry worldwide, way behind Caterpillar and Komatsu and so forth. Well, they got their act together in India and today India is about a third of their global business and more than half their global profits. They have 67% market share in the construction equipment business in India. And Caterpillar is now a very, very distant competitor.
And so they're now taking their success in India and translating this to success emerging markets and even in the developed markets. And I saw this same story play out in company after company, certainly with my former employers Cummins and Microsoft but also with John Deere, which has finally learned how to make, you know, competitive small tractors which emerging markets need and so forth.
So India is also a lab for all kinds of innovation which translates well around the world. So, you know, I think if a Canadian company decides to take a pass on India, you miss out on not just a market; you miss out on the opportunity to succeed in all emerging markets. And conversely, if you crack the code in India, you have a pretty good passport to many, many other countries.
Michael Mancini: So then how do you adapt to chaos?
Ravi Venkatesan: Clearly, it’s going to take two hands to clap. This government has to do a whole lot to reduce the friction and the headwinds that foreign companies face when they come into India.
You know, the World Bank has this way of measuring that. It's called the Ease of Doing Business Index. India ranks at number 134 out of some 180 countries. And it's predominantly due to things like taxation; how difficult it is to just set up a new business. It has to do with corruption. It has to do with the judicial system and the enforcement of contracts.
And so this government has to make some improvements in all these things and get it to at least two digits. So if India were ranked number 90 instead of 134...so not a huge improvement, but it would be at par with China. And then you would see the floodgates open.
Conversely, what do Canadian companies need to do in order to embrace the chaos? Well, the first thing to do is recognize these are facts of life. So take corruption. India is one of the more corrupt places in the world. We rank number 94; but we’re in good company out there. I'm not condoning the corruption. But I'm saying that China is about 90. You got Indonesia…all these...like Nigeria...which are much worse. And so India is somewhere in the middle of that pack.
So what are you going to do? Are you going to say: "We'll come back when India and China and Indonesia are less corrupt"? Or do you learn how to build a clean business on your terms in these highly corrupt societies? Clearly I make the case that you better learn how to deal with corruption without compromising your own company values or violating your own country’s laws. In most cases, that is possible.
So you take a company like Microsoft, a manufacturer like Cummins or Deere, they learned how to be consistent with their home country’s laws and values and yet do decent business in these countries. So I think it is a mind-set and a skill-set that Canadian companies will have to develop.
Michael Mancini: I wanted to go back to something that you mentioned before. You suggested there's this enormous opportunity for India to become a major manufacturing economy, so to become a real threat to China's manufacturing supremacy. How do you see this happening? And how can Canadian companies leverage this?
Ravi Venkatesan: Yes, when I was running Cummins, I found something quite interesting: we could build a 50-litre engine in India and ship it to China at roughly the same cost or slightly lower than what our Chinese counterpart could produce. And certainly, we could land the engine in the U.K. or Europe and the U.S. a lot cheaper than our plants in the U.S. or Europe could produce.
So at the firm level, you will find many instances where companies have learned to produce products very effectively in India. Take a company like Suzuki, which is the largest car manufacturer in India. They're exporting lots of cars to Europe and the Middle East from India.
You take JCB, the construction equipment guys I talked about earlier. They're using India as a major, major manufacturing and export place for components and increasingly machines. So in spite of all the challenges, some companies have learned how to be very, very competitive out of India. Now, the problem is they've had to overcome substantial challenges.
What are these challenges? One is acquiring land without delays. That's a big issue in India. Then, it's the flexibility of your labour laws. Can you hire and fire people based on performance or based on the demand conditions? Do you have labour flexibility? In India, that's a big challenge. So there's going to be some labour law reform.
Infrastructure: Do you have electricity or do you have to generate your own power more extensively? How do you get things from your factory to the ports? How long does it take to clear your shipment at the port? These issues are a big challenge.
If this government addresses those issues…now I don't think India will displace China, I think that would be too arrogant…but I think we can take our rightful place beside China as a great manufacturing locating.
Michael Mancini: Back to the Canadian company, if I'm sitting here going: "I wonder if the time is right for us to sort of make a move into India? Is sooner better?"
Ravi Venkatesan: Yes, you can't lose a day. You can't lose a day. It's already pretty late. Because you should have at least some presence in India which you can scale up rapidly. See, what happens in these markets is that growth doesn't happen in some smooth linear away. What you have is windows of opportunity when things open up. And you can run pretty fast. And then you get into, you know, tough times like they've had in the last four... when much happens. And all you do is hunker down and, you know, survive.
So a window of five or ten really amazing years should be opening up soon. So it would be nice if you already had a presence. But anyway…so my advice to Canadian companies who are not yet present here is, show up; buy a ticket; invest a week or two weeks' time on the ground to explore what this country is about; what the opportunities look like, through your own eyes, for your company. And then make up your mind.
Michael Mancini: Ravi, thanks for speaking with me today.
Ravi Venkatesan: Oh, it's been a great pleasure. And I hope at least a few of your listeners are persuaded to call a travel agent.
Michael Mancini: I'm sure they will. I was speaking with Ravi Venkatesan, author of Conquering the Chaos: Win in India, Win Everywhere. It's available on amazon.com if you're interested.
Another key ally on your side is of course the Canadian Trade Commissioner Service. Don’t hesitate to visit tradecommissioner.gc.ca to get the most comprehensive network of international business development professionals working for you. That's tradecommissioner.gc.ca.
I'm Michael Mancini, signing off for now.
Voice off: This is a podcast from the Government of Canada.
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