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Indian business makes tracks for
China
By Indrajit Basu
KOLKATA - India, particularly its industry,
suddenly seems to be bewitched by China. Scarcely a week
goes by in India without a major event on "doing
business with China", while for the country's business
journals it has almost become routine to publish
comparative pieces on high-tech Shanghai versus
comparatively staid Mumbai.
Indeed, there are
reasons for the dramatic rise in Indian interest. Among
the most important ones are China's burgeoning economy
and its markets, perceived to be the most promising in
this millennium, which are too good for India to ignore.
Perhaps yet another equally important reason is India's
decade-old liberalization efforts that make it
imperative for the country to collaborate with China to
be able to become a global player. "The writing on the
wall is clear: not participating in China's economy is
tantamount to not participating in the world's economy
in the future," said B Bhattacharyya, dean of the Indian
Institute of Foreign Trade.
Small wonder then
that Indian companies are flocking in. Early pioneers to
enter China were the old-economy companies, and
eventually, succumbing to China's desire for partnering
with the Indian software sector to improve its own
software capabilities, the new-economy companies, too,
have started setting up bases there. Already, India's
top software companies such as Wipro, Satyam Computers,
Tata Consultancy Services, NIIT and even Infosys to some
extent, have set up bases in the land of the dragon,
while quite a few smaller ones are queuing up to join
the bandwagon.
But while Indian businesses are
mesmerized by the economic lucre of China, top industry
associations have started sending out caution signals.
"Indian entrepreneurs in China are exposed to a great
financial risk as the Chinese market is still in
transition," said the Confederation of Indian Industry,
considered as one of the most powerful industry
associations in the country.
A CII study called
"Challenges and Opportunities in China" added that
"China needs to bring sophistication in the financial
market and strengthen financial regulation and
supervision. There is a need to have a proper China
strategy with an institutional mechanism to support
Indian enterprises in the country ... financial risk is
a major concern for those companies that are venturing
in China."
Further, said CII, poor marketing
abilities of some Chinese firms could pose a hurdle for
Indian companies venturing into the country: "The
Chinese lag far behind Indian firms in their
customer-service ethic and understanding of foreign
clients. China suffers from a high piracy rate of 91
percent, which is an important psychological barrier."
The CII is not alone. Addressing a recent
corporate retreat in China organized by yet another
major business chamber, the Federation of Indian
Chambers of Commerce and Industry, Johnny Chen, market
managing partner of PriceWaterhouseCoopers, said that
Indian businesses planning to enter China should be
ready to face the challenges ahead and accept losses in
the initial years. "When you enter China you are not
facing one China but multiple Chinas," Chen said. "There
is no immediate return from coming into China. Your
shareholders should not demand immediate profits out of
China."
According to Chen, regionalism and
protectionism was deep-rooted in China and its accession
to the World Trade Organization may bring some changes
in the attitude of Chinese governance. Chen advised
Indian businesses to carefully choose their Chinese
partner and suggested "strategic partnerships" instead
of "equity partnerships" so that control of vital
business decisions remains with Indian companies.
However, both CII and Chen believe that Indian
and Chinese companies can join hands to form alliances.
"For potential Indian transnationals, it may be a good
strategy to identify and spot niche markets where they
can compete more effectively," the CII study said. "All
of these will make India's journey to China much more
comfortable."
And, according to Chen, it is
important that Indian businesses should start
"networking" in China and start operations there on a
small scale. CII even suggested a prescription: "In
order to succeed in China, one needs to have three
qualities: perseverance, understanding of local culture,
and, ability to produce quality goods."
The
Indian industry, however, particularly the old-economy
sector, has been quick on leveraging the dragon,
primarily through the form of outsourcing. For instance,
Grasim Industries, a clothes maker, sources one of its
shirt brands from China, and Ranbaxy, India's largest
drug maker, started manufacturing in China way back in
1990. Even smaller companies have rushed into
outsourcing from China. For instance, Delhi-based
Bhartiya International, a small leather garments
exporter has reportedly signed a contract manufacturing
agreement with two factories in Shanghai, and is in the
process of setting up an office in there, said company
sources. And, Bajaj Auto and TVS-Suzuki, which make
two-wheelers, are reportedly exploring
component-sourcing opportunities too.
Meanwhile,
bilateral trade between the two countries continues to
grow. According to recently released figures of India's
ministry of commerce, India's trade with China grew by
25 percent during 2000-01, rising to $2.29 billion
against $1.82 billion in 1999-00 with overall exports to
China jumping a 53 percent during the period.
"After registering a decline during 1998-99, due
to severe recession in the Asian markets, trade between
India and China is now registering a steady growth,"
said an official release. It added that the growth in
trade is expected to continue during the financial year
2001-02 as well, although the trade balance continued to
be in favor of China.
(©2002 Asia Times Online
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