Why Should Global Businesses Expand In India?

While doing business in India may not be the easiest (this doesn’t in anyway mean that India cannot improve its business friendly policies and initiatives), but it definitely is a place to be in for the future. And as business is a game of return on investment, India over the long term offers unique advantages, which cannot be overlooked for a long period of time. Despite its share of woes, those businesses that walk in and stay enjoy healthy returns over a period of time.

What India has to offer?

The Economy of India is currently ninth largest in the world by nominal GDP and the third largest by purchasing power parity (PPP). According to some reports, the most significant increases in share of world GDP at MERs (Market Exchange rates) are projected to be achieved by India. In 2009, India’s share of world GDP at MERs was just 2%. By 2050, this share could grow to around 13% according to these analysis.

Even for 2011-12, when global recession is still playing havoc, Indian growth story continued (@7% GDP growth estimates) as the second best after China among the major economies. India’s growth trend is expected to overtake China’s trend growth at some point during the coming decade due to India’s significantly younger and faster growing working age population than China and it is also having more potential for growth as it is starting from a lower level of economic development than China. The working age population in India will grow through 2030 to have the highest % of working age population (of total population) amongst major economies, giving it a significant productivity advantage.

According to some estimates, particular priorities for India will be maintaining a prudent fiscal policy stance by further extending its openness to foreign trade and investment, significantly increasing the investment in transport and energy infrastructure and improving educational standards particularly for women and those living in rural areas. In the course of this process, the drivers of growth are likely to change. India is likely to become less dependent on outsourcing and more on manufacturing exports by building on its strong engineering skills and rising levels of education in the general population over the next decade.

Consumer markets in major Indian cities will also become increasingly attractive to international companies as the size of the Indian middle class is growing rapidly over the last few years.

According to another report, India’s investment in infrastructure during 2007-12 is expected to be around $500 billion as the expected level of infrastructure investment predicted in the 11^th five year plan is 2.36 times that of the 10th plan. Furthermore, this is expected to almost double for the 12th five year plan (2012-17).

• The report, also pointed out that about 97 million jobs are likely to be created over the next 10 years across different sectors in the country.
• Due to this huge increase in jobs, India may need to potentially build an average of 8.7 billion sq ft of real estate space every year, adding up to a whopping 95 billion sq ft between 2010 and 2020, RICS said.
• In 2020, the workforce participation rate will increase to 42% with 585 million working population, implying net increase of 97 million people.
• The study, however, said there is a huge shortfall of skilled manpower (Training & Development Opportunities) in the infrastructure sector that needs to be addressed with urgency.
• As per estimates, only 27,000 civil engineers are added every year against an annual demand of 4.27 million for the next decade. India’s current total strength of civil engineers is about 5,33,000. A sustained period of shortfall in annual supply coupled with an increasing year-on-year demand could result in a cumulative demand of nearly 40.2 million civil engineers over 2010-20, with a shortfall of 39.4 million civil engineers over the same period, the report highlighted.
• Similarly, the country is likely to witness a total shortfall of 3.64 million architects and 1.1 million planners during 2010-20 period.

Infrastructure is just one of the aspects of the Indian growth story but there are many opportunities to mention such as education, infrastructure (Airports, Seaports, Railways, Power), healthcare, tourism & travel and oil & gas. So, not many economies can foresee such opportunities going forward.

Are foreign companies investing in India?

An annual FDI inflow indicates that FDI went up from around negligible amounts in 1991-92 to around US$9 billion in 2006-07. It then hiked to around US$22 billion in 2007-08, rising to around US$37 billion by 2009-10. In other words, the stock of FDI has jumped by almost US$100 billion since 2006-07.

For 2011 calendar year, the FDI is expected to be more than 30 billion US Dollars (a continuous rise) confirming the interest and promise India holds and delivers. While these numbers may be small in absolute sense compared to some other economies, the trends indicate a strong positive bias.

According to the World Investment Report 2009, issued by the UNCTAD (United Nations Conference on Trade and Development), there is a total of 3,057 multinational companies (MNCs) in India. From 2004 to 2009, the number of Indian-based MNCs decreased nearly 50%, while the number of foreign affiliates increased 90%.

The expansion plans of some of the global companies indicate their confidence in future based on their past success in India. It also indicates that they have adjusted to the business environment and operations in India very fairly & easily and are gaming to play this at a larger scale. They have progressed on the learning curve quite rapidly and feel well entrenched to capitalize on the strong base they have built up. Almost all the major companies like Coca-Cola, Pepsico, Nestle, Siemens, ABB, GM, Honda, Toyota, Samsung, Vodafone, Intel, AMD and many more have recently expanded or are planning to expand their operations in India.

These MNCs are helping diffuse technology and innovation in key sectors such as Pharma, solar energy, agriculture, biotech, nuclear and defense. The MNCs and the Indian industry are gaining a lot from each other. The MNCs are bringing in and adapting global best practices to help solve local problems and help India get linked in a better way with the global economy.

It’s a win-win; these MNCs have become growth partners and have a major role to play in India’s development. MNCs are investing with long term horizon to help India realize its potential in new areas and in the process to scale up their operations and business results as well.

While there is scope for improvement in policy and environment around business setups and operations, the situation on the ground does offer lot of hope.

How do existing foreign firms performing in India?

Most of the global companies in India have a market leadership position based on their product/ service portfolio strengths. Whether it chemicals, power, infrastructure, industrial, consumers, health, entertainment or telecom, these companies have a strong brand acceptance and market share. They give a run for the money to the local counterparts and have a history of strong growth in the country. This clearly signifies: India is a market for equal opportunities and doesn’t differentiate by where are you from. In fact, in certain areas, it is a big advantage to be non – Indian.

Conclusion

World is becoming a challenging place for business with the uncertain times ahead. For global firms, the familiar markets may be getting mature and the challenge would be for growth in these markets. The emerging markets may be lucrative but unknown and possibly accompanied with an uncertain climate, the challenge could be around entry barriers or business policies.

So, to a business, both markets offer challenges of a different kind. Some companies may want to wait for the business environment to improve significantly before moving in while others will move in and learn as they grow (contribute in the improvement process in their own ways) and leap ahead.

As far as India is concerned, second course of action might be more desirable and the experience of so many existing global companies doing so well in India underlines this fact. So, hop in and enjoy the ride into the exciting future with all its twists and turns and look forward to reaching to the next level.

[This post have been written Rohit Chaturvedi, Founder & Managing Director at Expand in India, having close to 20 years experience in business consultancy, industrial management, strategic planning, marketing, operations, team building, leadership and six sigma process orientation. You can join his LinkedIn Group or follow his blog. ]