Press 1 for exports

It may seem extraordinary to those British finance directors whose only experience of India is a call centre in Bangalore, but the health of the country’s domestic economy still relies, at least partly, on a good monsoon season. That’s because 65% of Indians still depend on agriculture for their livelihood.

Last season, the rains were satisfactory and so the economy continues to thrive. Even so, the latest estimates suggest that real GDP growth will ease back from the 7.2% of 2005 to an estimated 5.6% in 2006 and 5.4% in 2007.

Shahzad Farouq, a senior economist with D&B Country Risk Services, predicts that the Indian economy will trend at around 6% real GDP growth a year for the next 10 years.

FDs who like to take both the long and the broad view, might care to note that India’s population, currently totalling 1.09bn, is forecast to outnumber China’s before 2050. India’s middle class is already larger than the population of the UK, opening up a market for many different consumer products and services.

Political and regulatory environment

The World Bank ranks India as the 116th easiest country in which to do business. Not a good start. Worse is to come. India is ranked 124th for dealing with licences – important in the bureaucracy-bound country – and 138th for enforcing contracts.

“On average, it takes 89 days to start a new business in India,” says Farouq. “The average for south-east Asia is about half that.”

FDs starting up an Indian business are likely to have to pass through 11 different administrative processes. Regulatory authorities include the Foreign Investment Promotion Board, a key organisation for firms planning to invest in India. It helps to clear proposals for foreign investment and monitors their implementation. The Foreign Investment Implementation Authority helps cut through the stifling bureaucracy, and the Secretariat for Industrial Assistance keeps firms up to speed on government policies relating to investment and technology.

But don’t imagine that’s the lot – bureaucracy thrives everywhere.

Doing business there

With its large English-speaking population, healthy economic growth and open society, some businesses reckon India could be a safer long-term bet than China. But doing business is never that easy in India.

FDs should start by deciding on the type of approach they use to move into India. They might just want a traditional supplier relationship, but they could also be attracted by a joint venture or a hybrid, such as the “build, own and transfer” model common in the business process outsourcing market.

Given the difficulty of enforcing contracts, it’s especially important to know all about prospective partners before signing on the dotted line. “You should have a framework to evaluate and measure performance continually,” advises Sanjoy Sen, a partner with PwC India. “More and more organisations are now putting in place various contingency or exit plans upfront to address situations where the venture does not work out or meet objectives.”

Management/accountancy staff

One strong plus for any business moving into India is the abundant supply of high-quality business and accountancy people. There are 96,000 chartered accountants in India, regulated through the Institute of Chartered Accountants of India.

There are 30 MBA schools among the country’s 220 universities and 10,500 colleges, which have seven million students. There is no shortage of quality IT personnel, and more arrive on the labour market every year from India’s 140 engineering colleges.

Making a success of business

To succeed in India, companies must learn to think like the locals. “Lack of cultural alignment and understanding of mutual objectives have so far been two of the most common reasons why offshore ventures to India have failed,” says Sen. “This is important not only for day-to-day operations but also customer service.”

Sen also says it is essential to manage HR issues well. “They have a significant impact on staff attrition rates, which can be very high in India if not appropriately managed.”

Another problem is dealing with the “yes culture”, says Chris Gentle, director of research at Deloitte. Politeness makes it difficult for Indians to say no, so yes sometimes means no. “If you ask somebody to do something they will say yes, but they may not do it.”

Malcolm Staff, managing director of Halifax Fan, which set up a joint venture in India (see case study below), says adapting to the business culture was one of the keys to his company’s success. “Indian business people make decisions extremely quickly and expected us to make decisions just as quickly,” he recalls. “They harass you like you have never known before. It wasn’t just our partners – they all seem to be like that.

“You have to be really prepared to understand what your objectives are before starting a discussion. Be sure that you are firm and fixed on what you want out of that meeting because otherwise they will bully you along to get what they want.”

Case study: A place in the sun

Inflows and outflows