Approaching India
Doing business in the world’s second most populous country is getting easier, but there’s no substitute for preparation. By Patpon Sabpaitoon
There was a time when doing business in India was not for the faint of heart. Local entrepreneurs needed infinite patience just to get a business off the ground, let alone run it to the satisfaction of the country’s bureaucrats. As for foreign businesses, forget about it.
Many businesspeople still have unpleasant memories of the “Licence Raj” that persisted from independence in 1947 until 1990. Up to 80 agencies had to be satisfied before a firm could obtain a licence to produce. Even then, the state would decide what was produced, how much, at what price and what sources of capital were used.
That all began to change in 1991, when the government started to reduce licensing regulations, lower tariffs, duties and taxes, and open up to international trade and investment. The reforms have been continuing on and off ever since — albeit with occasional protectionist steps backward — and have contributed to a faster pace of economic growth overall.
And while the economy has hit a rough patch lately, with gross domestic product (GDP) growth slipping below 5% from the 6-7% range the country enjoyed for years, the Indian market of 1.3 billion consumers is hard for businesses to resist.
The progress the country has made in the last 15 years alone is evident in the World Bank’s influential Doing Business survey, which details the costs and ease of doing business in various economies. When the first edition was published in 2006, India was ranked 116th out of 155 countries surveyed. It took 71 days to set up a business back then, a decidedly below-average performance.
India has moved up and down the index ever since, but in Doing Business 2020, released in October 2019 and covering 190 economies, the country jumped 14 places to 63rd. The performance was good enough to put India among the 10 most improved countries, even if the ranking was still 13 places shy of the target set by the government of Prime Minister Narendra Modi.
The World Bank took note of the successful reforms the government had carried out in areas including starting a business, dealing with construction permits, trading across borders and resolving insolvency.
India has also made trading across borders easier by enabling post-clearance audits, creating a single electronic platform for trade documentation and upgrading port infrastructure.
But the country still lags in areas such as enforcing contracts (163rd) and registering property (154th). And it takes 1,445 days for a company to resolve a commercial dispute through a first-instance court, almost three times the average in high-income economies.
The overall outlook for further improvement is positive but there is still a long way to go, says Dr Shweta Sinha, head of the Indian Studies Programme of Pridi Banomyong International College at Thammasat University.
“The Indian government points to sustainable business reforms that have helped to improve the ease of doing business for foreigners,” she told Asia Focus. “Things are improving day by day, there were various regulatory reforms in 2018 and 2019. Exporting and importing have become easier for companies as it takes less time today.”
However, she noted that it still takes 58 days and costs about 7.8% of the property value to register a property in India, according to the World Bank.
In any case, she said, India has huge potential for innovative products and services, and many young Thai entrepreneurs are now venturing into the country. “Recently, I interacted with a Thai company venturing into India, and was happy to learn about their positive experience of the overall process,” she added.
The Modi government in particular has been much more open to foreign investment than its predecessors, offering 100% foreign ownership in some sectors, even in the face of nationalistic protests.
Many of these protests have been directed at American companies such as Amazon and Walmart, but Mr Modi is a fan of US President Donald Trump and wants to build a closer relationship with America. Mr Trump visited India last week, setting the stage for what both countries hope will be a partial free trade deal in the near future.
Some American companies have been flourishing in the country, among them Coca Cola and Ford. Apple, meanwhile, has been encouraged by a recent retail law reform that will allow single-brand retail companies to open online stores before they set up bricksand-mortar outlets in the country. Some other big names including IBM and HP are looking at diversifying their manufacturing bases away from China to India.
Japan has also been a major investor in India, with some 1,300 countries represented. The automakers Suzuki and Honda have enjoyed considerable success. Other countries whose businesses have made their mark in India are the United Arab Emirates, Germany and France.
STARTING SMALL
Thailand has been a pioneer among Southeast Asian countries in the Indian market, led by Charoen Pokphand Foods Plc (CPF) which entered the country 20 years ago. It also uses India as a distribution centre for markets in the Middle East, according to the Department of International Economic Affairs at the Ministry of Foreign Affairs.
More Thai companies are starting to see the value of the Indian market, following the lead of businesses including Italian-Thai Development, Pruksa Real Estate, Thai Summit, SCG, and the CP subsidiary Five Star Chicken.
The CP Group’s SET-listed property arm, Magnolia Quality Development Corporation Ltd (MQDC), also has ambitious plans for India.
“It’s easier to do business in India than before,” said Chulamas Jitpatima, director of MQDC India Real Estate Pvt Ltd, adding that India’s robust economy and recent reforms have made it far easier to invest there. While Thailand remains the main focus of MQDC, the company is seeking more opportunities abroad and has opened offices in Shanghai and New Delhi. India has huge potential for innovative products and services, she believes.
As a newcomer to the Indian market, MQDC decided to start small, opening the Whizdom Club co-working space in New Delhi in 2019. Whizdom, she said, is “not just a typical co-working space that you see across the globe”. She views it as an “inspiration hub” that aims to foster the growth of entrepreneurs and startups in India and eventually the region.
“I think one of the most critical and one of the hardest parts about being a young startup is how to validate your ideas,” she told Asia Focus. “As young entrepreneurs or young students, you need some coaching, some advice. They can just walk in, tell us what they need, and we’ll support that, take those ideas forward and get constructive feedback.”
Whizdom Club is positioned as a place where aspiring businesspeople can mingle with experts in the fields of technology, finance, marketing, law, funding and networking. Ms Chulamas sees it as part of a penetration strategy that fits with MQDC’s 40-year-plan to become a global company.
After internal discussions, she explained, senior management decided
When India is ready for us, we’ll be ready for them. We want to go in with a real estate project, [but for now] we have to minimise investment risk and culture risk as much as we can, because we’re still new CHULAMAS JITPATIMA
Director, MQDC India Real Estate
that India was a tough market, as the company did not have a team or experience there.
“[Therefore] MQDC decided to go in with a strategic move that is smaller than what we normally do,” she said. “When India is ready for us, we’ll be ready for them. We want to go in with a real estate project, [but for now] we have to minimise investment risk and culture risk as much as we can, because we’re still new.”
After thorough market research and meetings with experts from various fields, Ms Chulamas finished registering the business in India in December 2018. Whizdom Club India was opened in August 2019, and MQDC hopes to open two more in other cities.
The company also hopes Whizdom will work as a bridge between Southeast Asian countries and India, and even beyond. “I’m sure there are many startups in Canada that would like to tap that big Indian market,” she pointed out.
STARTUPS BLOOMING
Based on her three years of experience in India, Ms Chulamas has developed some insights into the vibrant startup ecosystem there.
“The country has a very young population, very dynamic. The middle class is growing,” she said, adding that digitisation, heavily promoted by the government, is making doing business more transparent.
“Approval processes [have become] faster, it’s more transparent, and it can be tracked. And so as a foreigner going into the market, we know exactly what to do, when to expect something and who to go to. This is a big comfort to us.”
India has a thriving entrepreneurial culture with some 50,000 startups and several “unicorns” — startups valued over US$1 billion. These companies represent a host of opportunities for products and services that Thailand’s entrepreneurs can help provide, said Ms Chulamas.
The government boasts that the country has the third largest number of startups and the third largest number of unicorns. The Startup India initiative launched in 2016 is said to have helped 28,000 startups from 28 states.
“The startup ecosystem in India is buzzing. It’s growing very well,” said Ms Chulamas. “In India, there are a lot of co-working spaces, venture funds, incubators, accelerators, government programmes, as well as what they call ‘universities of innovation’.”
The enabler for startup success in India, in her view, is the culture. “The local people, the young guys, they work hard and fast. They’re smart. They ask a lot of questions when they don’t understand, and they know who to go to for help. They’re not shy. So they’re very proactive and passionate.”
Startup India provides seed money ranging from $150,000 to $2.5 million for businesses with potential to get started, develop a business plan and prototype products and services.
“The government also provides many guidelines and promotes networking to get funds for startups. I think that’s another good initiative,” she said.
Her advice to aspiring entrepreneurs who are trying to penetrate the Indian market: “They first have to understand their product or service — what is it trying to solve? What’s the problem statement? How to appeal to the Indian market?
“There’s only so much you can study on paper or online. You have to actually immerse yourself and visit and talk. I think they have to talk and listen to people from various industries. It’s like starting over, to see how to adjust the product.”
Ms Chulamas said that Indian startups nowadays are emphasising products and services related to sustainability and ideas with a social impact.
An entrepreneurial mindset is a must. That means being open-minded, actively observing changing needs and demand in the market, and adapting.
Most importantly, she says, dare to ask questions. “If you don’t know, you have to ask them to clarify. Otherwise you’re not going to get to your end goal.”