Looking to India
As the U.S. economic lure fades, the Indian market ripens
Expansion, growth, evolution, success. Whatever Canadian entrepreneurs call it, taking their business into another country always involves risk. Expansion for Canadians used to mean the United States first and foremost, our least risky foreign market.
That was before the United States bore the brunt of the global economic downturn, making it less attractive for expansion, with little hope of improving anytime soon.
“The U.S. has some very serious economic challenges ahead of it, so it is absolutely critical that we expand our trading relationships with other countries around the world,” Ed Fast, Canada’s new Minister of International Trade and the Asia-Pacific Gateway, said in a recent interview. “That is why we’re really focusing on countries like India.”
China might be the Asian economy grabbing most of the headlines with its meteoric growth and fledging middle class, but India is no slouch. The world’s most populous democratic economy also has been maturing at breakneck speeds, achieving 8.5% growth last year, a pace The Economist predicts will help it surpass that of China by 2013. For Canadian entrepreneurs looking at expansion, the Indian market is rapidly becoming one where the risk is increasingly being outweighed by the opportunity for reward.
“If you look at the Americas and Western Europe, you’re going to look at, at best, inflationary growth over the next few years,” said Kevin McKenzie, a partner in charge of business development at consulting firm Ernst & Young in Toronto.
“India offers a rich opportunity for entrepreneurial companies to go in and find new growth opportunities because India is becoming a very important market in and of its own right,” Mr. McKenzie said.
Long thought of as little more than an arbitrage for cheap labour, the Indian market with the largest population of English-speakers on Earth is developing a taste for more than just Canada’s vast natural resources.
“We already have significant trade in agricultural products,” Mr. Fast said. “But even services, in terms of engineering and environmental services, can really contribute to building the Indian economy as well as attracting investment in Canada.”
Parm Jhajj is well aware of the value the Indian market can provide Jhajj Lumber Corp., his Surrey, B.C.-based timber company. The five cargo ship containers accounting for his first deal in the country arrived in an Indian port earlier this month. It was a small trial order, Mr. Jhajj explained, worth perhaps US$75,000.
“We see massive growth coming from India,” he said. “I can expect it won’t be that long in the future where we are shipping 60, 70, even 80 containers there per month on a regular basis.”
Demand for Canadian wood on the subcontinent has exploded as the Indian construction industry has grown apace with the country’s economy. The growth has provided Canadian entrepreneurs with an alternative to dealing with China.
“India is very similar to China,” he said. “But it is a little easier to do business in simply because it is a democracy and the rule of law is there.”
Natural resources is perhaps an obvious example of a Canadian industry that stands to benefit from the booming Indian market. But, as Mr. Fast claims, the opportunity for some services is equally great.
“For clean tech in general the opportunity is going to be massive,” said Larry Kristof, founding chief executive of Vancouver-based Mantra Energy Alternatives Ltd. The company, which claims to be among a handful of players in the world capable of converting carbon dioxide emissions into additional revenue streams, hopes to be in the Indian market within six to eight months.
However, every new and relatively untested market comes with a unique set of barriers to entry. And India is no exception.
“Their labour laws are different, their tax code is different, it can actually be much
more complex than what we’re used to in Canada,” Ernst & Young’s Mr. McKenzie said.
In many ways, India presents a very different image of itself to outsiders.
“A feeble government, perhaps getting weaker by the day, and an energetic civil society, whose aspirations are soaring by the minute,” Raghav Bahl, an Indian media entrepreneur often referred to as the “Indian Rupert Murdoch,” writes in his recent book Superpower: The Amazing Race Between China’s Hare and India’s Tortoise.
“The government must fix itself,” he opines, “or it runs the grave risk of converting aspirations into disappointments, and ambitions into anger.”
Canada is working to help business owners to clear the governmental hurdle. Negotiations to establish a foreign investment protection and promotion agreement are ongoing while a second round of talks to establish a Free Trade Agreement between the two countries is expected to begin in early July.
“We’re knocking down some of those obstacles,” said Mr. Fast, pegging 2013 as when he expects the deal will be sewn up; the same year India is expected to begin growing faster than China.
Currently, about $4.2-billion worth of trade passes back and forth between the two countries each year. Once an FTA is established, Mr. Fast says that figure could more than triple to $15-billion.
“When you actually look at our level of bilateral trade, it really is modest in comparison to other countries that are much smaller in size,” the federal trade minister said.
In the meantime, Ernst & Young’s Mr. McKenzie suggests business owners take an adviser along to help navigate India’s broad bureaucratic nuances. Joining a trade mission, such as the one Mr. Jhajj and Mr. Kristof attended in February led by Diane Watts, Mayor of Surrey, B.C., can be a great way to establish vital connections.
“We’re the second-largest border crossing in the country with the U.S. and we have about $15-billion worth of goods going across our border,” Ms. Watts said. “Given the downturn in the U.S. economy, ... diversifying the marketplace is the way of our future.”
In just three days, delegates from about two dozen local companies took in more than 100 meetings with Indian executives.
Waiting for the ink to dry on a stronger trading relationship might be the prudent, safer course of action. But entrepreneurs are risk takers by nature, and those that wait might find themselves left behind.
“If people don’t have India on their list of places to be in business, they are going to miss the boat because that place is going to boom,” Mr. Kristof said.