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Foreign Companies In India 2014 June

“You can’t afford to stay out of India saying it’s too complicated because everyone else, all your competition, is looking at that market,” says Rana Sarkar, president of the Canada-India Business Council. “It’s not just an aggressive play any more. Now it’s defensive. It’s a chance to get into a market that’s going to be doing lending internationally, making decisions at the International Monetary Fund level, influencing international security issues, and just taking a much bigger seat at the table.”

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Foreign companies ‘can’t afford to stay out of India’

The Star

NEW DELHI—As Ray Newal signed the papers giving his Toronto company funding to build its business in India, he could be forgiven if he didn’t appear overjoyed. After all, the 35-year-old Canadian was in hospital.

Delirious from migraine headaches and a 104-degree fever, Newal had collapsed on the roadside as he tried to flag down a rickshaw. Doctors told him he was suffering from typhoid, caused by contaminated food or water.

Despite feeling ill — “I think brain damage occurs at 105,” Newal says — he endorsed the documents from his hospital bed in Mumbai, India’s commercial capital.
Ten months later, Newal has completely recovered and has a spring in his step, thanks to his company’s prospects. It’s tough to overstate the opportunities for new business in India nowadays.

Though Newal’s Jigsee Inc. is still a start-up with 25 employees, the Toronto resident has big plans for the subcontinent. Jigsee’s software allows customers to download high-quality video on basic, entry-level cellphones.

Eventually, Newal says Jigsee will turn a profit selling ads that appear before users access music videos, soap operas and movies on their phones.
India’s economy has surged 8 per cent a year over the past decade, the second-fastest rate of growth in the world after China. At that pace, it could become the world’s third-largest economy by 2030.

Gleaming shopping malls are sprouting up across Indian cities, offering customers everything from frozen yogurt to hand-tailored clothing. Highways and overpasses are being built at a rapid clip — the government is in the midst of a 15-year plan to pave 65,000 kilometres of new four- and six-lane roads — although it’s having a hard time keeping pace with demand.

Over the past 20 years, the population in India’s cities has grown by 120 million and now accounts for 30 per cent of the country’s population. Over the next 20 years, the number of Indians in urban centres is expected to grow by another 250 million to 40 per cent.

As aspirational rural Indians move to the cities, this country’s burgeoning middle class is snapping up motorcycles and cars faster than roads can be built.
Ford plans eight new models exclusively for the Indian market by 2015 and has just built an engine plant in the southern state of Tamil Nadu that can churn out 200,000 cars per year. The North American auto dealer sold a record 83,887 units in India in 2010, up from 29,488 a year earlier. Luxury vehicle makers are similarly swooning over India. BMW’s sales in 2010 were up 73 per cent over the previous year, while Mercedes Benz sales rocketed ahead 80 per cent.

Even the nascent Indian video game market is on a tear. Sony has sold 91,000 PlayStation3 units and is working to develop games specifically for the Indian market, taking advantage of a domestic high-tech industry that brings down the cost of building a new title to $3 million from at least $8 million in North America.

Until recently, corporate Canada’s presence in India has been dominated by a handful of large players, including Sun Life Insurance, Bombardier, CAE Inc. and SNC Lavalin.

Sun Life, partnering with a local company, has sold 2.2 million life insurance policies. Bombardier has sold about 30 business jets and in 2010 announced a contract to sell 15 Q400 turboprop jets to Spicejet, one of India’s growing domestic carriers. The Montreal company has also sold 424 subway cars to New Delhi’s new metro.
Engineering firm SNC Lavalin consults on numerous hydro projects throughout India, and CAE’s flight simulators are teaching a new generation of Indian pilots how to fly. CAE also has close ties to India’s military and produced a tank-training system.

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The Canadian government is anxious to build closer ties to India. Prime Minister Stephen Harper has said he wants to triple trade between Canada and India to $15 billion by 2015. Diplomats are expected to meet again in New Delhi in November to continue talks on a free-trade pact.And increasingly, executives and diplomats say, smaller Canadian companies are taking a chance on India.

The draw is especially attractive for firms in sectors such as education, innovation and clean-tech, after India announced it would spend $20 billion over the next decade to build 20,000 megawatts of solar energy capacity.

“You can’t afford to stay out of India saying it’s too complicated because everyone else, all your competition, is looking at that market,” says Rana Sarkar, president of the Canada-India Business Council. “It’s not just an aggressive play any more. Now it’s defensive. It’s a chance to get into a market that’s going to be doing lending internationally, making decisions at the International Monetary Fund level, influencing international security issues, and just taking a much bigger seat at the table.”
VBine Energy, based in Saskatchewan and founded in 2005, has spent months exploring India over the past year. The company develops energy-producing wind-powered turbines that harness updrafts for energy and are fixed vertically atop cellphone towers. The turbines eliminate the need for diesel generators and since many cellphone towers in India are already in remote mountainous territory, VBine’s product could be a huge money saver.

The company has sold about 150 units in Canada, installed 35, and is close to signing its first contracts in India, says Dwight Siman, a VBine executive, who says the company has hired a local sales agent.

“There are 800 million Indians who simply don’t know what electricity is, they haven’t seen it, and there are 80,000 communities with no electrical hookups,” he says, exaggerating to make a point.

India has been flush with these kinds of opportunities ever since the Indian government liberalized its economy in 1991.

As foreign companies have charged in and domestic ones have prospered, India has been transformed. According to Merrill Lynch Wealth Management, the country of 1.2 billion now boasts 69 billionaires and more than 126,700 millionaires.

In 1951, Life magazine noted that although India was “an immense country with 357 million people with enormous resources and superb fighting men,” the country “can neither feed herself nor defend herself from serious attacks. An inhabitant of India lives, on average, 27 years. His annual income is about $50. About 90 of 100 Indians cannot read or write. They exist in squalor or famine.”

Nowadays, the newly minted middle class increasingly contemplates whether to order the chicken nuggets or filet of fish sandwich.

Fast food giant McDonald’s has 215 restaurants in India and plans to open many more along the country’s improving highway system. Over the next 10 years, 50 per cent of the McDonald’s revenue in India should come from smaller towns and highway restaurants, a company executive recently told the Hindustan Times.
But India remains, of course, a developing country. Its gains haven’t hid the fact that more than 42 per cent of children under 5 are underweight and critically malnourished. In China, by contrast, the comparable number is 7 per cent. India is home to at least one-quarter of the world’s hungry, 230 million residents, a depressing trend Prime Minister Manmohan Singh concedes is the country’s “national shame.”

Still, some companies have found ways to market goods and services to India’s many have-nots, particularly its 700 million rural residents. Unilever’s Dove brand, for example, has only been available in India for three years and already posts sales of $100 million.

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The South Korean electronics company LG sells 51 types of air conditioners here and 31 washing machines, many to consumers in small cities and villages.
Another company, Eureka Forbes, has an 8,000-strong sales force selling vacuum cleaners door-to-door in rural India. The company’s selling roughly $290 million worth of vacuums a year and has become a case study at the Harvard Business School.Its customers include the likes of Mallika Rao, a 60-year-old New Delhi housekeeper.

Rao says she makes 11,000 rupees ($230) per month and her husband brings in another 9,000 rupees as a driver. In the 10 years since they moved to New Delhi from the southern state of Kerala, their incomes have doubled, giving them the chance to afford small luxuries like a used Honda motorcycle and cellphones for themselves and each of their two children. Trouble is, while their incomes are rising, their expenses seem to climb faster.

“We spend 8,500 rupees on our rent and 7,000 more on food,” Rao says. “Most people are like this. Our costs have gone up so much. This place is not so easy to live.”
Truth is, it’s not so easy to work, either.

Some investors may provide stories of inspiration, but there is a litany of frustrating setbacks.

Indian labour laws are archaic, corruption is endemic and bureaucracy is an unpredictable sea of red tape. It can take 200 days to get a construction permit and seven years to close a business, The Economist recently reported. Indian law makes it onerous to close down a business with more than 10 employees without government permission.

Even as India covets investment, there are worries about a growing sense of hubris among government officials here: recently, Finance Minister Pranab Mukerjee was asked how he would boost India’s GDP growth to 9 per cent; he replied he simply needed “the blessings of a god and a goddess.”
Corruption is a constant worry. A Canadian official with a European construction company said it has become standard practice when he’s building new government projects for clients to ask him to cut corners.

“If (building) code is 12 inches of concrete, they’ll want me to pour eight and split the cost savings,” he said.

The past year is known as a “season of scams” because there have been so many corruption scandals, including $40 billion in lost revenue from the sale of 2G telecom licences, and billions of dollars in Commonwealth Games scams.

Vodaphone bought a wireless company in India for $11 billion in 2007, executing the sale in the Cayman Islands to avoid taxes. The Indian government rejected the move, handing Vodaphone a $3.5 billion tax bill. The company is contesting the decision in court and its penalty could be doubled for late payment.
“There are new hurdles every day and they can change the rules of the market as you are playing it,” Martin Pieters, chief executive of Vodaphone’s India business told the New York Times. “If you don’t have the stomach for that, please don’t come.”

Then, there can be strategic miscues.

Gillette, for instance, spent millions developing a new razor for the Indian market, and tested its razor on Indian men studying at a U.S. university. The men loved the product and the company took it into the Indian market in 2004.

It was a bust.

Unlike North Americans, most Indians don’t have access to running water. The razors clogged up and had to be redesigned.

Gillette rebounded, however, and last year debuted a new razor called the Gillette Guard, a low-cost, stripped-down model that doesn’t have a lubrication strip or colourful handle and sells in India for 34 cents. Replacement blades cost just 11 cents each.

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Analysts say the mobile phone has become key for foreign companies looking to dive into the Indian market.

While there are about 5 million iPhones and other high-end smartphone users in India, some 800 million Indians rely on more modest mobile handsets.

“So many people are focusing on the top end of the economic pyramid in India,” Jigsee’s Newal says. “We’re going the other way, looking at the bottom end.”
Born and raised in Toronto to parents who emigrated from Guyana, Newal started Jigsee after a decade spent building up Internet companies DoubleClick, Microsoft and Yahoo.

Newal began knocking on doors on Bay Street in search of funding for Jigsee. His pitch was promising. He told venture capitalist firms that Jigsee had developed algorithms that allow a wireless device to read and optimize the flow of data from a server, so that it flows more efficiently through a wireless network.
But Canadian investors weren’t interested.

“They all knew us but none were willing to take a chance,” Newal says. “It was bizarre because then we came to India and made our presentation to the (venture capital group) Indian Angel Investors Network. They didn’t know us at all, but they saw the unique product we had and how it could be commercialized, and they approved us.”

After securing more than $1 million from the Angel Investors and Sequioa Capital — Newal will only say the company got “a seven-figure U.S. number” — Jigsee began offering its download service in India in August. It’s adding 2,500 users each day.

Since the downloads are free, users pay only for their cellphone time, which can be as low as three-tenths of a rupee per minute — or about 36 cents to watch a two-hour movie.

With no promotion, Jigsee had more than 300,000 downloads in its first eight weeks.
“No doubt there are issues here with endemic corruption and a lack of creativity and invention, but India has one of the youngest educated populations in the world,” he says.

Still, Newal has had his share of hurdles.

He came close to signing a lease agreement for commercial space in Mumbai with someone who didn’t have the right to rent the space. It also took weeks of haggling by the Canadian High Commission before local authorities would approve a travel visa for a key Jigsee executive who was a naturalized Canadian.
He also learned there are cultural differences to be reckoned with.

“As a Canadian, it’s easy to take a ‘yes’ from a large potential Indian customer in the same way we would a large customer in Canada,” he said. “It wasn’t until I got here that I realized a ‘yes’ was more of a ‘wait while I think about it.’ No start-up has time for that.”

Vinod Goswami , a taxi driver in New Delhi, stands under the shade of a banyan tree at a roadside restaurant and contemplates how his life has changed.
He makes 8,000 rupees a month ($160), up from 4,500 three years ago. To save money, he lives with his brother and their friend in a one-room flat. After spending 2,000 for rent and food — he eats rice and lentils every day — Goswami sends 5,000 rupees to his family in Himachal Pradesh state, leaving him 1,000 for emergencies and savings.

Goswami, with clean-cut black hair and a bright row of perfect white teeth, is an avid fan of Hindi films. Would he part with some of his savings to watch the latest Bollywood offerings on his phone?

“I think I would find some money for that,” he laughs. “Just don’t tell my wife.”

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