Time to chase the tiger: exporting to India

Exporting, like so many things in life, is all about timing, and with India's star on the rise, now could be the opportune juncture to go hunting. Alan Johnson reports. (Part II).

Since his election in May last year, Indian Prime Minister Narendra Modi has set the world's largest democracy on path of economic reform. For example, he has instituted 'Make in India', a national program designed to transform India into a global manufacturing hub.

When Australian manufacturers first hear about the program, they might think of it as competition.

However, as Nicola Watkinson, Austrade's Trade Commissioner for South Asia told Manufacturers' Monthly, that is not the case.

In fact, she said, the program offers Australian manufacturers a huge opportunity, because up until now the manufacturing sector in India, as a whole, has not been particularly competitive.

"Now there is a huge amount of government support, at both the state and federal level, to try and improve the competitiveness of Indian manufacturing, meaning there are a number of opportunities for Australian companies," Watkinson said.

First she said is India's economies of scale, something Australian companies need if they are going to expand beyond their domestic horizons.

She said Indian companies are actively looking for new technologies, new innovations and solutions that will allow them to become more competitive.

"For Australian manufacturers this is a great opportunity to showcase their skills. They have shown their manufacturing expertise in short production runs, and managing the complexity of being nimble, lean and flexible," said Watkinson.

"There is a lot of expertise in Australia that can help Indian manufacturers to implement process and product innovation as well as sell into the value chains that they are creating."

In January this year, over 300 Australian companies joined Trade Minister, Andrew Robb, in India for one of the largest Australian trade promotions ever held.

Watkinson said Australia Business Week in India was very successful and a serious commitment to genuinely explore Australia's trade potential with India.

"India is now a reforming economy as well as a developing one, and Australian companies should make efforts to understand this as well as act on it," she said.

Watkinson said the aim of the trade week was to get Australian manufacturers to meet leading Indian manufacturers and corporate houses to achieve three outcomes.

"Firstly to get manufacturers some direct supply contracts. One company, for example, might have a very efficient water filter suitable for Indian manufacturers along the Ganges River, where new rules dictate zero liquid discharge," she said.

"The second aim revolved around value chain integration. Already we have a number of Australian companies that are feeding into India's automotive sector. Many might not realise that India is the world's third largest producer of cars, and will keep growing.

"But there are other opportunities, to feed into those value chains that the Indians are building now as they become more competitive across a whole range of industry sectors."

She said the third aim was to attract Indian investment into some of Australia's small technology and start up manufacturing companies, those who find it so hard to win support domestically from banks and other financial institutions.

"While Australia is small, what we offer is a strong capability in technology and innovation in both product and process innovation," Watkinson said.

"Indians are actively looking on how they are going to deliver on Modi's Make in India campaign and they can only do that by becoming competitive in their domestic market, because up until now it has been very fragmented and very protected.

"There hasn't been the need to improve, but now Modi wants India to be a place where people come to see good manufacturing and over time to export products."

Watkinson explained that, at the moment, very little of India's manufacturing is exported.

"India mainly manufacturers products for the domestic consumer, whose market share has been eroded in recent years by imports. Basically, China and other countries produce better quality goods for a cheaper price," she said.

"So India has to improve its manufacturing productivity in order to compete on its own domestic stage as well as becoming good enough to be able to export, and that is where I see Australia's capabilities can support it.

Challenges

Regarding dos and don'ts Watkinson admitted India has some challenges, but said things like bribery and IP protection are not pronounced issues in the market.

"IP protection is not the same degree of problem as manufacturers have experienced in China," she said.

"In India, we have the Westminster system and the legal system is a lot clearer, if quite slow. You should avoid using it if you can, but it does move to protect IP."

Watkinson said the real challenge in India is to work out which part of India companies should tackle first.

"It's a huge market, with each region having its own special characteristics," she said.

For example, Watkinson suggested equipment manufacturers should focus on Calcutta, for that is where the big companies are.

"However if company manufactures IT equipment then the focus should be on Bangalore, and be part of the development there, or if an automotive manufacturer, they should be looking at Chennai," she said.

She said the first challenge for Australian companies is not to see India as one market but to pick a part of India to start with and to look at how they do business in that location, because the different states' rules are quite specific to each jurisdiction.

"It is best to go into one location and succeed there, and then expand out from that part into other areas of India. Getting that decision right first is really important," she said.

According to Watkinson, the second challenge is having a market entry strategy.

"What strategy are you going to use, are you going to have a local distributor here, enter a JV partnership or set up your own company?" she said.

"There is a lot of work that needs to be done to look at the best approach would be for different industries."

She said having a good partnership is very important in such a complex market.

"Finding a partner that doesn't have a history of problems regarding bribery and other issues is important," she said.

How it's done

The joint venture between India's Tata Steel and Australia's BlueScope Steel is an example of how Australian manufacturers can find new markets and new revenues overseas.

The partnership, which was first established in 2005, has outperformed expectations, powered by India's economic growth.

Today, Tata BlueScope Steel has three business divisions in India offering premium brand steel products for building and construction.

The company has four state-of-the-art manufacturing plants, supported by a network of sales offices. A board that comprises representatives from both companies governs the Tata BlueScope business.

BlueScope, which had limited operating experience in India, opted for a joint venture because of Tata's local brand recognition and its corporate values. Tata had strong growth ambitions, and a marketing and branding ethos similar to BlueScope.

Tata BlueScope's CFO, Shyamsunder, an Australian national, said the move into South Asia has helped BlueScope to increase revenue.

However, he said operating in an economy of rapid growth yet poor infrastructure posed a few challenges, with the Indian market highly price sensitive.

"You can achieve premiums for your product only after proving its value, and that takes a long time in India. Having a global brand does not guarantee acceptance by the local market," he said.

"We learnt this the hard way. We based our business case on achieving premiums because we held a significant share of the Australian market and we thought we would achieve similar results in India.

"But that was not to be the case. We had to do the hard slog of building brand value. This is one of the reasons it so important to have a strong, well-recognised local partner."

People often underestimate or misunderstand India's strong business culture, which Shyamsunder said is different to other South-East Asian countries.

He said English literacy, numeracy, and engineering skills are strong in India. This gives India an edge in business and entrepreneurialism.

"India has a strong, confident business culture. Even at the corporate leadership level, people are entrepreneurial in ways that surprise those from a western corporate culture. And Indian companies are prudent about investments," Shyamsunder said.

"Australian companies have to be prepared to work through these issues to find a way forward that works for both sides."

He also explained that the country has a hierarchical and paternalistic management style where the subordinates believe that being the boss means they need to be consulted on almost all decisions.

"Even highly qualified subject matter experts will always feel obliged to refer to their managers. This takes some getting used to for Australian companies," he said.

Shyamsunder also said that protecting IP, careful use of language, and respect for cultural and religious sensitivities are important in India.

"Having said all this, a well led and adaptive Australian company can overcome these issues and create important new markets and revenue streams in India."

Part I of this article appeared in the March issue of Manufacturers' Monthly.

 

[Alan Johnson is Manufacturers' Monthly's former editor. He has researched and written about all aspects of the Australian manufacturing sector for over 25 years.]

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Image: http://www.makeinindia.com/