New Frontier for Taiwanese Business
India: Boundless Opportunities, Plenty of Pitfalls
Taiwanese enterprises have entered India in droves. But can they get a solid footing in this enigmatic country, and along with it, overcome their growing pains?
India: Boundless Opportunities, Plenty of PitfallsBy Hsiao-wen Wang
From CommonWealth Magazine (vol. 391 )
India’s capital, New Delhi.
Vendors out in force on a Sunday are peddling puri, samosas and sugar cane on a city street. V. Johari, a 28-year-old banker dressed in a crisp white shirt, ignores the market’s fragrant aromas and disappears below street level into a nearby store selling mobile phones, planning to buy an HTC Touch smart phone to show off to his colleagues.
India’s biggest city, Mumbai.
Part of the city’s typically crackling night scene, electronic goods vendors hidden in a narrow alley of Mumbai’s historical quarter hawk international name brand products. Their shelves, stacked with recently delivered components, blanket the walls of their corrugated steel shops from floor to ceiling. In one of them, a group of young people is crowded around a small, dusty glass case, waiting for the clerk to assemble a computer built around an Asus motherboard.
India’s east-coast manufacturing center on the Bay of Bengal, Chennai.
On National Highway 4, Nokia office vans and Hyundai container trucks can be seen now and then shuttling between their destinations. The flat highway is lined on one side with patches of wild knee-high grass and interconnected pools of water, on the other with a Foxconn factory nestled between Motorola and Dell plants. Wandering cows still slowly feed on garbage left on the side of the street, while Foxconn is paving its facility’s grounds and about to cover wasteland with a large manufacturing complex.
Without much fanfare, India has become the ’hot’ destination for Taiwanese companies in search of new production sites.
Taiwanese Investment Up Eightfold
According to figures from the Department of Investment Services under the Ministry of Economic Affairs, Taiwanese companies invested a total of US$53 million in India between 1991, when the country launched its economic liberalization program, and 2006. But in 2007, Taiwanese firms registered investment in India totaling US$450 million, eight and a half times more than in the previous sixteen years combined. That included investments of US$100 million by Adidas subcontractor Apache Investment, US$80 million by athletic shoe supplier Feng Tay, and US$50 million by flat panel maker Wintek.
Indian officials say Foxconn plans to invest US$1.5 billion in India over the next five years to build a 160-hectare special economic zone in Tamil Nadu. Foxconn chairman Terry Gou has visited India twice and held discussions with state government officials.
Taiwan Semiconductor Manufacturing Co. (TSMC), and United Microelectronics Corp. (UMC), the world’s two largest made-to-order chipmakers, have set up offices in Hyderabad, a city on the Deccan Plateau in southern India, and speculation abounds of joint ventures with the Indian government to help nurture the local private-sector wafer industry.
Other Taiwanese companies, including Continental Engineering Corp., Synnex, HTC, Acer and Asustek, are eyeing India’s burgeoning middle class and seeking to capitalize on the country’s massive domestic market.
This country of 1.1 billion people that is steeped in history and culture often brings out feelings of both love and hate in Taiwanese businesspeople, who are sometimes pushed to a point of such utter frustration that they can’t help laughing about it. Many Taiwanese executives sent to India for the first time are often teased by their colleagues with the line, ’Whom have you offended? Why have they sent you to this living hell’?
In fact, opportunities in India abound, but there are also snares every step of the way.
’Bird of Gold’ Flying High
Taiwan’s nomadic manufacturers looking for new oases see India as a refuge from constraints found in other countries. Their margins squeezed in China by the new Labor Contract Law and threatened by European Union plans to pursue anti-dumping charges against suppliers in China and Vietnam, they see India as one big spacious pasture.
’India has huge domestic demand, and it’s also a gateway to the Middle East. In the future, India could also sign a free trade agreement with the EU,’ says an optimistic Steve Chen, vice president of Apache Investment. His shoe factory in the state of Andhra Pradesh currently employs 5,000 people and produces 200,000 pairs of Adidas sneakers a month.
To Taiwan’s service sector, bounded by the limitations of the island’s tiny domestic market, India is even more of a vast arena filled with opportunities, with a rapidly expanding middle class.
The New Delhi-based National Council of Applied Economic Research divides India’s growing middle class into two categories, with 90 million people earning annual incomes between US$4,400 and US$21,800 and another 287 million people earning between US$2,000 to US$4,000 a year. The council estimates that by 2010, the country’s middle class will comprise a stunning 560 million people.
In its May 2007 report on India’s consumer market called ’The ’Bird of Gold’: The Rise of India’s Consumer Market,’ the McKinsey Global Institute predicts that by 2025, 24 million Indians will have annual incomes exceeding 1 million rupees (about US$21,890), more than the 19 million Chinese forecast by the report to have a similar level of wealth by that time. This affluent segment, which counts for a small fraction in India, exceeds Australia’s entire population.
The potential for growth is boundless for any company that can hunt down that high-flying ’bird of gold,’ as Asus has discovered.
Selling notebook computers that were priced higher than Sony’s models, Asus saw sales soar 45 percent in 2007. The 2,000 Eee PCs the company brought into India in February were gobbled up in nine days.
’The Indian notebook market is growing at 60 percent annually. Asus is selling in only eight cities. This is not enough, far from enough,’ says an impatient Apratim Sharma, manager of system business units at Asus’ India subsidiary, Asus Technology Pvt. Ltd. The 28-year-old Sharma, who left his distant hometown for Mumbai four years ago in search of success, makes an average of 300 phone calls a day, his palm covered with scribbled phone numbers, his face full of ambition.
’This moment belongs to India,’ proclaims Sharma, brimming with pride over India’s soaring economic growth.
Plenty of Snares
While opportunities abound, many Taiwanese investors in India have faced setbacks, resulting from their unfamiliarity with the country, overconfidence, or unforeseen risks. They have discovered that the Indian government is an unpredictable partner.
Last year, for example, because farmers in the eastern state of West Bengal protested the government’s expropriation of land for development, the Indian government decided to suspend its policy on special economic zones, holding back Taiwanese companies’ plans. Foxconn has also suffered at the hands of government caprice. When the state government with which Foxconn signed a contract was ousted in an election, the new government did not supply water and electricity to its facility as agreed, leaving the company to suffer in silence and postpone its factory expansion plans.
A World Bank report has noted that endemic corruption in India’s government has made it hard to do business there. Registering a new company takes 33 days. On average, contracts take 4.8 years to be fulfilled. And completing bankruptcy-filing procedures can sometimes require 10 years. Integrity is not a word widely heard in Indian government or business circles.
’There’s no way around it. If you want to do business with them you have to work with them patiently and slowly grind them down,’ says one Taiwanese investor.
Yet whenever Indian officials solicit investment from Taiwanese companies, they invariably stress that their country is no longer ’incredible India,’ but rather, ’credible India.’
The myth that India’s labor force is highly skilled and inexpensive has also fooled many Taiwanese investors.
’If you thought that Indians are smart and cheap, you’re completely mistaken,’ snorts P.C. Tseng, who has been in India for over a year serving as director of operations at CEC International Corporation Pvt. Ltd., the Indian arm of the Taiwan-based construction firm Continental Engineering.
In contrast to its elite science and engineering educational program renowned around the world, India’s education system at the grassroots is appalling.
At a Continental Engineering job site in New Delhi, an illiterate worker is hunched over a bending machine, mindlessly bending lengths of rebar according to a template drawn with a tape measure. Each worker can only perform one function, which drags down production efficiency. In Apache International’s factory in India, output per worker averages 40 pairs of shoes per month; Chinese workers in the company’s facility in Qingyuan in Guangdong Province produce an average of 50 pairs of shoes a month.
Also adding to the costs of Taiwanese companies in India is the country’s unvarnished brand of socialism that offers comprehensive protection to workers, who are entitled to a month’s vacation after working for a company for a year and get a multitude of days off for holidays and other family matters.
India’s labor market suffers from a disturbing contradiction that also drives up costs. The supply of laborers far outstrips demand, but the demand for professionals or skilled specialists lags behind supply, leading to quickly escalating pay levels for managerial level talent. Wan Hai Lines, for example, pays its finance manager in India the equivalent of NT$80,000 a month. John Porter, the managing director of Continental Engineering’s international operations, shakes his head in disbelief when talking about a 25 percent raise he recently gave to one of his managers in India.
’He was so depressed, because the average raise at his level ranges from 50 percent to 100 percent,’ Porter relates.
Having trouble getting acclimated is another huge obstacle for Taiwanese companies in India. It is not uncommon to hear of Taiwanese managers diagnosed with illnesses ?V such as cellulitis, a spreading bacterial infection of deeper layers of the skin, or liver cysts ?V and flying home to Taiwan the same night for treatment.
’Our colleagues come down with a fever or get sick once every three months on average,’ says Wayne Tseng, chief representative of Wan Hai Lines in India and the head of a Taiwanese business association in Mumbai, running down a list of ailments that have hit fellow businessmen, including periodontal and skin disease, dengue fever and heart disease.
There are many other challenges that companies must overcome, but as more Taiwanese businesses establish a presence in the Indian market, they still passionately hope to solidify their footing in the enigmatic country and, together with India, leave their growing pains behind.
Translated from the Chinese by Luke Sabatier
Chinese Version: 商機無限 陷阱重重