Connecting the Pieces in India’s Business Puzzle
Ditto for the judgment expressed last month by Gurcharan Das, a former CEO of Procter & Gamble India, that “India remains a hostile place to do business.” Or that the World Bank’s country director for India stated just today that “the stark reality is that India remains a difficult place to do business.”
But it’s also worth noting that a number of high-profile foreign businesses in recent weeks have expressed confidence about India’s long-term opportunities. Their example highlights another of Geoskope’s basic messages: Companies in search of future sources of growth cannot afford to overlook India. As the global CEO of Roche, the giant Swiss pharmaceutical company, put it a few days ago: “We always keep India on our radar. The country is so big that you cannot ignore it.”
Leading the parade is Amazon, which is determined not to repeat its experience in China, where the online retailer failed to move fast enough and has now been crowded out by home-grown companies like Alibaba. India, which has a booming e-commerce sector, is Amazon’s second biggest investment country after its U.S. home market, and Diego Piacentini, the company’s global consumer business chief, calls India key to its future success. He states:
We need to look at the long term. The kind of massive infrastructure and partnerships we are building in this country is huge. The US and Europe after some point will have a different growth trajectory.
Jeffrey Immelt’s, GE’s chairman & CEO, seconds the thought, stating that “India is a growth engine for Asia, and we see huge potential for the country in the manufacturing space.” GE has doubled its investment in the country over the past five years and is looking to do even more.
Virginia Rometty, IBM’s CEO, declares that “the 21st century will be the Indian century and will have technology at its heart. I’m very optimistic about the tomorrow ahead and this is a fact-based optimism.”
CNBC quotes emerging markets guru Mark Mobius as saying “GDP will go higher in coming months; India will probably achieve what China did 5-8 years ago.”
And the head of the Indian unit of LG, the South Korean electronics giant, believes “there is huge potential that India can take business away from China and export products to other countries.”
Confidence in the long-term future is reflected in surging levels of foreign direct investment. Nomura, the Japanese brokerage, estimates that India will receive nearly $35 billion in FDI flows in the current fiscal year (April 2015- March 2016), a more than 60-percent jump from the previous year. Much of the FDI funds have gone into the ecommerce and manufacturing sectors.
According to the global consulting firm Bain & Company, private equity investors channeled $9.5 billion into the ecommerce sector in the first half of this year. Bain’s India chief states the inflow is “primarily because investors believe that India will get back on the growth cycle again and it represents an attractive destination compared to other large emerging markets.”
Amazon is reportedly pouring in an additional $5 billion to broaden its presence in India, after pledging an initial $2 billion just a year ago. And the company last week announced that it has opened seven new fulfillment centers to help the sellers on its online platform in India stock products that are shipped to customers through the company. With the addition of these new facilities, Amazon now operates 20 such centers spread across 10 states in India.
Baidu, the web services company that dominates the internet in China, is also making a concerted effort to raise its profile in India. The company, which is often called the “Google of China,” says the number of its users in India is one of the highest outside of its home market. One of its executives notes that “India is important to us, given its 1.25 billion people, 19-percent internet penetration, and government policies that are favorable to promoting internet penetration.”
The Business Standard newspaper reports that the ecommerce boom has just put four young-ish entrepreneurs into India’s billionaire club. And a leading business association last month released a study projecting that the start-up sector, including online ventures, will likely produce at least a dozen billionaires and score of millionaires by 2020.
The tech manufacturing sector is also receiving lots of foreign attention, with many companies taking advantage of the investment incentives offered by the “Make in India” initiative that New Delhi has set up with the aim of making India a global manufacturing hub.
Leading the way on this front is Foxconn. The Taiwanese company, which is the world’s largest electronics manufacturing service provider, made its name assembling Apple gear in China. It now has big plans for India, where it says it intends to set up 10-12 plants and employ a million workers by 2020.
Terry Gou, the company’s founder, stated in a recent interview that “India is so big. Maybe in 10 years, we can have a factory in every” of the country’s 29 states. He added that “We are not in India only for assembling, but we want to be in the whole supply chain, key components and technology transfer.” Foxconn envisions the country as an export platform to Southeast Asia, the Middle East and Africa.
The company is one of the most aggressive foreign investors in India, pumping billions into the ecommerce and solar power sectors (see here and here). Last month it announced a $5 billion investment to set up a semiconductor manufacturing facility in western India that would employ some 50,000 workers.
Xiaomi, the giant Chinese phone maker that is sometimes called the “Apple of China, signaled last month that it would launch, in partnership with Foxconn, a new smartphone plant to in southern India. India is the world’s fastest-growing smartphone market and has rapidly become Xiaomi’s largest market outside of China. Xiaomi’s India head, a former Google executive, says that India “will someday be as big as China. We are coming into India with full force.”
Lenovo, a prominent Chinese tech company, announced plans to establish an assembly facility in eastern India that will produce up to six million smartphones a year and employ 1,500 workers.
Even Phicomm, a minor Chinese smartphone maker, is getting into the act, with plans to invest $1 billion over the next few years. A senior executive explains that outside of China, “India is our second largest potential market and that’s the whole reason why we have decided to come with a full-fledged plan.”
And Sony, after a decade of relying on imports, has begun local manufacturing of Bravia televisions. The company ended local manufacturing in 2004 after concluding that the existing size of the Indian marketplace did not justify a production facility.
Big things are happening in the auto manufacturing sector, too. With its growing consumer class, India is expected to become the world’s third-largest car market by 2020. Companies are also increasingly attracted to the country’s low-cost but skilled manufacturing workforce.
General Motors has signaled its plans to invest $1 billion over the next few years to turn India into a global export hub. The company’s international operations chief says, “With this investment we plan to tap India’s potential as a market and as a low-cost manufacturing base for the future.”
U.S. auto company Ford is making India an export platform and plans to export over 200,000 cars by 2020 to countries in Europe, the Middle East, Africa and elsewhere in Asia.
The Swedish company Volvo announced plans to begin exporting buses to Europe by the end of 2015.
The Economic Times, an Indian business newspaper, reports that Mexico, which is itself an emerging global hub for auto manufacturing, has become the largest export market for the Indian auto industry. Volkswagen, Europe’s largest carmakers, ships some 55,000 vehicles a year from India to Mexico, while General Motors sends some 45,000 units.
According to the Society of Indian Automobile Manufacturers, auto exports have doubled from 1.8 million units in 2009-10 to 3.57 million in 2014-15.
European car makers Mercedes Benz, BMW and Audi also have sharply ramped up their sourcing of Indian-made component parts. Per the Automotive Component Manufacturers’ Association of India, component exports have grown from $4.2 billion in 2009-10 to $11.2 billion in 2014-15.
In related manufacturing news, Boeing announced earlier this month plans to markedly increase its sourcing of India-made products.
And Siemens, the German industrial conglomerate, unveiled plans to invest an additional one billion euros in India over the next few years and add some 4,000 jobs to its existing Indian workforce of 16,000.
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