Tata’s acquisition of two of the Midlands’ most prestigious car brands is proof India is now a superpower. Ian Halstead looks at the opportunities for others.
If there were any lingering doubts in the Midlands that India was on the verge of becoming an economic superpower then Tata’s acquisition of Jaguar and Land Rover in March 2008, two of the region’s great brands, swept them away.
There is no doubting the opportunities awaiting overseas corporates and advisers as the impact of India’s economic liberalisation become visible. Only the deeply uninformed could still see the country as just somewhere to outsource. Economists cite scope in telecoms, healthcare, oil and gas, automotive and engineering – and, of course, in infrastructure. And Delhi‘s success in attracting the 2010 Commonwealth Games will create opportunities, not least for event organisers.
Lloyds TSB Corporate Markets economist Kenneth Broux admits concerns about overheating of the economy, which, although achieving GDP hikes of between 8 and 9 per cent in the second half of 2007, also has interest rates and inflation not far behind those numbers.
Although the prospect of action by the central bank to rein in growth needs to be factored in, it is unlikely to prevent companies eyeing India’s markets and fast-growing middle class. Helen Deas, who heads the Leicester-based East Midlands India Business Bureau, says India will be one of the world’s three major economies by 2050, alongside China and the US. She believes the long-term links between India and the Midlands, and the East Midlands Development Agency’s (Emda) decision to fund her organisation, will give the region the edge.
“Our presence – and Birmingham Chamber – has put us ahead of other regions in recognising India’s wider potential,” says Deas. She returned from three years in Mumbai, as deputy head of mission and first secretary for trade and investment at the British Embassy, in November 2007, so her confidence is reassuring. The bureau has received three years’ funding and is tasked with advising 1,500 companies in that time.
Deas says 90 per cent of the first 200 to seek the bureau’s advice will be new to India. It is not a market for ill-prepared exporters, so each business is being vetted and advised by Deas and her colleagues, and the regional UK Trade & Investment team.
“Corruption may be a problem, but officialdom definitely will be, so you need good local partners and advisers who know the area,” she says.
Equally, it is crucial companies research locations and target markets. “India is the size of Europe, 18 different languages are spoken and roughly half of its 1.2 billion population is under 25,” says Deas. “People can’t just look at images of Mumbai on TV and imagine they know what it’s like.”
The point is underlined by Jonathan Webber, director of Birmingham Chamber of Commerce’s India-Pakistan Trade Unit – fresh back from a trade visit to Delhi. “The opportunities are as obvious as the synergies with the Midlands, but it is not a market for the faint-hearted,” he says. “It requires resources and commitment, although the fact the West Midlands is so multi-cultural gives this region an edge.” Webber believes companies looking to India would gain particular benefit from accessing the Export Marketing Research Scheme (EMRS). “Arguably, it is under-utilised but it provides healthy subsidies – sometimes as much a 33 per cent of your research costs,” he says. “If I was looking for a more prosaic introduction to India, I’d go for an Overseas Market Introduction Service report from UKTI, but if I wanted something more sophisticated, I’d consider EMRS.”
Both services are paid for by UKTI, but delivered by Birmingham Chamber, and aimed at smaller businesses.
For companies considering setting up a joint venture, Webber says the Inter-trade initiative run from Coventry University has a database with advice on issues from recruitment to intellectual property. He says this support is more important for those looking to India than their precise sector.
“The opportunities are so huge that you shouldn’t go wrong if you’ve done research, found the right partner and worked out what India can do for you,” says Webber. “If you don’t get it right first time though, it will be an expensive mistake. India is a place of enormous contrasts. Mumbai may be a global financial centre that appears to operate 26 hours a day, but in many areas people earn less than a dollar a day.”
Another member of Birmingham’s business community who has just arrived back from India is Martineau Johnson partner Paul Mountain. He joined a UKTI trade mission to Mumbai and Calcutta and gave talks about the scope for housing-led regeneration schemes. “I felt humble expressing views on that subject when I was in one of the world’s biggest metropolitan areas, and where half of the 16 million inhabitants live in slums, but we were received with enthusiasm,“ he says.
Intriguingly, Mountain sees more scope for Western companies and advisers in West Bengal – and its capital of Kolkata, as Calcutta is now known – than Mumbai. “There’s been a culture of public-sector intervention by the state for the past 35 or 40 years and it has a good track record of education and housing, especially compared with other regions,” he says.
“In Mumbai there was a consensus on the private-sector side, from the people I met, that politicians had rather abrogated their responsibility over the years. My personal view is that Kolkata does offer significant opportunities.
“In Kolkata, the mayor, senior figures from the regional development agency, the technology minister and many company directors turned up to make us realise the scope for investment. In Mumbai those people didn’t show.”
However, amid all the enthusiasm, Ernst & Young’s lead partner on Indo-UK issues, Vijay Thakrar, counsels caution. “I am sure other Indian conglomerates will follow Tata’s lead, and consider investing in the UK. But in the medium term there will be nothing to prevent Tata from taking Land Rover or Jaguar production elsewhere, just as there is nothing to stop India from attracting companies that may previously have come here.
“If the 19th century belonged to the UK and other European states, and the 20th century to the US, then the 21st century belongs to Asia and we should be careful to remember that.”
It is a good point, and well made, that globalisation works both ways.
“Asia has, in general, been a closed economy to outside investors and as a result has high tax rates and antiquated labour laws, but India is starting to relax its tax regime“ says Thakrar.
“I know several private-equity houses are looking to invest in India. It’s possible to see companies staying in India or relocating there.”
Thakrar also sees a shift in the relationships between British academic institutions and their Indian counterparts. “India turns out five million graduates a year. British universities will soon be establishing partnerships to take advantage of that resource.“
And just 48 hours after the Ernst & Young partner made the prediction, Warwick Manufacturing Group (WMG) signed an alliance with IIT Kharagpur – one of India’s leading institutes of technology. The two will work jointly in areas such as design and manufacturing, composites and sustainable materials and steel technology.
Professor Sunjit Banjeri, who leads on WMG’s activities in India, says: “We will create an IIT cell here in Warwick, where we can collaborate. WMG already runs training programmes in India via remote supervision,” he says. “Now we’ll be sending tutors and material out there and running a masters’ programme on a part-time basis for people working in industry in India.“
Some observers have suggested that India’s economy has been slow to modernise, compared with China’s dramatic recent expansion, but Banjeri says that is wrong. “People forget that China started to liberalise its economy in 1979, whereas India only began to open up in the early 1990s. India is also a democracy, so sometimes things go slow and governments change.”
But despite inevitable delays caused by the democratic process so alien to China, India offers stability at the ministerial level. Pinsent Masons chairman Martin Harmon has been dealing with trade minister Kamal Nath for longer than he wishes to remember.
“India is about establishing relationships,” he says, “and it doesn’t reshuffle its cabinets all the time, as lack of continuity would be a problem. I first dealt with Kamal in the early 1990s when he was finance minister. How many trade ministers have we had, even in the past five years?”
Harmon’s feedback from his contacts in India’s key commercial centres indicates British companies all too often lag behind their rivals when competing for major projects. “I am told we are regarded as risk-averse and more eager to focus on quick short-term returns than the medium and long term. There are exceptions, but not enough,” he says. “All too often, at regional events, when I ask what companies are involved with India, there is a long silence and few hands ever go up.”