DOING BUSINESS IN INDIA

Doing Business in India

Doing Business in India

Even if productivity might be lower than at home, the potential cost advantages India offers are enormous. The average monthly wages of a factory worker plus social security totals around $200 per month in Manila, around $150 in Bangkok, and just over $100 in Batam in Indonesia. Even in booming Beijing and Shanghai, where factory workers wages and social security costs often exceed $300 per month, this is still a fraction of the cost of wages in the United States or Europe.

For all the attractions of India as a low-cost manufacturing location, however, focusing on this aspect alone would greatly underplay India's potential within a Western company's strategy. India has at least three other ways in which it can play a major role in a successful global company (Farrell, 2008).

First is the potential of India's domestic markets as a source of new customers, rather than just as a production base for exports. Despite the preoccupation of many commentators with Indian products flooding into America and Europe, the major growth engine in most Indian economies is domestic demand. In 2006, for example, domestic demand contributed 8.3 points of China's 10.2% growth; over 7 points of India's 8% growth was accounted for by rising domestic demand; while in Indonesia 4.9 points of its 5% growth was attributed to growth in its home market. Indian consumers and businesses now offer serious potential as the customers of the future. To take just one example, more than 80 million mobile phones were sold in China alone last year, and today leading global companies like Nokia and Motorola rely on the Chinese market for a large slug of their sales (and even more of their volume growth). More and more companies will need to gear up to sell to India as a core market—perhaps even the key global battleground—rather than treating it as an afterthought (Farrell, 2008).

Second, companies can grasp India's potential as a source of new talent, not just a pool of low-skilled factory workers. In 2005, for example, there were 3.4 million new graduates from Chinese universities and colleges, three times the number graduating just 5 years ago. Last year, China passed the United States in terms of the total number of students enrolled in universities, so China now has more people studying for degrees than any other country in the world. The most popular majors were among the most relevant to the needs of commerce and industry. Business administration is the top choice, followed by computer science, law, finance, communications, medicine, and English. In the same year, more than 3 million people graduated from universities in India (Farrell, 2008).

More recently, the deregulation and opening up of India has added further to these pressures. Since this process began in the early 1990s and has gathered pace over the last 5 years, India has become a powerful force in reshaping the competitive playing field in India. So the firm that is aspiring to enter the Indian ...