Jewel in the crown – tips for investing in India


  • Business
  • Saturday, 17 Apr 2010

linsay@thestar.com.my

There was an obvious buzz during HSBC Malaysia’s recent ‘Activate Asia: India in Focus’ conference last Friday.

India is surely and steadily charging ahead while the rest of the world has yet to make up their mind on whether it is on stable footing.

India’s economy is forecast to grow at a healthy 5% to 6% this year, higher than its average growth during the booming 90s. Many observers have said that India’s burden is also potentially its greatest strength.

The country’s huge population of poor people have seen their income levels rise in recent years.

While their incomes are still comparatively meagre, even by emerging market standards, the rise in income has created a huge demand for basic goods and services. This is perhaps a major factor why India stood relatively resilient in the face of last year’s global financial meltdown.

Rising demand from this group has helped offset the impact of the global recession and a slump in exports.

Domestic demand makes up three-quarters of India’s economy, compared to less than half for China. While the rewards for investing in India are good, the obstacles can be challenging.

Datuk Krishnan Tan can certainly vouch for that.

As president of Malaysia India Business Council and chief executive officer of IJM Corp Bhd, which has been doing business in India for nearly 15 years, Tan is well positioned to share his insights on doing business in India.

“The opportunities are huge and you can make a lot of money there. But you need to be aware of some of the things there – for example managing its bureaucracy,” he says.

“Sometimes I think it is more fruitful to invest in the people who can manage the bureaucracy well rather than investing in the business. Send your best public relations man to India, not your best engineer!” Tan said in jest during his speech at the conference.

He notes that while investors in Malaysia are slowly adapting to changes in the government, in India, they should accept that such changes are a fact of life.

The one good part about India is that because it is growing so fast, the bureaucracy cannot catch up with this growth, Tan says.

“In the infrastructure sector for instance, you will have to deal with politicians. When you get called in too often into the office of a politician, you are quickly labelled a crony,” he notes.

Puneet Chaddha, the managing director and head of commercial banking of HSBC India, reckons that knowledge on the ground is extremely important.

“Execution can be difficult if you don’t have the right team of people. When investing in India, you cannot extrapolate from other markets,” he says.

Tan warns that it generally takes a little longer to get a job done in India.

“We (IJM) started building our power plant in 1996. It only started operating in 2009!” he says.

As growth in India is at breakneck speed, labour is another issue.

Indian engineers used to make only one third of what Malaysian engineers earn.

Today, their salaries are much higher than their Malaysian counterparts.

“Typically, if you want a job done quickly and with a certain quality requirement, you need to invest in technology,” Tan says.

If short term returns are what one is looking at, then Tan advises to just play the Indian stockmarket.

Anyone who wants to put money in India has to have a long term view.

“You need perseverance and you learn patience. You can easily be discouraged. Flights being delayed are so normal. I would suggest travelling with books. I have done my share of waiting,” he says.

Meanwhile, president of the Associated Chinese Chamber of Commerce and Industry, Tan Sri William Cheng, notes that the Malaysian government has been providing a lot of encouragement to small and medium enterprises (SMEs) to go abroad through the various guaranteed loan schemes and training offered.

“We must allow our SMEs to try going abroad. Not all will succeed, but we have to let them try,” he says.

Great Vision Advisory Group managing director James Tan, a conference participant, says commercial banks like HSBC should organise more of such forums.

“It helps everyone to understand the hidden potential in India. Besides the information, it provides a platform for interested parties and entrepreneurs. We do not have enough of such events. I think everyone will benefit from these gatherings,” Tan says.

Seal Incorporated Bhd group executive director CB Chuah, who also attended the conference, says it is not easy to go to a new country.

“99.2% of the registered companies in Malaysia are SMEs. Who is going to bridge the gap between the SMEs and the big companies?” he asks. He says big companies have the resources and contacts to invest overseas, but SMEs do not have the people to bridge that gap.

“It would be good if the government or relevant parties organised more meaningful business trips where it not only bridges the shortfalls, but also creates government to government synergies,” Chuah says.

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