DOING BUSINESS IN INDIA Council of Great Lakes Governors (CGLG)

India Office

May 2013

1. India: An Introduction

2. The Indian Economy

3. Market Opportunities

4. Market Entry

5. Recommendations

6. Conclusion

INDEX

INDIA An Introduction

• 28 states, 7 union territories

• Area: 3.3 million sq. km. (1.27 million sq. miles) • Bordered by: - China, Nepal, Bhutan (north) - Afghanistan, Pakistan (north-west) - Myanmar, Bangladesh (east) - Sri Lanka (south)

• Coastline: 7,517 km (4,670 miles)

GEOGRAPHIC PROFILE

• Population: 1.2 billion - 65% in the 15-65 age group - 30% urban, 70% rural

• Sex ratio: 940 females per 1000 males

DEMOGRAPHIC PROFILE

30%

65%

5%

Distribution by Age Group

0-14

15-64

Above 65

• Literacy rate: 74.04%

• Languages: - Officially recognized: 22 - National language: Hindi - Business language: English

• Religions: - Hinduism, Islam, Christianity, Sikhism - Buddhism, Jainism, Judaism and Zoroastrianism

• Federal union

• Secular state

• Largest democracy in the world

• Parliamentary form of government

POLITICAL PROFILE

President: Shri Pranab Mukherjee

Government: Led by the United

Progressive Alliance (UPA)

Prime Minister: Dr. Manmohan

Singh

THE INDIAN ECONOMY Overview

Since economic reforms in 1991, India has grown into a trillion dollar economy characterized by: • A liberalized foreign investment and trade regime • A significant role being played by the private sector • A diversified industrial base • A stable financial and services sector

THE INDIAN ECONOMY

Gross Domestic Product (GDP), 2011-12 • Nominal: $1.85 trillion, 10th largest in the world • PPP terms: $ 4.71 trillion, 3rd

largest in the world • GDP growth rate: 6.5 % • The services sector continues to

be a star performer with a 59% share in GDP

Services 59%

Industry 27%

Agriculture14%

Sectoral Composition of Indian GDP: 2011-12

Per Capita GDP, 2011-12 • Nominal: $1,514 • PPP terms: $3,652

THE INDIAN ECONOMY

Source: IMF and World Bank

World Trade: India is - • The world’s 19th largest exporter with total exports of US$

303.7 billion in 2011-12 • The world’s 10th largest importer with total imports of US$

488.6 billion in 2011-12

251.1 303.7

369.8

488.6

0

100

200

300

400

500

600

2010-11 2011-12

India'sExportsIndia'sImports

India’s World Trade (US$ Billion)

THE INDIAN ECONOMY

Growth in 2011-12 over previous year Exports: 20.9% Imports: 32.1%

Source: Reserve Bank of India

Foreign Direct Investment (FDI) 2011-12

• FDI inflows were $46.8 billion, up by 29% from 2010-11

• India is the world’s 3rd most attractive destination for FDI,

according to UNCTAD World Investment Report 2012

Country Composition of FDI Inflows

THE INDIAN ECONOMY

Source: Department of Industrial Policy and Promotion,

Govt. of India

Sector Composition of FDI Inflows • Services 19% • Telecom 7% • Construction Activities 7% • Computer Software & Hardware 7% • Housing & Real Estate 7% • Chemicals (Other than fertilizers) 6% • Drugs & Pharmaceuticals 5% • Power 4% • Automobile Industry 4% • Metallurgical Industries 4%

THE OPPORTUNITY Why India?

India’s GDP by 2020 • Nominal GDP: US$ 5 trillion

• GDP in PPP terms: US$ 13.7 trillion

ECONOMIC OUTLOOK

Source: Dun & Bradstreet, World Bank, Deloitte

Key Growth Drivers • Infrastructure investment: US$ 1 trillion investment planned

during 2012-17 fuelled by rising incomes and urbanisation

• Consumer spending: India will be the world’s 3rd largest

consumer market by 2020, and the world’s largest by 2030 with

a consumer spending of US$ 13 trillion

• Demographic dividend: India’s young age population will move

into the productive workforce creating a reduced dependency

ratio

Market size • A vast market of 1.2 billion people

• Increasing urbanization is gradually bringing the huge untapped rural market

into the mainstream

Demographic advantages • Young age population moving into the productive workforce

• Defined as having an income of US$ 10-100 per day, India’s growing middle

class population with rising incomes and aspirations is driving consumer

spending

• The two factors combined will create a huge market for consumer goods as

well as services in finance, healthcare, education, telecom, aviation, road

transport, entertainment, retail etc.

ADVANTAGE INDIA

English speaking population • English is the primary language for official business in India making it easier to

communicate and do business

Growing India-US trade • Bilateral trade stood at US$ 62.4 billion in 2012 (Jan-Dec)

• Steady imports valued at US$ 22.33 billion in 2012

Stable political and legal institutions • Stable government and liberalizing trade and FDI regime

• Well established judicial system

ADVANTAGE INDIA

Import dependence for high end products • India has a high degree of dependence on imports for high end products and

sophisticated technologies. E.g. India depends on imports for:

• 50% of auto component requirement

• 70% of defense requirement

• 43% of electrical equipment requirement

• 70% of medical device requirement

ADVANTAGE INDIA

KEY SECTORS India – Wisconsin Trade

• India was Wisconsin’s 11th leading export destination in 2012 (January – December) up from 14th in 2011

• Wisconsin exports to India were US$ 456 million in 2012 – a 39% growth from 2011

• Main export items include industrial machinery, medical and scientific instruments and motor vehicles for transport of goods

210 236

329

456

0

100

200

300

400

500

2009 2010 2011 2012

Wisconsin Exports to India (US$ Million)

WISCONSIN EXPORTS TO INDIA

Source: US Census Bureau - State Exports for Wisconsin

Automotive Components

• Market size in 2011-12: US$ 30 billion

• Growing at 15% per annum

• Import of auto components in 2011-12: US$ 10.6 billion

• Projection: India will import 50% of its auto component turnover in 2013-14

• Key growth drivers: • Automobile production at 20 million vehicles in 2011-12 and growing

• By 2015-16, automobile industry turnover is expected to reach US$150 billion

KEY INDIAN SECTORS FOR WISCONSIN

Material Handling Equipment (MHE)

• Market size in 2011-12: US$ 520 million

• Growing at 15.62% per annum

• Import of MHE in 2011-12: US$ 150 million

• Projection: Rising automation levels and technology upgrades will increase import levels

• Key growth drivers: • Infrastructure investment planned at US$ 1 trillion b/w 2012-17

• Rising investments in manufacturing, retail and warehousing

• Dependence on foreign players for high end equipment

KEY INDIAN SECTORS FOR WISCONSIN

Medical Devices

• Market size in 2011-12: US$ 5.2 billion

• Growing at 20% per annum

• Import of medical devices in 2011-12: US$ 3.9 billion

• Projection: Imports will continue to form over 70% of India’s demand over the next few years

• Key growth drivers: • Reduction in import duties

• Dependence on imports for high end equipment

KEY INDIAN SECTORS FOR WISCONSIN

Packaging Equipment

• Market size in 2011-12: US$ 650 million

• Growing at 10% per annum

• Import of packaging machinery in 2011-12: US$ 150 million

• Projection: India will continue to import 20-25% of its packaging machinery requirements

• Key growth drivers: • India’s growing food processing industry is the largest market for packaging

machinery

• Rising concerns about safety in consumables and proper packaging

• Dependence on imports for highly automated advanced machines and systems

KEY INDIAN SECTORS FOR WISCONSIN

Power Generation (Electrical) Equipment

• Market size in 2011-12: US$ 36.5 billion

• Growing at 14% per annum

• Import of electrical equipment in 2011-12: US$ 15.7 billion

• Projection: Imports are expected to grow at a CAGR of 25% till 2022

• Key growth drivers: • 88.5 GW power capacity addition envisaged during 2012-2017

• Dependence on foreign sources for critical components

KEY INDIAN SECTORS FOR WISCONSIN

Some Wisconsin companies doing business in India:

WISCONSIN COMPANIES IN INDIA

Company Name Mode of Operation in India

ABS Global Indian Distributor

Bostik Wholly Owned Subsidiary

Dorner Conveyors Indian Distributor

ETC Connect Indian Distributor

Extrusion Dies Industries Indian Sales Representative

Harley-Davidson Motor Company Wholly Owned Subsidiary

Jockey International Franchise

Rice Lake Weighing Systems Joint Venture

Spancrete Machinery Corporation Direct Sales

MARKET ENTRY

Strategies for Entering India

I. Agent / Distributor • Agent: Using an in-market representative to negotiate sales. Agents take a

percentage of the sales as payment for their services. • Distributor: Selling to an Indian distributor who then sells to the end-user or

an additional intermediary.

II. Establishing an Office: Equity: • Joint Venture: An entity developed with an Indian partner with equity

contributed by both parties, characterized by joint control as well as sharing of revenues, expenses and assets

• Subsidiary: Owning a controlling interest in an Indian company established either through greenfield investment or acquisition

MARKET ENTRY STRATEGIES

II. Establishing an Office: Non-Equity: • Branch Office: Functions as an extension of the foreign parent – not a

separately incorporated company • Can represent foreign parent as a buying/selling agent, promote

technical or financial collaborations with Indian companies, conduct import-export activities and render professional/consultancy services

• Subject to tax in India and can remit profits abroad • Project Office: A branch office set up by a foreign company to execute

specific projects. Focuses only on activities relating to and incidental to the execution of the project.

• Liaison Office: A representative office set up to investigate the business and investment climate. It cannot directly engage in commercial activity or earn income in India.

MARKET ENTRY STRATEGIES

III. Franchise Allow an operator, or a franchisee, to use your trademark, operate your business model and distribute the your goods in return for a royalty or fee

IV. Direct Selling Contacting potential customers and selling to them directly. This can include selling online, regular trade visits and establishing an overseas office to sell or manufacture locally.

MARKET ENTRY STRATEGIES

Parameters India Singapore Hong Kong

Starting a business 173 4 6

Dealing with Construction Permits 182 2 1

Getting Electricity 105 5 4

Registering Property 94 36 60

Getting Credit 23 12 4

Protecting Investors 49 2 3

Paying Taxes 152 5 4

Trading Across Borders 127 1 2

Enforcing Contracts 184 12 10

Resolving Insolvency 116 2 17

Ease of Doing Business in India: World Bank Rankings 2013 India ranks 132nd out of 185 economies

MARKET ENTRY CHALLENGES

Source: World Bank

Doing Business in India: Comparison with Singapore

• Starting a Business India: 27 days, 12 procedures Singapore: 3 days, 3 procedures

• Dealing with Construction Permits India: 196 days, 34 procedures Singapore: 26 days, 11 procedures

• Getting Electricity India: 67 days, 7 procedures Singapore: 36 days, 4 procedures

• Registering Property India: 44 days, 5 procedures Singapore: 21 days, 5 procedures

MARKET ENTRY CHALLENGES

Source: World Bank

Doing Business in India: Comparison with Singapore

• Cross Border Trade: Imports

India: Documents required: 11 Time to import: 20 days Cost to import: US$ 1200 per container Singapore: Documents required: 4 Time to import: 4 days Cost to import: US$ 439 per container

MARKET ENTRY CHALLENGES

Source: World Bank

Doing Business in India: Corruption Index 2012

• India was ranked 94th out of 176 nations in Transparency International’s 2012 Corruption Perception Index (CPI)

• Scored 36 out of 100 on a scale from 0 (highly corrupt) to 100 (very clean)

• Singapore was ranked at number 5 • Hong Kong was ranked at number 14 • China was ranked at number 80

MARKET ENTRY CHALLENGES

Source: Transparency International

• Complex tariff structure and lack of transparency • Tariff structure composed of a basic customs duty, an “additional duty”

(or “countervailing duty”), a “special additional duty,” and an education assessment (“cess”)

• Customs rates modified ad hoc through notifications in the Gazette of India and contain varied exemptions according to product/user

• No official publication publically available that includes all relevant information on tariffs, fees, and tax rates on imports

• Duties are calculated cumulatively, rather than calculating each duty separately as a percentage of customs value, resulting in higher import duties

• India’s negative list (prohibited or restricted items of import) is not published in an official Gazette in a transparent manner

MARKET ENTRY CHALLENGES

• Competing with low cost imports • Imports from China are generally cheaper than imports from other

regions

• Red tape & corruption • Extensive documentation and paperwork required at all levels of

exporting to India • Government procurement process through tenders is not transparent • Corruption and bribery are rampant for expediting registrations,

paperwork

MARKET ENTRY CHALLENGES

• Diverse market • Vast market comprising of diverse regions • Differences in industrial strengths, language, cultures, customs and levels of infrastructure • Using a single strategy for approaching all regions may not work

• Differences in business culture • Indian businesses respond better to personal meetings than

emails/faxes/telephone calls • Rigid hierarchies make it difficult to contact the relevant person

in the value chain at once. You may have to go through several contacts to get to the right person

MARKET ENTRY CHALLENGES

• Verifying the credibility of your Indian partner (agent / distributor) • Size of company and financials • Manpower • Distribution network • Servicing capability • Reputation • Strengths and weaknesses • Other agencies represented • Protection of Intellectual Property (IP)

MARKET ENTRY CHALLENGES

RECOMMENDATIONS Successful Market Access

• Market research • Understanding the market for your specific product • Identify competitors / pricing / regulatory issues

• Market visits • In India, a face to face meeting will go a long way towards establishing good

business relationships • Personal meetings help expedite matters as compared to phone calls,

emails

RECOMMENDATIONS

• Use official information portals • ICEGATE (Indian Customs Electronic Commerce/Electronic Data

interchange Gateway) https://www.icegate.gov.in/ for e-filing services for trading partners, e-payment, on-line registration for IPR, document tracking status etc.

• Other portals carrying information on import duties and exemptions • Directorate General of Foreign Trade http://dgft.gov.in/ • Central Board of Excise and Customs (CBEC) http://www.cbec.gov.in/

• Region-wise strategy • Different market entry strategy for different regions • Appointing different distributors/agents to tackle specific regions as

opposed to pan-India distributor

RECOMMENDATIONS

• Due Diligence

• Conduct thorough background checks on potential business partners

• Local partners • India has a strong network of extremely competent law firms, chartered

accountants and consultants • Access to local knowledge e.g. clarifying duty structures • Ongoing market intelligence • Due diligence reviews • Financial audits • Help with IPR protection

RECOMMENDATIONS

CONCLUSIONS Summary

• The growing Indian market presents great opportunities for Wisconsin companies to increase exports

• Key sectors are facing growing demand and imports • Automotive components

• Material handling equipment

• Medical devices

• Packaging equipment

• Power generation equipment

CONCLUSIONS

• Overseas companies face many market challenges in exporting their product to India

• Understanding the market is key to identifying the right entry strategy

• Local partnerships are essential to guide you through the complexities of the Indian market

• Frequent market visits, due diligence reviews are other key factors of successful operation in India

CONCLUSIONS

Disclaimer: This presentation is for information purposes only. Specific legal advise and opinion should be sought before any proposed investment in the country.

THANK YOU

Council of Great Lakes Governors (CGLG) India Office 217-B, Second Floor

Okhla Industrial Estate Phase 3 New Delhi 110020

Ph. +91 11 4279 5000 Fax +91 11 4279 5098