Chapter 6 Doing business in India

6.1                   Austrade advised the Committee that:

India can be a daunting place to do business. It is a huge, bustling and culturally challenging and diverse market place with a multiplicity of needs from basic commodities to advanced infrastructure. But it also has a huge, English speaking and generally highly educated workforce, a fast growing market economy, and a gathering momentum…[1]

6.2                   Strategies for success in the Indian marketplace include:

n  understand the market;

n  test your hypothesis by visiting the market;

n  business partner and product mix;

n  address the local needs;

n  prepare for short time leads;

n  be flexible;

n  have clear documentation; and

n  be committed and have patience.[2]

6.3                   Several of the points noted by Austrade above were also mentioned by various business representatives who appeared before the Committee.

6.4                   Witnesses stressed the importance of visiting and understanding the Indian market. For example, Mr Sharma, Managing Director of Pentaq Technology Pty Ltd, advised the Committee that leaders of small to medium Indian companies like to deal with the same level of management. A common mistake made by foreign companies is to send “a relatively junior representative to negotiate with owners of companies which may have existed for 150 years…that tends to be a cultural difference.”[3]

6.5                   Mr Lal of Hunt and Hunt Lawyers believes that in order to understand the market [in India] and properly explore it, a company needs to be there for a while. Unfortunately, he acknowledged that there are often financial imperatives which do not allow a company to send representatives overseas for extended periods of time.[4] Nevertheless, as much exposure as possible is recommended.

6.6                   A business partner in India may assist in overcoming a companies’ lack of on-ground experience and can assist in distributing a product. Mr Lal believes that without a partner it can be “a maze.”[5] Likewise, Mr Sharma advised the Committee that having a partner in India “is almost a must.”[6]

6.7                   Dr Davis of the Australian Chamber of Commerce and Industry concurred:

You need the right joint venture partner on the ground in a place like India; someone who really knows the niche and can get into a good thing…my advice would be for the Australian to look at R&D, innovation and reliability of supply, and then just make sure it is a good, well-structured join venture partnership with you Indian counterpart and let them do the hard work on the ground because they know the ground far better than you will…[7]

6.8                   There is a risk, of course, to any joint venture and ones in India can be of “higher risk” according to Mr Neil of Woolworths. He told the Committee that “in seeking partners in India there is a significant challenge that you have got to ensure that your partner shares your values.”[8] Woolworths entered into partnership with the Tata Group because the head of Woolworths shared a friendship with the executive chairman of the Tata Group.[9]

6.9                   Mr Sharma believes that “it usually takes a long time to establish relationships, and a lot of patience is required.” Like Austrade, Mr Sharma recommends patience in order to be successful in the Indian market. He notes that:

Culturally, the business model for a lot of organisations in Australia and other countries measures success on a quarterly and yearly basis. This mindset will not be beneficial when entering the Indian market.[10]

The Australian presence in India

Austrade

6.10               Austrade is the federal government’s principal trade and international business facilitation agency. Austrade helps Australian business reduce the time, cost and risk involved in entering and expanding overseas markets.[11]

6.11               The key focus of Austrade offices in India is market development. Specifically, Austrade is involved in the following activities in India:

n  giving advice to exporters on current and local issues;

n  establishing and developing contact with political, commercial and regulatory authorities;

n  identifying areas of difficulty and taking steps to resolve them;

n  building awareness of Australia’s capabilities; and

n  making representations on behalf of exporters or investors to resolve impediments to trade or investment.

6.12               Austrade operates offices in New Delhi, Mumbai, Chennai and Bangalore. In 2004/05, Austrade India assisted 177 Australian companies achieve A$67 million of export success—a major increase over previous years.[12]

6.13               Senior Trade Commissioner in India, Mr Moignard, noted that the Austrade India offices have seen a 135 percent increase in clients from 2004/05 to 2006/07.[13] As a result, Austrade has increased its staffing in India and introduced a system of “spotters” to identify business opportunities in areas in which Austrade does not operate an office.[14]

6.14               The Committee queried Austrade as to the nature of the “spotters” program and was advised that Austrade has four “spotters” using two separate models.

6.15               The first model consists of using local chambers of commerce in Chandigarh and Pune. Austrade has a MOU with the chambers and participates in joint initiatives with them. The chambers also “look out for opportunities passed on from their members, which they pass down to [the Austrade] office in New Delhi.[15]

6.16               The second model is based on individuals in the states of Gujarat and Kerala who have experience in specific areas which are producing opportunities in those states.[16] For example, agribusiness in Kerala is on the rise and the “spotter” in that state is from the agribusiness industry.

6.17               Recent and ongoing Austrade initiatives in India include:

n  Former Prime Minister Howard’s high level business mission, 2006;

n  Indian business delegation to Australia during the Melbourne Commonwealth Games, 2006;

n  an enhanced budget allocation of $2.6 million for the 2006/07 financial year to expand Austrade’s reach in India and undertake a sustained marketing program;

n  a five-year South India food strategy designed to gain greater access to Indian supermarkets for Australian products;

n  compiling of an electronic version of a guide to doing business in India; and

n  ongoing trade events in India.[17]

State representation

6.18               In addition to a variety of trade missions and government delegations which travel from various Australian states to India, four state governments maintain permanent representation in India.[18]

6.19               The governments of Western Australia and Queensland chose to advise the Committee of their representation in India. Queensland operates a trade and investment office in Bangalore, which opened in September 2004 and has also opened a Tourism Queensland office in Mumbai in 2007.[19]

6.20               The Western Australian Government, through its Department of Industry and Resources has operated a trade office in Mumbai since 1996, with a satellite office in Chennai.[20]

6.21               Mr Roach, of the Australia-India Business Council, raised concern about the uncoordinated efforts of Australian state and federal governments in trying to promote Australian business in India. In particular, Mr Roach believes that as the Australian states compete for business opportunities in India, they will be inclined to go to those Indian states which “stand out” and neglect other Indian states which may still present good opportunities for business.

6.22               Mr Roach proposes greater Australian/India state-to-state initiatives in order to avoid Australian state competition in a few select areas of India. He also believes that the Commonwealth can play a leadership role in coordinating programs which involve federal and state governments.[21]

6.23               Mr Roach is not alone. A submission from the Government of Western Australia’s Department of Agriculture and Food recommends that:

… the Commonwealth & State governments work in collaboration on research and trade initiatives undertaken in India so that opportunities in India are not fragmented by a lack of communication and intelligence between government agencies.[22]

Committee comment

6.24               It is not the federal government’s role to attempt to harmonise competition between the states for business opportunities in India. However, the Committee is aware that as state and federal governments vie for business in specific Indian states there remains the potential to miss opportunities in less well-known areas of India.

6.25               The Committee would support any initiative designed to enhance state and federal government cooperation intended to increase communication regarding trade opportunities in India.

Impediments to business

6.26               During the course of this inquiry, several challenges in the Australia-India business relationship were brought to the attention of the Committee. The following section will outline some of these key challenges, which include:

n  perceptions;

n  barriers to the services trade;

n  bureaucracy and cross state impediments in India;

n  access for Australian agricultural products; and

n  intellectual property rights.

Perceptions

6.27               Recommendation 14 of the Committee’s previous report on India, called on the Australian Government to “develop an ongoing communication campaign to promote Australia as a clever country in India.”[23] This recommendation was drafted in response to evidence received by the Committee which noted “a general lack of awareness and appreciation that Indians have about the different aspects of Australia, its way of life, culture and business and technological capabilities.”[24]

6.28               Once again, the Committee has received evidence which suggests that despite continued efforts to raise Australia’s profile in India, there are some who believe that a lack of knowledge about each other remains.

6.29               A submission from KRS describes “attitudinal impediments to better relations which lie principally in mutual ignorance.”[25] The Western Australian Department of Industry and Resources noted that:

There is a lack of awareness and hesitance on the part of Australian companies to look at India more seriously. Australia has failed to market itself resulting in India not knowing what Australia and in particular WA has to offer.[26]

6.30               On an individual level, businessman Mr Sunil Lal admitted that he often gets asked whether there is any discrimination in Australia, but does not believe it is an issue with any migrants who have come to Australia.[27]

6.31               In its updated 2008 Submission the Department of Foreign Affairs and Trade made the following statement regarding the current arrangements for facilitating positive people to people relations between India and Australia:

Public diplomacy plays a central role in promoting a positive and sophisticated image of Australia in India and ensuring influential Indians understand Australia’s priorities and concerns. Australia’s principal vehicle for public diplomacy in India is the Australia-India Council (AIC) which was established by and Order-In-Council on 21 May 1992.

The AIC promotes people-to-people links in key areas and complements official government to government exchanges with India. It initiates and supports activities that either raise awareness or promote the relationship through visits, exchanges and institutional links in the following broad thematic areas: the arts…education and society…science, technology and environment; and public awareness/public policy. A significant second-track dialogue supported by the AIC in partnership with the Lowy Institute, is the Australia-India Roundtable. The AIC also advances Australian commercial objectives in India.[28]

Committee comment

6.32               The Committee welcomes the positive and constructive efforts of agencies such as the Australia-India Council and Austrade, which reflect the increasingly multi-dimensional nature of the bilateral relationship. The Committee expects that people to people diplomacy and the continuing high levels of migration and educational service provision should continue to develop the relationship.

Barriers to the services trade—telecommunications

6.33               The Committee was advised that “many potential Australian services exports into India are affected by an array of ‘beyond the border’ administrative and regulatory barriers of varying degrees of transparency.”[29]

6.34               The Australian Services Roundtable noted that “the relative share of service in Australia’s total exports to India is well below our global average” and believes that the barriers faced in the Indian services market are part of the problem.

6.35               These barriers are reported to include:

n  non-recognition of international standards;

n  lack of transparency and openness in domestic standardisation processes; and

n  burdensome and duplicative conformity assessment procedures.[30]

6.36               The Committee received evidence from Telstra which commented specifically on the following restrictions:

n  access to the Indian International Long Distance (ILD) telecommunications services market;

n  landed submarine cable capacity; and

n  restrictions on foreign employees.

ILD license restrictions

6.37               Telstra defines an ILD as:

… a licence which permits the supply of network carriage services, providing international connectivity to network facilities operated by foreign carriers in other countries…[these services facilitate the supply of] end-to-end services such as voice, data, fax, video and multimedia.[31]

6.38               In the past, access to ILD licences in India was restricted by foreign direct investment (FDI) limits and a range of behind the border restrictions including high licence fees, high capital investment requirements and restrictions on foreign employees in senior positions.[32]

6.39               In 2005, the Indian Government reformed its IDL regulations. It increased the FDI ceiling from 49% to 74% and reduced several costs associated with licence fees and capital investment requirements.[33] While Telstra believes that the easing of IDL restrictions in 2005 makes it feasible for a foreign company to obtain a licence, the regime comes with “strings attached” thereby making it “unworkable for foreign operators.”[34]

6.40               The “strings attached” come in the form of national security and law enforcement requirements which impose restrictions on a number of activities including the:

n  transfer of accounting, user and network information outside India;

n  international transit routing of domestic India traffic; and on

n  remote access for maintenance/repairs from outside India.[35]

6.41               Telstra stated that these restrictions go “far beyond what security agencies elsewhere in the world require.”[36] For example, Telstra noted that in the United States, a country which faces similar security issues, “they do not have such draconian restrictions on carriage of traffic, transfer of user data, counting data offshore et cetera.”[37]

6.42               The question, Telstra believes, is “whether the security issues are, in some respects, being used as a proxy for a trade barrier.”[38]

Landed submarine cable capacity

6.43               Telstra observed that:

While an ILD licence permits a licensee to own and use submarine cable capacity landing in India, to be able to deploy that capacity commercially the licensee must be able to access the cable station where the cable system on which the licensee owns capacity, lands.[39]

6.44               Telstra reported that “all cable landing stations in India are currently owned by domestic Indian ILD licensees,” and that “access problems” to the landing stations have occurred.[40]

6.45               Access to Indian landed submarine cable stations represents another potential barrier to foreign operators planing to apply for ILD licences.

Restrictions on foreign employees

6.46               Like many countries, India prescribes restrictions on foreign employees in senior roles in telecommunications carriers. However, India places greater restrictions than others, including Australia which does stipulate that Telstra’s Chairperson must be an Australian citizen.[41]

6.47               Under India’s current ILD licence regime, the Chairman of the Board, Managing Director, Chief Executive, Chief Technical Officer and Chief Financial Officer must all be resident Indian citizens.[42]

6.48               Telstra is of the opinion that “Indian restrictions are far more intrusive in forcing new entrants to its market to comply with these restrictions, and in applying the restrictions at both executive management and board level.”[43]

Conclusion

6.49               Telstra and the Australian Services Roundtable believe that the Australian Government and Australian services providers must “lobby the Indian Government intensely in favour of more rapid reform across all services sectors including telecommunications.”[44]

6.50               Both organisations told the Committee that Australian service providers will have greater opportunity to compete and be successful in the Indian market should greater reforms occur. This is most clear in the telecommunications sector where currently there are no international carriers which hold an ILD licence in India.[45]

Committee comment

6.51               The Committee recognises that in order for Australian businesses to reap the advantages posed by a growing Indian economy, economic reforms in India need to continue.

6.52               It is the role of Australian government officials, in addition to private organisations, to engage in bilateral discussions with India over Indian economic reform.

Bureaucracy and cross state impediments in India

6.53               Bureaucratic delays were noted in the Committee’s 1998 report as a “difficulty faced by Australian companies dealing with India.”[46] Evidence received by the Committee suggests that bureaucratic delays continue to be a concern for Australian companies doing business in/with India.

6.54               Austrade advised the Committee that the “governing of India can make life difficult for business, especially where time is an important factor.”[47] The size of India and the fact that it is a democracy means that consensus can take a long time to build. This leads to:

… bureaucracy, which often means decisions take a long time to be made; things are done sequentially in India and therefore projects will stop and start depending on the decision-making process…One reason for this delay is the hierarchy…the number of people in an organisation in India who actually make decisions is very small in relation to the overall staff in that organisation. Therefore bottlenecks occur.[48]

6.55               The Government of Queensland concurs, noting that “bureaucratic processes at the local, state and national level impacts on the decision-making process, and are leading to an increased timeframes to realise export outcomes.”[49]

6.56               Austrade recommends that Australian companies be aware that “if it takes six months to do things in Australia, expect it to take twelve or more months in India.”[50]

6.57               The Committee inquired as to whether bureaucratic delays arose, in part, as a result of various cross-state impediments. NAB stated that it was important to remember that India is made up of many states that are very different and the movement of goods, in particular, between states can be challenging and ultimately time consuming.[51]

6.58               Cross-state impediments noted by NAB included:

n  differences in regulations between states;

n  differences in taxes between states; and

n  different policies and procedures between states.

Committee comment

6.59               The Committee understands that bureaucratic difficulties continue to arise in the Australia-India business relationship; however, there is very little that the Australian Government can do to directly impact the bureaucratic processes of Indian public and private sector agencies.

6.60               It is important that the Australian Government continues to advise Australian businesses of the challenges posed by Indian bureaucracy and suggest strategies for addressing this challenge.

Access for Australian agricultural products

6.61               As noted in the previous chapter, there are significant opportunities for Australia in the provision of processed food products to India; however, the exportation of frozen and chilled meat products; dairy products and horticultural products to India remains a challenge.[52]

6.62               The Committee received a submission from the Government of Western Australia outlining some of the issues exporters in Western Australia face in this regard. They include:

n  quarantine restrictions on field peas and stonefruit;

n  high import tariff rates and phytosanitary requirements for apples;

n  ban on lupin exports;

n  health/sanitary certificate requirements for chilled lamb/goat exports; and

n  issues regarding oestrogen in Australian dairy products.[53]

6.63               It was suggested in Committee evidence that some of the barriers facing the products noted above may have been imposed by the Indian Government in retaliation for Australia’s ban on the importation of Indian mangoes and grapes due to fruit-fly concerns:

There is a general feeling among the export community that many of these restrictions are of a retaliatory nature and in response to Australia’s perceived trade barriers.[54]

6.64               One Indian business attempting to import Australian lamb has suggested that:

The Ministry in India is strict because grapes had been exported to Australia from India but had been rejected by AQIS [Australian Quarantine and Inspection Service], so the ministry is upset with this.[55]

Committee comment

6.65               While the Committee has not received further information regarding market access for Australian agricultural products, it believes that this has the potential to become a serious issue.

Intellectual property rights

6.66               The Committee discussed intellectual property (IP) rights in its previous India report noting that “many users of copyright material [in India] have tended to do so illegitimately,” perhaps due to the “absence of effective enforcement.”[56]

6.67               The issue arose again during the course of this inquiry. The Committee was advised by the Government of Western Australia that “WA companies are still wary of India’s poor reputation in protecting IP,”[57] even though the Government of India is taking “aggressive” steps to strengthen and establish, at all levels of government, a structure designed to address the protection of IP rights.[58]

6.68               Wilcom International Pty. Ltd.—an Australian company specialising in computer embroidery design software—suggested that there is a serious lack of intellectual property (IP) rights protection in India.[59]

6.69               Wilcom advised the Committee that it suffers an estimated loss of US$1.5 million per year due to software piracy in India. It believes that there are approximately 6,000 illegal Wilcom design systems in operation in India.[60]

6.70               Wilcom notes that Indian IP rights laws are “correct” and comply with World Trade Organisation rules.[61] However:

The Indian government only advocates the enforcement of the law in general terms but has no action plan on how to implement the enforcement at the lower (state government and suburban) levels. It seems that the problem is not with the willingness but with the lack of understanding of what it requires to enforce the law, the lack of investment into expert consultants and mostly: a formalised and systematic approach to the software piracy at government level.[62]

6.71               The Committee asked DITR to comment on the Wilcom case and was advised that DITR was “not aware of any particular issues in relation to intellectual property.”[63]

6.72               IP Australia states that “India has a well-established statutory, administrative and judicial framework to protect IP rights,” and, like DITR, does not have any direct information regarding Australian industry concerns.[64]

6.73               IP Australia did concede, however, that the “US Trade Representative and the Economic Intelligence Unit indicate that piracy of business software is an issue.”[65] It suggested the following ways in which the Australian Government could “potentially influence the development of the IPR system in India:”

n  promote strong IP regimes through enhanced relationships between the IP offices of Australia and India;

n  equip Australian business with the tools to work more effectively with the IPR systems in other countries;

n  assist in capacity building including training of IPR administrators, judiciary, and development of capabilities in public education and awareness and office automation; and

n  use existing bilateral and plurilateral trade relationships with India to promote cooperation on IP.[66]

6.74               IP Australia advised DITR and the Committee that it has identified India as an influential player in the IP arena, and as such, is progressing medium term initiatives to assist and educate Australians doing business in India.[67]

Committee comment

6.75               It would appear to the Committee that while there are effective mechanisms in place to protect IP rights in India, enforcement of IP laws may be a problem.

6.76               The Committee understands that Australia previously assisted India to modernise its IPR system through a technical assistance program. It would therefore be suitable for Australia to provide support to India as it continues to refine its IPR system.

 

 

 

Senator Michael Forshaw

Chair