Doing Business in India – A Risk Benefit Analysis

Why is doing business in India of interest?

While outsourcing to India is a hugely popular concept in the business community in the United States, United Kingdom and Australia and rapidly gaining currency in the rest of the Western world as well, there are a few things to be kept in mind before deciding to shift a part of your business to India.

First, before you start business in India, you should find yourself a reliable business partner in that country. This is because Indian business partners know the inner working of the country far better and are in a better position to navigate its bureaucracy and mind numbing rules and regulations.

And it is a very good idea to start business in India only after forming business partnerships in that country with top notch business investors, after getting in touch with funding investors. Also, it is always good to do a risk / benefit analysis before deciding to do business in India, which we do next.
Risk/ Benefit Analysis of Outsourcing to India

The Infrastructure

Risk: Infrastructure in India is really quite poor. Much of the country suffers from daily power cuts. Roads are in complete disarray. Travelling even short distances in a city like Bangalore or Mumbai takes a lot of time because of heavy traffic – time that a busy business executive cannot afford to lose.

Benefits: Infrastructure may be poor in India, but there has been a huge improvement since twenty years ago. The country is changing fast. There is a pro-business environment in the country with the election of a pro-business government led by a dynamic prime minister – Narendra Modi, and a great push towards improving the infrastructure is on. Thousands of miles of new roads are being built every year, and the power situation is being slowly and gradually improved.

Rules and Regulations

Risk: India is well known to be a very corrupt country where every bureaucrat or politician wants a small slice in every business. India’s legal system is a maze that very few foreign businessmen can navigate easily and have to largely rely on their Indian partner in business. The confusing rules and regulations and complicated taxation (Vodafone, a big investor in India had to pay over $1 billion in retrospective taxes), are a nightmare for foreign investors and those looking to outsource to India.

Benefits: While India’s legal system and bureaucracy may be confusing to many, the judiciary is quite strong and the country is a thriving democracy. With a business friendly prime minister in power, many of the obscurantist laws, rules and regulations are being simplified, especially those in land acquisition and corporate taxation.

Human Resources

Benefits: India has one of the youngest populations in the world, with over 65% of the country under the age of 35. There are any number of highly skilled and educated Indians, and an army of graduates, who can compete with their counterparts in the West for any work. Plus, they are hungry, desperate for work, willing to work really hard.

Risk: Only a small percentage of India’s army of graduates are good enough to be employed for important jobs by Western businesses. India’s education system has not really prepared young Indians for the practical realities and technologies of the modern world.

Work Culture

Benefits: Most Indians speak English very well, and there is a high level of professionalism in cities like Bangalore, Hyderabad and Mumbai. It’s not a surprise that a majority of the world’s top companies have their back offices in these countries, taking advantage of the professional and young workforce.

Risk: If you go beyond the main Indian cities, there is a steep decline in professionalism. There is also a problem of high employee attrition as the best workers are highly prized and courted by one and all. Holding on to your best Indian employees is hence a problem and you are left with the non-performers.

The Cost Advantage

Benefits: A single US dollar gets you 60 Indian rupees, so without doubt, costs of doing business in India are very affordable for a business person in the US. This is the basic reason for outsourcing to India being such a big success – getting a similar quality of work done in India for, say, 20% or even 10% of the cost back home in the US, UK or Australia.

Risk: The Cost Advantage may be diminishing fast as the best and most skilled Indian workers are increasingly demanding high salaries at par with that in the US. Also, there are other low cost options such as Phillipines, Thailand and particularly China that are taking away larger slices of the outsourcing business away from India.

Conclusion

To start business in India is not for those looking for quick gains without working hard enough for it. It is critical to build business partnerships in India, as the local business partner would be doing much of the running, trying to get the business off the ground. Studying the Indian business culture also helps. Most importantly, while there are several advantages to doing business in India, one must also be aware of the risks and be prepared for possible setbacks.