Indian companies help lower the Great Wall of China

In the last six years, India Inc's approach to China has changed for the better. From bitterly contesting the entry of Chinese products like tyres, toys, and consumer electronics in the country on the grounds of being cheap, lacking in quality and threatening domestic industry, several corporates have today set up shop in China, are major exporters to that country and are actively sourcing from there.

That’s not all. Corporate India today admires the way China conducts business and often exhorts the Indian government to emulate its practices. The single biggest factor which Indian companies like about China is the fast clearances accorded in that country for setting up business establishments.

Further, there are hardly any labour problems. The country means business and that's the reason China is ahead of India on almost all parameters. Though its non-democratic set-up is often cited as a handicap, where India scores, privately many Indian enterprises do not mind the political structure so long as business runs smoothly and offers good returns.

Over the years, the Aditya Birla group, Sundaram Fasteners, Essel Packaging, and Reliance Industries, among others, have set up base in China. For Indian steel companies, China is a major export destination, contributing to turning their fortunes for the better in 2003. Apart from having a base in China and exporting to that country, there are companies like Videocon, Onida, Tube Investments, Nitco, Apollo Tyres, JK Tyres, Aegis Safety, TVS Motors, United Phosphorous, Hero Cycles, and Bajaj Electricals, which source from there.

All major IT companies like Infosys, TCS, Satyam and Wipro have launched operations in China. TCS, which was the first IT firm to launch operations on Chinese soil, has about 500 people there at present.

Infosys Technologies (Shanghai) Company Ltd (ITSCo), is a fully-owned subsidiary of Infosys Technologies Ltd., located in Shanghai, China. Infosys has invested an initial capital of $5 million to start up this subsidiary. A 200-people development centre has been taken up in a 20,000-square ft office in the Shanghai Pudong Software Park in China. It will serve as an alternate delivery hub for Infosys in the Asia-Pacific region.

One of the reasons for Indian companies setting up shop in China in the areas of IT, bio-tech, drugs and pharmaceuticals is because China offers huge incentives for investment in these sectors, including tax holidays, reduced land rentals and lower import duties.

The experience of these companies is also quite positive.

For instance, Evalueserve chief operating officer Ashish Gupta, who opened his high-end KPO (business analytics and research) centre in Shanghai, is gung-ho about the fast approvals. "We went there to serve the Chinese, Korean and Japanese language markets. Approvals have been very fast. The experience has been very comfortable in Shanghai," Gupta said.

India's largest BPO Genpact's president and CEO Pramod Bhasin also seconded the widely held view. "Everything is based on single-window clearance and approvals are smoother than in India," said Bhasin.

Based in Dalian (Liaoning province) and Changchun (Jilin province) in China, Genpact Asia has been recognised for its cutting-edge quality and employee training programmes. Genpact's Dalian operation was established in June 2000. Commenting on the growth of China as an outsourcing destination, Bhasin said: "I have told my employees in India that the day China gets cheaper, we are shipping work out."

Currently, Genpact has a headcount of 1,700 at its China centre in Dalian, which it plans to double by 2007. The Dalian centre was established by Genpact's India team. "We faced some difficulty in translating Chinese into Japanese, Chinese into English and Japanese into English and vice-versa to start operations. But it was quite fun," Bhasin had said earlier this year at the Oracle Open World in Mumbai.

According to AL Rao, Wipro Tech COO, "The quality of IT talent is also good. We haven't found any difficulty in talent for both our centres in Beijing and Shanghai. We are servicing global clients from our Chinese centres. After gaining experience we will look at the domestic market along with Korean and Japanese markets. The government response has also been good. But as a centre, costs come are at par with India."

Though Indian pharmaceutical companies have adopted an open arm towards China and are looking up to the country as a major manufacturing destination, they are treading cautiously. The reason being that though entry in China is easy, exit is quite tough. "China is emerging as a good destination to source cost-effective APIs (Active Pharmaceutical Ingredients) and intermediates which will allow companies like Ranbaxy to economise its cost of production," executive director, Ranbaxy, Ramesh Adige said.

There are also some voices stating that the China advantage can be easily replicated in India if the government increases support to the industry. "They do have cost advantage over us. If the Indian government increases support to the pharma industry, it can compete with Chinese companies in the global market," an Indian Drug Manufacturers’ Association (IDMA) office-bearer told FE.

In the automotive segment, the country's largest tractor manufacturer, Mahindra & Mahindra, is also quite upbeat on its foray into the Chinese tractor market. After setting up a joint venture, Mahindra (China) Tractor Co Ltd, to assemble tractors in China for domestic as well as export market the company is now eyeing the Chinese auto component market. M&M is now in talks with a Chinese component manufacturer for acquisition. "We are planning to increase our presence in China to get access to high quality customers and technology. We are looking at the market to enhance our managerial competitiveness also," vice-chairman and managing director Anand Mahindra said. For Mahindra, the developed infrastructure, cheaper land and cheaper finance have been the motivating factors behind the foray into China.

A major factor behind automotive companies going to China is they can source cheaper components from there. Players like Bajaj Auto are also planning to enter the Chinese market to manufacture and sell bikes. Clearly, the Chinese wall between Indian and Chinese businessmen, which was quite formidable until 2000, is much lower now.