Land of opportunity for clever Kiwis

Reuters

EASTERN PROMISE: A trip to Mumbai can be bewildering for a Kiwi business traveller, with poverty and privilege existing cheek-by-jowl in a city containing more than four times the population of New Zealand.

Relevant offers

Features

NZ animators having special effect on world's screens High rollers in SkyCity's sights Douglas slams Govt's F&P bailout talk Be careful with your redundancy cheque Govt gives exporters kick-start Headlines tell story of a land on the rise Land of opportunity for clever Kiwis Airline on right path to avoid turbulence A fresh look is patently overdue 'We are at the first step'

Many Kiwi business-people are bewildered by their first trip to Mumbai.

The high-priced concrete hotels stand next to slum tenements where a hotel room charge could feed a family for a month. Billboards advertising the latest luxury cars and watches stand above crumbling footpaths and thousands of feral dogs.

Despite the country's problems, most Indians believe that their country will soon be one of the largest and most powerful economies in the world.

India's tremendous growth and potential present many opportunities for savvy Kiwi companies to earn a lot of money, but there are many pitfalls to trap the unprepared.

The sheer scale of India is often hard for Kiwis to get their heads around at first.

It has a population about 250 times bigger than New Zealand in an area just 15 times the size.

Mumbai, formerly called Bombay, has about 18 million people crammed into an area about three and a half times as big as Auckland. It is the fifth most populous city in the world, on track to be the most populous by 2020.

When New Zealand companies talk about hiring more people, they think of 10 or 20. Indian companies talk about thousands.

Satyam, one of India's leading IT services firms, plans to hire more than 10,000 this year. Tata Consultancy Services, one of the country's largest IT firms, has more than 100,000 employees.

The difference in scale means New Zealand firms must approach the Indian market differently. Products have to scale to tens of thousands of users or more before resellers will consider them.

Because of the size of the country and its rapid economic growth, the potential sales for an even moderately successful product are tremendous. This won't necessarily translate into sky-high profits, though, because most companies will have to lower their prices to reflect the low cost of the Indian market, making less profit off each individual sale but more sales in total.

For example, Auckland cinema software specialist Vista sells its software at a lower price in India, scaled down to reflect lower ticket costs in cinemas.

In New Zealand, technology is cheap while labour is expensive. It is a market where labour-saving software can flourish, and many Kiwi products are designed to do just that.

In India, like other developing countries, it is the opposite. There is a plentiful supply of cheap labour, so there is no business reason to buy expensive labour-saving software.

For example, most restaurants in New Zealand will have two or three waiters taking care of 20 tables. In India, there are likely to be more than 10.

Because India is very much a developing country, it is easy for a business used to New Zealand conditions to underestimate the infrastructure challenges.

One Kiwi businessman said the country looked "half-finished". An Indian businessman was less kind, saying parts of Mumbai looked "like a bomb has gone off".

Electricity to the main centres is largely continuous, though that is not the case in the countryside.

Roads are often in poor shape and traffic in the main centres is horrendous.

India's infrastructure is jammed up, and it is not just the roads. Flying in India is almost as bad as in the United States, with repeated flight delays because of congestion.

The traffic situation looks to get worse in the short term too. Tata, one of the country's huge industrial conglomerates, is leading the movement for cheap cars for the Indian masses. Its planned "people's car", priced at about 100,000 rupees (NZ$3337), will be cheap enough for millions to afford when it hits the streets this year.

India has many, many poor people: about 800 million. The government, despite its grand plans for modernising the country, can do little to improve the lot of most of these people in the short term.

Dissatisfaction is growing as the upper and middle classes get richer and the government, being a democracy, has to keep the poor happy by making sure the necessities are affordable.

THIS can trip up the best-laid plans of foreign companies. Russy Master, general manager of petroleum dispensing systems for Larsen and Toubro, India's largest construction company, says the state sells petrol from state-owned stations as if oil was priced at US$52 a barrel, not its US$90 market price.

This means private oil companies must sell petrol at a loss of about 6 rupees per litre.

This quirk has hit Auckland retail electronics maker Provenco in the pocketbook. Larsen and Toubro has sold Provenco's technology, which allows people to pay at petrol pumps with debit and credit cards and synchronises the transaction with the bank, to state-run oil firms such as Bharat Petroleum.

While Provenco and Larsen and Toubro have benefited from the government's push for retail automation, the high price of oil has put a damper on sales.

"If not for the price of oil, it would have been a real growth story," Mr Master says.

However, Provenco's Grant Hemmings is optimistic about the product's long-term future in India. There are about 30,000 petrol stations in India compared to just 1100 in New Zealand and, so far, the two companies have signed deals for about 150 of these.

Mr Hemmings says there is room for further growth because the country is investing in infrastructure and more and more Indians are buying cars.

Having millions more cars on the road threatens to throw up another set of challenges for India, but few Indians would say any of the issues the country faces are insurmountable.

The problems India faces are complex, and it will be no mean feat to solve them. Potential exporters should be aware of this, but it shouldn't put them off.

"None of the problems are show-stoppers," says Ramanathan Ramanan, chief executive of Tata group IT company CMC. "The potential is there."

With problems come opportunities, and while India has its troubles, it is spending billions to fix them. Kiwi firms keen to crack the Indian market should make the effort to be part of it.

Reuben Schwarz travelled to India as the winner of New Zealand Trade and Enterprise's Qantas Media Award.