India: Chaotic land of export promise

Off the beaten track, poverty-stricken, coping with a socialist hangover, and recently targeted by al Qaeda, India has some challenging traits.

But with 1.2 billion people, including a burgeoning middle class, and signs of a free trade deal starting to take shape, it is the latest prospect for New Zealand exporters.

New Zealand exported $630 million worth of goods to the subcontinent last year, a 16 per cent increase on 2008, and about 0.1 per cent of India's total imports.

The 2009 Asia New Zealand Foundation study of Asian perceptions found that India was becoming more prominent in the minds of New Zealanders, with 6 per cent listing it as their first thought when considering Asia as a concept.

However, of the 15 per cent of respondents who had travelled to Asia in the past year, none said India was their main destination.

The commitment to begin free trade talks, announced by Trade Minister Tim Groser with Indian Commerce Minister Sri Anand Sharma in Switzerland last month, raises the proposition of a more cohesive future and potential growth.

Until now, India has been a possible but not probable destination market.

Several New Zealand companies have cemented deals and relationships in the massively diverse and largely opaque market, but generally few Kiwis have any idea beyond Bollywood, the Taj Mahal and Sachin Tendulkar.

A New Zealand Trade and Enterprise report of interviews with Indian businessmen in 2008 painted a perception of New Zealand businesses as inflexible, too serious and shortsighted.

Marlborough businessman Jacob Mannothra has seen some "significant failures" in New Zealand attempts to do business in India, mainly because people do not get it.

As an exporter of logs and lumber since 1997 and originally from the southwestern state of Kerala, he admits his personal contacts make it much easier. His company Zindia, a joint venture with a New Zealand company, manages to bridge the cultural gap that he says first-time exporters do not find easy.

Indian businesses are mostly small to medium enterprises and the commercial arena is extremely unstructured.

"India is, to put it mildly, very unorganised. If you don't know what you are dealing with, you are in a difficult situation."

Indian perceptions of business etiquette and processes are different to Western ideals. Contracts are largely ignored, with business dealings mostly done on conversations and the word of the two parties.

"Indian corporates would be similar to any Western company, but dealing with smaller entities, you'll be dealing 99 per cent in small conversations."

Additionally, the nature of business relationships is "extremely long term" once trust is established.

Indian businessmen look on the commercial bond as more than a profit-based vehicle, Mr Mannothra says, and breaking that bond is not considered good form. Establishing the bond is even harder, especially given the distance and cost in getting there.

Villa Maria European market manager Charlotte Read was given the India market to handle several years ago and has been to India twice.

The Auckland-based winery's shipments into India have doubled in the past year, and the market is now on a par with Scandinavia, she says.

But keeping up a presence in India is expensive, with hotels costing up to 400 (NZ$890) a night.

"That is a consideration in setting up in India: how much can you afford to go and have face time in the market?"

The research points out that face time, expensive as it is, is worth its weight.

NZTE'S foray into the Indian perception of New Zealanders highlighted the importance of humour, good-natured banter and bargaining, and overall friendship between partners.

Ms Read, who is planning two Indian trips this year from her London base, acknowledges the need to front up in person. "It is a market you have to go and see."

Seeing India brings with it a first-hand appreciation of the scale and magnitude of the country.

For products such as wine or fruit, the prospect of reliable distribution is another conundrum.

Villa Maria's sales are 85 per cent hotels, 15 per cent retail, exactly the opposite of a Western market, Ms Read says, and sales growth is limited by an underdeveloped retail sector.

"India's still rudimentary at the retail level. You don't get nice wine shops.

"It's a nation of mom and pop stores selling daily needs."

That phenomenon is one reason behind the slow progress that kiwifruit marketer Zespri is making in getting an anchor in India. Five years in, progress is slow.

"It's still at around the $2 million per annum level, so relatively small given the size of the kiwifruit industry," corporate and grower services director Carol Ward says.

Other Asian markets have taken to New Zealand kiwifruit and the population in India together with growth estimates make it a natural extension to successes already under way in China and Southeast Asia.

But a significant impediment centres on the necessary distribution network.

Chilled distribution is not common in a country where fruit is typically sold by roadside vendors.

Ms Ward says the evolution of large distributors that can handle coolstore facilities and know about fruit handling is crucial.

The same goes for wine. "It doesn't last too well in hot weather."

Aside from refrigerators in every hole-in-the-wall store, the hopes surrounding the promised free trade talks focus mainly on India's fierce import tariffs.

With 30 per cent duty on kiwifruit, despite no local producers to speak of, and astronomical penalties on taking wine into Mumbai, the potential for improvement for Kiwi exporters is vast.

Ms Read says the import tariffs on wine in the state of Maharashtra, with its cosmopolitan capital Mumbai, used to be in the realm of 110 per cent, rising to 270 per cent in 2008.

"That's because they have vineyards in that state. It's overt protectionism."

Mr Mannothra says government border controls make things such as lumber spectacularly expensive to import, regardless of the fact India has no domestic production.

This example, which essentially makes it more expensive for Indians to get timber they need, shows how impractical Indian bureaucracy is.

Indians' willingness to engage in free trade talks is partly from their own realisation that things have to change, he says.

"India has tremendously high taxation and trade barriers. Like any bureaucratic country – which India is probably the epitome of – they are trying to get rid of some of this, it is counterproductive."

Wellington Regional Chamber of Commerce chief executive Charles Finny points to the relativities of India versus New Zealand's most recent free trade darling, China.

"In many ways India is an easier market. There is an ease of doing business. When people have things like food and sport in common it just makes it easier to operate with confidence. China is far more challenging in terms of the differences of culture."

English is widely spoken, which immediately makes the subcontinent less daunting than China, while common consumption habits also open up business opportunities.

"What people eat, such as mutton and dairy products, are more naturally aligned to what we produce."

The common colonial history lends itself to similar mindsets, legal frameworks and ethos, he says.

While China might be a current fascination, India holds better prospects for long-term business links. "New Zealand is a very natural fit for India. In my mind India is the best partner for New Zealand."

- © Fairfax NZ News