In the ever-evolving landscape of global investments, India stands as the 7th top recipient of foreign direct investments (FDI) in 2022. For over two decades, Santosh Pai, a seasoned legal partner at Dentons Link Legal, has been a guiding force for international clients eyeing the Indian market. As India rolls out incentives to attract foreign companies, Pai shares compelling reasons for Taiwanese and international businesses to explore India and navigate the potential challenges.
India's allure for Taiwanese companies
In the eyes of Santosh Pai, India is not just a market; it's a gateway to global market share. He underscores India's pivotal role in any global business operation, asserting, "You can't do global market share if you don't have market share in India." Pai emphasizes India's allure lies in its vast population and high economic growth potential. He sees India as offering unparalleled opportunities, especially for Taiwanese companies aspiring to go global.
India's population will exceed 1.4 billion in 2022 with 52% under the age of 30, providing an abundant supply of workforce and engineers that information communication technology (ICT) and semiconductor supply chains need.
Pai observes that while current Taiwanese investments, like Foxconn, primarily function as contract manufacturers responding to client demands, the future holds more significant ambitions. Pai believes the real prize for Taiwanese companies lies in "tapping the domestic market," a strategic move that could position them uniquely in India's burgeoning economic landscape.
Comparing India to other Southeast Asian countries in the context of the "China+1" trend, Pai dismisses alternatives as inadequate. As the world's 5th largest economy, India is poised to become the 3rd in the next decade, presenting a once-in-a-lifetime opportunity. While Vietnam and Malaysia may cater to manufacturing needs, Pai contends that they lack access to the colossal market India offers. Drawing parallels with Xiaomi's rapid ascent in India, Pai envisions a swift trajectory to global recognition for Taiwanese companies in the Indian market.
The challenges of investing in India
Pai likens India's diversity to the European Union, acknowledging that it poses challenges for foreign investors. Navigating such complexities, he argues, is however intrinsic to global businesses. Reflecting on recent pushbacks from Indian labor unions on business-friendly laws, Pai sees it as an integral part of India's democratic process. He encourages companies to engage with the government, assuring them that legal reforms are part of a slow and steady process in India's democratic evolution.
When being asked if the Indian government would cater to the needs of foreign manufacturing companies to secure orders akin to what has been witnessed in China in the past, Pai emphasized India's adherence to the rule of law, dispelling notions of the government granting special treatment to foreign companies. He clarifies that Production-linked incentives (PLI) are open to all, fostering a level playing field for foreign and domestic companies.
Lessons from past experiences
Reflecting on past experiences, Pai delves into the endeavors of Japanese and Chinese companies in India, extracting pivotal insights and lessons that he believes are instructive for both Taiwanese and international enterprises.
He commences by scrutinizing a critical aspect: managerial choices. Emphasizing a recurrent mistake made by Japanese and Chinese companies in the past and Taiwanese counterparts in the present, Pai notes the tendency to dispatch managers from their home countries who lack experience running a factory in India. He contends that managerial experiences in factories of other nations don't seamlessly translate to managing operations in India. Advocating for a more balanced approach, Pai suggests incorporating local managers into the management team. Familiarity with Indian nuances, he argues, enables quicker identification and resolution of problems.
Next, Pai addresses the widespread error of basing investment decisions solely on incentives. Observing the inclination of many Chinese companies to prioritize maximum incentives, he cautions against overlooking potential pitfalls. Incentives might be offered for less favorable locations, he notes. Pai draws a metaphor, likening incentives to appetizers – a welcoming gesture rather than a long-term determinant.
Lastly, Pai navigates the intricate terrain of land selection for investment. He outlines the complexity faced by foreign companies in deciding between government or private land, industrial parks, or alternative locations. Pai notes a common initial mistake of opting for the cheapest land without considering various influencing factors and underscores the importance of understanding diverse elements like labor, transportation, and electricity costs in dictating land costs in a free market environment like India. Additionally, Pai dispels the misconception that acquiring land from the government automatically mitigates legal risks. He stresses the necessity for thorough due diligence, clarifying that legal risks are historical and unrelated to the government's intent.
While cost-effectiveness and budgetary concerns often dominate the priorities of foreign investing companies, Pai cautions against solely focusing on financial factors. He urges companies to delve beyond financial considerations, emphasizing the importance of hiring a diverse array of advisors such as lawyers, accountants, and consultants. This comprehensive approach, he contends, is crucial for obtaining a holistic understanding before venturing into this "complicated" market.
The right mindsets for investing in India
In his closing remarks, Pai advises companies to be nimble and flexible when setting up operations in India. In the intricate Indian market, quick decision-making and adaptability are key. Pi argues that a one-size-fits-all solution won't work in India because it worked somewhere else does not mean it is applicable in India, so flexibility becomes a strategic advantage.
Additionally, Pai extends words of encouragement and a compelling call to action. He envisions Taiwanese and international businesses embracing a proactive "whatever it takes" approach upon entering the Indian market, challenging them to match India's ambition and hunger for success.
Pai's insights illuminate India's immense potential and the strategic mindset required for Taiwanese and international companies looking to enter this burgeoning market. As India continues to open its doors to foreign investments, Pai's expertise serves as a valuable compass for those venturing into this dynamic and promising landscape.
Santosh Pai is a guest speaker for DIGITIMES Supply Chain Summit 2023 hosted on November 14 in Taipei, where he will be giving even more advice for Taiwanese and international companies venturing into India.
For more information and registration to view this event online, please visit the official website:
https://www.digitimes.com.tw/seminar/scs_2023/agenda_en.html
