The ease with which foreign companies manage to set up shop has encouraged some 50 Indian names to venture into eastern China.
WHEN A. Natrajan recalls how the Sundram Fasteners factory he runs in Haiyan in Zhejiang province of eastern China got its power supply, he cannot help compare it with his experience of setting up another of the company’s plants in Pondicherry some years ago.
"I was running between the electricity board and the city planning department. Each wanted a no-objection certificate from the other before giving one of its own. Finally, I had to go to the chief secretary’s office and ask, `What do you want me to do?’" recalled Mr. Natrajan, vice-president, SF (Zhejiang) Limited, sitting in the sunlit conference room of the factory, a two-hour drive from Shanghai on the four-lane expressway. Setting up the China plant was a study in contrast. "I have never been to any government department here. It’s just the other way round. All the officials come to the factory," he said.
The plant got its power supply within two weeks of applying, even before the machines arrived from India. "The steps are exactly the same in China as in India. China too has a bureaucracy. But everything moves so fast, it’s unbelievable," said Mr. Natrajan.
When he raised the issue of possible interruptions in the supply, the local officials did one better - they gave the plant a dedicated power line for five years. What’s more, they named the side-road on which the plant is located Sundram Road, which should certainly make it the only bit of asphalt in China to be named after an Indian.
The ease with which foreign companies manage to set up shop in China has encouraged some 50 Indian names to venture into eastern China. The Indian infotech biggies - Infosys, Tata Consultancy Services, Wipro, and Satyam - are present. Manufacturing companies have been slower to step into uncharted territory; Sundram is the first wholly-owned Indian company. The rest are joint ventures.
"China is the world’s fastest growing economy and the largest manufacturing country, and it is wise for Indian companies to be part of this landscape," said Sujan Chinoy, Consul-General of India in Shanghai.
China has the advantage of low manufacturing costs and can provide easier access to international global markets than is possible at the moment in India. "It is only now that Indian industry is realising that being in China is to their advantage. It is now part of every company’s global mitigation strategy to think of China as an alternative," said Mr. Chinoy.
For Sundram Fasteners, the options were between participating in China’s growing automobile parts market from India, or starting operations in China. "We thought it better to be nearer the customer, because the Chinese give importance to relationships. They need to know you, not like the Americans who can deal with suppliers through email and for whom it does not matter if they don’t ever set eyes on the supplier," said Mr. Natrajan.
The second reason was also strategic. With China and India in close competition as outsourcing destinations, if SF’s international client base moved from India to China, the company would still be in the loop. But without a China operation, it stood to lose out completely. But breaking into the market is a whole different ball game. "You need staying power, so you have to be a big company," said Mr. Chinoy.
As SF realised, cracking the domestic Chinese automobile parts market - private companies or state-owned enterprises - was not going to be easy. From the beginning, SF looked at China-based international auto companies to build up orders. But here too, the companies that did business with SF India did not automatically open their doors to its China operations. "It’s a question of convincing them about our quality and winning their trust. It’s a long process, and we knew this from the beginning. The process is now on," said Mr. Natrajan. Meanwhile, the factory has taken on orders from clients in Germany, Switzerland, Italy and the United Kingdom.
Likewise, Indian software companies in China such as Infosys continue to service existing global and Chinese clients, while nursing big futuristic goals.
"Our charter is greater China and to develop this base as a hub for our service operations in this part of the world and globally," said Venkat Pallapothu, vice-president and chief operating officer of Infosys Technologies (Shanghai) Co. Ltd.
Infosys, a wholly-owned subsidiary of the Indian parent company, set up office in Shanghai’s Pudong Software Park in February-March 2004. It has 200 employees now and expects to add close to 800 more by the end of this year. With China’s own software industry not so far advanced, the main challenge for the Indian software industry comes from the same international companies that they compete with globally and that have a longer presence in China.
Like SF, the experience of Infosys in launching operations in China has been trouble free. "This experience is no different from working in North America or Europe. In some respects, it is more positive - in the support we get from the local government and other authorities. And in the support we have got in identifying the land and other facilities, in the development of road infrastructure, it is far easier than even in India," said Mr. Pallapothu.
Both he and Mr. Natrajan of SF have the same message for Indian businesses who want to enter China: "You need to be clear about why you want to come here and you need a clear plan of what you want to do."
Does the company want to tap into the Chinese market or is it looking to export, is it for the low-cost manufacturing possibilities China offers or is it because moving to China places the company closer to its original markets in south-east Asia?
To this, Mr. Natrajan dispenses another piece of advice: "They also need to take into account the soft side of running the company. Be prepared for the language barrier, and the differences in food, culture and climate."
But beyond the obvious difficulties, the mood is definitely upbeat. Said Tarang Puranik, the head of Infosys’ Enterprise Solutions division: "This is the time to be in China. The next three years is when companies will have the opportunity to grow tremendously."
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