Two-way street
The large Indian population in the Midlands, established links in the automotive sector and liberalisation in professional services and retail sectors are all reasons why India should be fertile ground for local companies. Technological know-how, a multilingual workforce and fairly cheap entry costs have raised the appeal of the Midlands to Indian corporates.
But this deep into a recession and, after Tata’s ‘tough love’ experience with the UK government over funding Jaguar Land Rover (JLR), has that become an outmoded picture? And are companies struggling at home really prepared to invest time and money in a market that to some observers appears to be liberalising at a snail’s pace?
Well, yes and no. There is less interest among Indian companies to buy into the UK than a year ago but the interest among Midlands businesses to get into India seems to be holding up. The region’s chambers of commerce and regional development agencies are at the heart of trying to persuade companies that there are opportunities in India for those that stick with it.
This is particularly the case with companies working in the automotive industry. To give just one example, businesses in the West Midlands are being urged to explore new and growing overseas markets in the sector by attending Auto Expo, held in Delhi, in January 2010.
With many companies battling for new markets, the region is expected to make up a large part of the UK delegation at the exhibition. Birmingham Chamber of Commerce and Industry (BCI), Advantage West Midlands (AWM) and the Society of Motor Manufacturers and Traders (SMMT) will be part of the UK delegation at Auto Expo, which is being led by the SMMT and will focus on low-carbon technologies.
The West Midlands will have a dedicated exhibition space at the event, a series of parallel seminars, 121 business appointments and high-level networking events promoting the region.
Jonathan Webber, director of international trade at the BCI, says: “Auto Expo is the focal point for the Indian and wider Asian car industry. We have an excellent opportunity for the region to showcase its low-carbon technology, our supply chain capabilities and the strength of our research and development involving the region’s universities.”
However, Pankaj Chadha, a senior partner in Ernst & Young’s automotive practice in India, says there are still issues to address.
“The biggest challenge for most of the Indian companies is the proper integration of operations, and you can take JLR as an example of that,” he says. “There are contrasts of culture and language as well as the frameworks of regulatory compliance under which Europe and India operate.
“For most Indian companies in the UK it is about picking up capacity and technology, and there has been a struggle to do that. In this market companies with cash to buy businesses are holding back. No-one has been looking over the past three quarters.”
But he does see the two markets being a good fit: “The UK has higher maturity around processes and technology but India has the low-cost labour and a large market.”
Certainly at the macro level there can be few arguments that India offers attractive prospects for foreign companies.
Nish Bathia, a partner at accountancy firm PKF in Leicester, says: “Economic reforms have helped India realise its commercial potential. The country’s recent rate of growth has been impressive and the development of industrial areas such as the Maharashtra region is testament to that.
“Barriers to international trade are disappearing thanks to a young English speaking and educated workforce, cost advantages, a large labour pool, improved infrastructure and communications links, as well as the availability of natural resources and the potential its size brings. With maturing capital markets, and legal and accounting frameworks mirroring those in the UK, India has manoeuvred itself into a strong trading position for Midlands businesses to be a part of.”
Bathia says that as India’s population becomes more affluent, the growing appetite for businesses and services in sectors such as retail, real estate, leisure and hospitality, tourism, and food and drink will create new opportunities for the region’s businesses.
But Midlands businesses do need to take a holistic approach when entering the Indian market. “Businesses must do their homework. What may succeed in one country may not work in India,” adds Bathia. “Invest time and resources in finding out how the country does business by visiting the place, understanding the size of the country and what will or will not work.
“Managing relationships is important not least because of the distance between the countries, as is choosing partners with care. During the downturn it may be worth considering linking up via joint alliances/ventures to manage risk.”
Leicester is seen as one of the cities with the best prospects of tapping into India via its local community, which is predominantly Gujarat. Nick Carter, the chairman of the economic development company Prospect Leicestershire, says: “That area has enormous potential. There is a big Gujarat population here, and in September there was a trade fair in the city with a Gujarat delegation as part of Village India and Experience Gujarat 2009. We want to develop closer links with the Asian community and make the most of their connections in India.”
Professional services firms from this region have been quick to move into the market, although they are sometimes frustrated by the slow pace of liberalisation. But Baljit Chohan, head of the India desk at Birmingham law firm Wragge & Co, is still optimistic.
He says: “It will liberalise the professional services market. Accountancy firms such as Ernst & young and KPMG are already there. Law firms are restricted but that will change over the next 12 months.”
Wragges acts for Indian companies looking to acquire businesses in Europe at large and in the UK in particular. The firm also works with existing clients looking to expand there. But Chohan believes there are still opportunities here for Indian companies.
“Many came in a couple of years ago, and although the initial public offering market has dipped, there is still an interest in acquiring access to new markets,” he says. “We’ve seen it locally with Store 21, a value clothes retailer in Solihull owned by India’s QS Group.
“Areas of interest include manufacturing, engineering and also sciences and pharmaceuticals. The UK is seen as good value for acquisitions. And India didn’t over-leverage itself so it hasn’t had the banking crisis.”
Charles Bond, a partner in the Birmingham office of law firm Cobbetts, sees big opportunities for firms like his going the other way. He says: “We have been trying to get into India for two or three years. We’ve done a lot of work in the new economies. India is easier because there’s a common language and we installed the legal system there.
“A lot of lawyers in India are in litigation. The Law Society in the UK said it would make sense for western firms to work with Indian ones in areas such as mergers and acquisitions. But there are still a lot of family firms there and it can be quire protectionist.
“It doesn’t mean you can’t do business there but it means you do it on a ‘best friends’ basis. That suits us because we don’t want to set up a practice out there.”
Cobbetts also works with Indian firms trying to get into the UK market. “The appetite has dropped a little,” adds Bond. In 2008, some of the most acquisitive companies in the UK were Indian but since the recession they have become more internally focused.
“We are hoping that when the economy finds its feet more Indian companies might be over here looking at acquisitions.”
