George Koshy

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George Koshy Independent Consultant to
AMT Whats Important to Know About Doing
Business in India
Market Update Breakfast - IndiaSeptember 12, 2006
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Engineering Industry Snapshot
12 September 2006 George Koshy

• June 2004

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Major Cities of India
National Capital Region Population 14
million Area 1483 sq.km Key Industries
Electronics, BPO International Airport - Yes
Mumbai Population 16.3 million Area 437
sq.km Key Industries Financial Services,
Engineering, Film International Airport - Yes
Kolkata Population 10.5 million Area 1036
sq.km Key Industries Automotive, Tea,
Textile International Airport - Yes
Pune Population 4.5 million Area 240
sq.km Key Industries Engineering, Automotive,
IT International Airport - Yes
Hyderabad Population 5.5 million Area 220
sq.km Key Industries IT/ BPO,
Pharmaceuticals International Airport - Yes
Bangalore Population 6.5 million Area 366
sq.km Key Industries IT/ BPO, Aerospace, Silk,
Coffee International Airport - Yes
Chennai Population 6.9 million Area 584
sq.km Key Industries Automotive, Hardware
manufacturing, International Airport - Yes
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Major Industrial Areas
Kolkata
Pune
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Advantage India

• Skilled English speaking technical manpower at
  competitive labour cost.
• (India produces 65,000 engineers each
  year).
• 100 percent FDI allowed in most manufacturing
  sectors .
• Indigenous availability of raw materials.
• Over 2500 companies have ISO 9000 certification.
• Large domestic market (Indias middle class
  families equal the entire population of the
  United States) with rising disposable income.
• Time difference with major world economies
  allowing for 24/7 off shoring.
• Diversified industrial base with supporting
  ancillary industries.
• Many leading world class companies have a
  manufacturing base in India US GM, GE, Ford,
  Caterpillar, etc. East AsiaToyota, Sony, Honda,
  LG, Hyundai, Europe Siemens,
  Philips, Daimler Chrysler, Fiat, Lafarge Other
  major MNCs include ABB, Electrolux, Volvo.

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Engineering Industry Profile

• India has a strong engineering and capital goods
  base.
• The Indian capital goods sector is characterized
  by a large variety of products (almost all major
  capital goods are domestically manufactured) a
  legacy of the import substitution policy.
• The range of machinery produced in India includes
  heavy electrical machinery, textile machinery,
  machine tools, earthmoving and construction
  equipment, mining equipment, road construction
  equipment, material handling equipment, oil gas
  equipment, sugar machinery, food processing and
  packaging machinery, railway equipment,
  metallurgical equipment, cement machinery, rubber
  machinery, process plants equipment, paper
  pulp machinery, printing machinery, dairy
  machinery, industrial refrigeration, industrial
  furnaces etc.
• With total exports of US 126.7 billion, and
  total imports of US 182.3 billion in 2005 the
  engineering industry in India accounts for
  broadly 18 of exports and employs around 11 of
  the workforce. (Source World Bank)

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Machine Tools Industry

• Machine Tool Industry is the backbone of the
  industrial engineering sector.
• India is a design house, a tooling centre, a
  components base and a manufacturing hub.
• During the last four decades, the machine tool
  industry in India has established a fairly robust
  base and there are around 125 machine tool
  manufacturers in the organized sector as also
  around 300 units in the small ancillary sector.
• Indian machine tools are today manufactured to
  the international standards of quality/precision
  and reliability using Computerized Numerically
  Controlled (CNC) Machine Tools.
• A number of collaborations have also been
  approved for importing the latest technology in
  the field of modern machine tools and the
  industry is now exporting conventional as well as
  NC/CNC high-tech machine tools.
• The sector is delicenced and import is permitted.
  There is a gap in technology for Special Purpose
  Machines and also some categories of CNC Machine
  Tools. Import of technology is encouraged to
  bridge this gap.

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The Opportunity What The Markets Are Looking
For..

• State of the art CNC machines and accessories at
  an affordable price.
• Adaptation of indigenously available equipment
  such as Hydraulic, chip conveyers, electrical
  equipment etc to reduce the impact of high import
  duty.
• Prompt local service support and supply of spare
  parts as and when required
• Frequent follow-up visits and technology
  transfers from the parent company which will
  develop a long term relationship.

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Doing Business In India
The Theoretical Governed by The Government Of
India Policy towards Foreign
Direct Investment (FDI)
Broadly the (FDI) policy is industry specific and
the government looks at the following 8
parameters when determining what policy should be
adopted for a particular sector

• Foreign currency regulations
• Industrial regulations and administrative
  controls
• Regulations for managing business enterprises
• Regulations concerning taxation
• Regulations covering capital markets
• Regulations concerning business and trade
  practices and anti trust matters
• Trade regulations conditions regulating export
  and import of goods and services
• Intellectual Property Regulations

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Doing Business In India

• Practically.
• Multiple legislationno single window except for
  the IT/ BPO sector.
• Federal legislation and local state legislation
  28 states and 7 Union Territories.
• Dealing with a bureaucratic system with inherent
  limitations.
• Loads of paperwork.
• Highly price sensitive but increasingly
  technology driven market.
• Multi skilled, multi linguist, multi cultural
  workforce that is mobile.
• IPR challenges and brand imitation.
• Crumbling public infrastructure Vs state of the
  art private development.

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Doing Business In India
On the lighter side..

• In India there are always three sides to a
  story..yours..mineand..the right one!
• Everything is relative and Relative.
• Business !! create an obligation and business
  will follow!
• People tell you what they want you to hearthey
  put a spin onto the response to point you to
  the direction they want you to take.
• I.S.T..Indian Standard Time or humorously
  referred to as Indian Stretchable Time.

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Entry Options

• Engage a good and well connected agent who has
  branch offices with technical staff at all major
  industrial hubs.
• Train the representatives of the chosen agents
  for technical selling of your products.
• (Agency commission on machine tools ranges from
  8 12 of which half is towards sales
  commission and the balance towards after sales
  service.)
•   2.    Set up a wholly owned subsidiary or a
  joint venture with a reputed local partner.

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Basic Laws You Should Be Aware Of When Doing
Business in India
Tax Laws Direct Tax, Indirect Tax, VAT
Tax Rates Income Tax - 35.77 , VAT 4 or
12, Service Tax 12, Excise Duty 8, 16 and
24 Customs Duty Peak rate of 15. RD cess
The Research Development Act, 1986 provides for
a levy of 5 on all payments made for the import
of technology, which includes import of
designs, drawings, publications and services of
technical personnel.
Employment laws Labor law is still very much
anti employer however this is changing with the
rapid growth of the economy.
Environmental Laws Still evolving
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Take Aways.
DOs
DONT

• Remote control It does not work.

• Have a physical presence.

• Assume that the Big 4 are the obvious choice.

• Choose a trusted tax and legal advisor.

• Send in people who are not technology savvy.

• Have a mix of local and expatriate management.

• Fall prey to the friendly consultant who offers
  to do the needful in obtaining approvals.

• Be prepared to wait for various approvals and
  government clearance.

• Neglect business support functions. It may take 5
  years for the law to catch up with youbut it
  will.

• Setup your back office and support infrastructure
  right the first time around.

• Be prepared for moderate attrition.

• Assume money can't get you the best talent.

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Thank You
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