India is located in southern Asia, with the Bay of Bengal on the east and the Arabian Sea on the west. One-sixth of the world’s population (approximately 1 billion people) lives within the country’s 1. 27 million square miles. Though Hindi is the dominant language in terms of number of speakers (it is the mother tongue to over 40 percent of Indians), India is essentially a multilingual nation with more than 10 other languages spoken by 20 million people or more. These include Telugu, Tamil, Marathi, and Bengali.
Most states are divided along linguistic lines, with different states accepting different “official” languages (one each). English serves as the national language among the educated Indians. Higher education in science and engineering is in English. The Indian economy derives only a quarter of its output from agriculture, with services contributing almost 55 percent. However, more than 70 percent of Indians are directly or indirectly dependent on agriculture. Three-quarters of Indians live in over 600,000 villages. Many of these communities lack infrastructure such as roads, power, and telecommunications.
Hence, India’s rural population presents a huge untapped potential for many marketers. The country operates as a democratic republic, and for the most part, one party has dominated the government since independence in 1947. At that time, India was born of the partition of the former British Indian empire into the new countries of India and Pakistan. This division has been a source of many problems through the years. For example, much to the dismay of the world community, both countries had nuclear tests in a cold war atmosphere.
Also, many millions of Indians still live at the lowest level of subsistence, and per capita income is very low. India’s misaligned central and local public finances have contributed to an overall fiscal deficit of more than 10 percent of GDP. In the past, doing business in India has been quite difficult. For example, it took PepsiCo three years just to set up a soft drink concentrate factory, and Gillette, the U. S. razor blade company, had to wait eight years for its application to enter the market to be accepted. Additionally, many MNCs have complained that there are too many arriers to effective operations. In the mid-1970s, the country changed its rules and required that foreign partners hold no more than 40 percent ownership in any business. As a result, some MNCs left India. In recent years, the government has been relaxing its bureaucratic rules, particularly those relating to foreign investments.
From 1981 to 1991, total foreign direct investment in India increased by $250 million, and between 1991 and 1993, it jumped by an additional $2. 5 billion. In 2000, foreign direct investment exceeded $3 billion and by 2005 had reached $6. billion. Most of this investment has come from the United States and nonresident Indians. One reason for this change in the nation’s policies toward business is that the government realizes many MNCs are making a critical choice: India or China? Any monies not invested in India may be lost to China forever. Additionally, it can be seen that foreign investments are having a very positive effect on the Indian economy. After the first big year of new investments (1991), India’s annual GDP growth jumped to over 4 percent. In 2006, GDP increased by more than 8 percent.
With the disbandment of the “License Raj,” a socialistinspired system that made government permits mandatory for almost every aspect of business, the climate for foreign investment has improved markedly. Coca-Cola was able to get permission for a 100-percent-owned unit in India in eight weeks, and Motorola received clearance in two days to add a new product line—and did all of this via fax. Other companies that have reported rapid progress include DaimlerChrysler, Procter & Gamble, and Whirlpool. At the same time, however, not everything is roses. Many MNCs are still reporting problems.
Nevertheless, the Indian government’s new approach is helping a great deal. In addition, there are other attractions that entice MNCs to India. These include (1) a large number of highly educated people, especially in critically short-supply areas such as medicine, engineering, and computer science; (2) widespread use of English, long accepted as the international language of business; and (3) low wages and salaries, which often are 10 to 30 percent of those in the world’s economic superpowers.
While these factors will continue to have a positive impact, the growing debate over jobs outsourced from the United States could dampen some of the impressive growth prospect for India. In addition, the election upset of May 2004, in which the opposition National Congress Party defeated the ruling BJP Party, suggests Indians are concerned about attention to social needs, not just economic growth. This will become more evident in the coming years as we determine whether India is equipped for such intense growth, or if the lack of formal transportation systems, roadways, and other barriers will cause the country to buckle under increased pressures. ww. ib-net. com Questions 1. What is the climate for doing business in India? Is it supportive of foreign investment? 2. How important is a highly educated human resource pool for MNCs wanting to invest in India? Is it more important for some businesses than for others? 3. Given the low per capita income of the country, why would you still argue for India to be an excellent place to do business in the coming years?