Gateway to the East

India has a burgeoning middle class with money to spend, a large English-speaking population and a government showing a steady commitment to liberalisation. Marc Barber meets the UK entrepreneurs who are cashing in on the world’s second-fastest-growing economy

Two years ago Dalbir Bains fell victim to the entrepreneurial bug and quit her career as head of buying in the lingerie and nightwear division for Sir Philip Green at British Home Stores.

Setting up her own boutique in London struck her as too straightforward. ‘People would’ve said: “Yeah, fine, she has 16 to 17 years of lingerie experience; that’s no
real surprise.”’

A lingerie shop in India, however, was something else. ‘That’s a real sense of achievement,’ says Bains, who admits to selling ‘pretty much everything’ to run
Boudoir London in Mumbai.

It’s been a steep learning curve, especially as Bains has never run her own company before: ‘You’re in a city and your family and friends aren’t there, and the culture is very different. Then you’re also trying to sell a product that no-one understands.’

Anshul Kapoor knows how demanding India can be. The co-founder of graphic design agency Image Foundry Studios set up an office in Delhi and has found the first 18 months challenging: ‘We’ve had to run the UK and India offices side by side. It’s taken us about a year and a half to make sure the customer is getting the right quality.’

The expansion into Delhi made sense to Kapoor as it’s an ‘in-road to the East’. A significant investment has been made to train designers and the rewards are now starting to show. ‘We’re winning work over the local market and still charging double the going rate. Our view is that if you want quality work, you have to pay for it,’ claims Kapoor.

After the initial trauma of adjustment, Bains is delighted by Boudoir London’s popularity.

‘I think our store has been instrumental in changing people’s attitudes. I feel like a pioneer, coming into a place where the market for lingerie didn’t exist. In India, 95 per cent of women would be wearing the wrong bra size.’

Bains’ personal satisfaction is evident. The business is performing well and she is seeking to expand the company. ‘I came here to launch a national chain of premium lingerie stores and I definitely can’t lose sight of that goal. It’s the objective and now I have to crack on and make that happen.’

India is flourishing in the heat of a consumer boom. Corporates are generating surplus cash of around $175 billion (£86 billion), while foreign direct investment recently broke the $15 billion barrier. The International Monetary Fund revised the country’s GDP growth by 0.6 percentage points up to nine per cent last year and growth of 20 to 30 per cent per annum is the norm for companies.

Strange then that UK businesses appear to be ignoring the expansion opportunities presented by India. Anuj Chande, who leads professional services firm Grant Thornton’s South Asia group is perplexed by the ‘limited level of interest’ among companies with turnover between £5 million to £100 million.

He says: ‘We did a survey of UK businesses in the early part of last year and less than half of respondents actually saw globalisation as an opportunity, in India in particular.’

Chande attributes this to owner-managers burying their heads in the sand and hoping that globalisation won’t affect their business. It’s a poor judgement call, says Chande, with ‘virtually every single sector open to investment in India, although some sectors are reserved like defence, parts of the financial services and telecoms’.

Branching out
As Bains and Kapoor demonstrate, the types of companies that are setting up in India are no longer just call centres and outsourced manufacturing. Says Chande: ‘There are over 300 million people who fit into the category of young and middle class. They have a disposable income that they never had before and are eager to spend their money on luxury items.’

Nevertheless, India undoubtedly has a reputation for being a difficult, complex country. Peter Dunphy, CEO of recruitment firm Darwin Rhodes, set up an office to capitalise on deregulation in the insurance sector. ‘The main problem is that things are still very bureaucratic,’ he says, noting that the company formation process was started in July 2005, but trading didn’t begin until March 2006.

In the UK, you can register a business in a day at Companies House, whereas in India approval on a variety of levels is required. Dunphy adds: ‘We needed to have a series of notarised documents and board resolutions appointing you as an appropriate person as a company director, and that’s before you even start with companym formation.’

Then comes the challenge of establishing a bank account. ‘Once you have the company formed, it’s something separate again to get the appropriate licensing in order to transfer money into the country,’ he says.

‘For us to finance [the Indian office] on an ongoing basis [from the UK], we needed
prior approval from the authorities just to send money in.’

For Bains, the bureaucracy was bewildering. ‘I can’t tell you how much paperwork is required to make a transaction to England,’ she says. ‘When we receive stock from England, which means we have to pay suppliers there, I probably have to sign about 30 times. It’s very labour intensive.’

Advisers are crucial if you intend to negotiate the maze of rules and regulations. Dunphy, who has overseen new offices around the globe but notes that India presents some of the toughest challenges, says: ‘If you were to take the first six months of operation, probably 60 per cent of our costs were in legal and professional fees, 30 per cent were in wages and ten per cent were in rent,’ he says.

Grant Thornton’s Chande states that if you find the right adviser you should be able to set up a company in four to 12 weeks:

‘In certain cases, but not all, you’ll need the approval of the Foreign Investment Board, plus you need to register with all the relevant tax authorities.’

A reliable local partner will also often be necessary, if not mandatory for certain sectors.

‘That is quite a challenge in India as you do get a lot of people who are quite sharp so you need to get references,’ says Chande. ‘People tend to know each other so again it’s worth speaking to an adviser to get more background on a partner.’

Chris Francis, who has set up medical specialist Cardionetics and is a director of the UK India Business Council, has been involved with companies in India since the early 1990s. He says the bureaucracy and paperwork have vastly diminished in the past three to five years: ‘India has opened up enormously. The UK is the premier place for Indian investment in Europe and there is good two-way traffic between the two countries.

‘The banking system has improved too. It’s a 30-day process when transferring
funds and there are limits on the cash you can bring in, but that’s only because [the government] is, like everyone else, concerned about money laundering.’

Not the cheap option
If advisers are a must, you should budget appropriately for staff salaries and accommodation as India is not the cheap option some people may imagine. Parts of Mumbai surpass Manhattan in terms of cost per square foot. Kapoor observes that ‘property prices are stupid and we’re paying double for what people paid two years ago’.

Employees regularly changing jobs is another source of frustration. Bains observes:

‘There is no loyalty. It doesn’t matter if you are in investment banking, IT or baking, people are moving all the time. The CV doesn’t seem to be that important and there is a lot of flipping about. Basically, if people aren’t spending a lot of time in their jobs, there is no continuity and I think there is going to be a skills shortage.’

Kapoor at the Image Foundry appears to be one of the few exceptions, having not lost a person since the beginning. ‘We’ve developed our staff and pay them better than the local market rate,’ he says. For Chande, the churn and mobility of the workforce diminish in the more specialised and skilled areas, which is only to be expected. As Bains acknowledges, ‘there will always be a downside in an emerging market’.

Not so free trade
A degree of protectionism still exists when it comes to imports, says Francis, who founded Cardionetics in 1994 and is close to sealing a deal with a corporate that will distribute the company’s medical device. He estimates the import duty to be 40 per cent: ‘It’s a bit skewed as the Indian government, like other governments, has announced that it’s dropping its import duties, particularly for medical products, as they obviously want the best.

‘At the same time, they’re still protecting their own industries as the tax burden shifts elsewhere. An import of around 36 per cent gets reduced to five or ten per cent, which allows the government to claim it has lowered costs, but the local, independent states then ramp up the charges to the importers, creating a new tax. That’s just what’s happened in India and Brazil and lots of other countries.’

Cardionetics has devised a portable device that can be used in hospitals and rural clinics to measure electrocardiogram information, providing a full analysis that can be downloaded to a computer. Despite the scale of the opportunity (with 600,000 surgeries in India compared to 10,000 in the UK), there have been difficulties in realising it.

Francis says that the company won a distribution tender in India that was put out by the World Bank.

This caused a backlash from home-grown manufacturers, who were outraged that an overseas concern was the preferred choice. ‘There was nobody else who was capable of doing it because they lacked the technology, but the lobbying was so hard that the tender was pulled. I discovered later that what happens is that if it gets too difficult, the official responsible for the project in the ministry gets culled and a new person
is brought in who axes the project.’

Get to know the locals
Philosophically, Francis says it ‘is tough on all levels but no different from trading in other countries’. He adds that success will be much easier to achieve if you understand the importance of making good, reliable contacts. ‘Networking is vital in India. People take time to get to know you. It’s a case of meeting their friends, families and so on. No matter how good your product, there is a lot of bridge building to do.’

If you’re an impatient sort, India may not be for you. Chande says: ‘Patience is important as it can take time to develop a business transaction or deal. It is very much a relationship-based society. Sometimes paperwork won’t be necessary as a handshake will suffice. You have to acclimatise to that way of working.’

Francis recalls the early days when he’d be surprised a deal had fallen flat after striking up a great rapport with people: ‘They are very polite and don’t like to say “no”. There are other ways of saying no, such as not communicating with you when you return home.’

It’s a case of remembering that it’s not the UK and you need to accept and enjoy the differences. Francis admits to ‘loving India’, Bains is profiting from her ‘first-mover advantage’ with Boudoir London, while Dunphy at Darwin Rhodes says that during the past three years the company has entered Eastern Europe, the US and China, but it’s India that has provided the best return on investment. ‘Now that we’re up and running, the demand is so great for what we do that we found that we have been able to turn things around very quickly. In fact, India has been our number one success story for generating business in a new market.’

Easy it won’t be, but expanding into India could be the best commercial decision you ever made. As Bains says:

‘In England, everyone is scared of interest rates and the possibility of recession and how the US will affect us. Here, everyone is buoyant. This is a spend, spend, spend culture and people are feeling good about themselves.’