location and other challenges where to invest? indian states competing for foreign investment the...

LOCATION AND OTHER CHALLENGES

Where to Invest?

Indian States Competing for Foreign Investment

The Center For American and International Law

By :Gautam Mahajan

President - Inter-Link Services Pvt. Ltd.

June 13, 2006

We’ll discuss

• Location

• And some other Challenges

I’m assuming you have read this paper, and would prefer to answer your queries!

•Andhra Pradesh •Arunchal Pradesh •Assam •Bihar •Delhi •Goa •Gujarat •Haryana •Himachal Pradesh •Jammu & Kashmir •Karnataka •Kerala •Madhya Pradesh •Maharashtra

•Manipur •Meghalaya •Mizoram •Nagaland •Orissa •Pondicherry •Punjab •Rajasthan •Sikkim •Tamil Nadu •Tripura •Uttar Pradesh •West Bengal

INDIAN STATES

http://iic.nic.in/iic2_bap.htm

http://iic.nic.in/iic2_bas.htm

http://iic.nic.in/iic2_bbi.htm

http://iic.nic.in/iic2_bde.htm

HOW TO SELECT LOCATION

• Published Information– WORLD BANK– IFC– ICRIER– INDIAN STATES

• Personal/Practical involvement

– WE WILL CONCENTRATE ON THE PRACTICAL and remember:

– Location, Location, Location!

LOCATION: THE PRACTICAL WAY

• NORMAL SITE SELECTION:– DEPENDS ON INDUSTRY

• AGRI TO ZOOLOGY TO HIGH TECH TO MANUFACTURING

– WHERE ARE MY MARKETS– WHERE IS IT EASY TO INVEST – PEOPLE

• MY MANAGEMENT PEOPLE• MY WORKERS

– TRAVEL AND SHIPPING– LONG TERM PERPECTIVE

PEOPLE

• AVAILABILITY– INCLUDING SUPPORT INFRASTRUCTURE– MANUFACTURING SUPPORT

• LOCATION DESIRABILITY– EASE OF ACCESS– QUALITY OF LIFE

• SCHOOLS, HOUSING, SOCIAL • WEATHER

LOCATION: THE PRACTICAL WAY

• NORMAL SITE SELECTION: STATES– EASE OF ENTRY AND EXIT

• LABOR LAWS (PRO LABOR OR PRO CORPORATE)• TIME AND MONEY TO ENTER

– STATE AND LOCAL GOVERNMENT– INFRASTRUCTURE

• TRANSPORT• POWER• WATER ETC.

– MANAGEMENT TIME AND EFFICIENCY• CORRUPTION• REGULATIONS AND REGULATORY HASSLES• GOVERNANCE• INTELLECTUAL PROPERTY

– SKILLED MANPOWER– INVESTMENT AIDS

• INCENTIVES• FINANCING

– OVERALL COST OF DOING BUSINESS

STATES:INVESTMENT CLIMATE

• Good Investment Climate means opportunities and incentives for firms leads to higher

– productivity – investment – growth– And profits

INDIA’S INVESTMENT CLIMATE DIFFERENCES AMONG STATES

SIGNIFICANT PROBLEMS From Inter-Link/Xerox study

STATE # OF PROBLEMS

Red Tape Power Taxes Telecom Transport Other Corruption Delhi 10 4 4 1 2 2 2Haryana 2 1 1 2 - - -Rajasthan - - - 1 1 - -

Uttar Pradesh - - - - - 1 -Tamil Nadu 1 3 1 2 2 1 3Karnataka 7 12 2 8 3 - 1Andhra Pradesh - - - - 1 - -Bihar 1 1 - - - - -Orissa 1 - - - - - -Maharashtra 7 2 9 3 4 5 -Gujarat 1 - 1 1 - 1

TOTAL 30 23 18 18 14 9 7 NOTE: “Other” problems included are Labor (3), IPR Protection (3), Political Uncertainty (2) and Environment (1).

INVESTMENT CLIMATEFrom Inter-Link/Xerox study

STATE # OF RESPONSESExcellent Good Fair Poor

Delhi - 8 10 3Haryana - 3 2 -Rajasthan - 1 1 -Tamil Nadu 2 4 4 1Karnataka 1 12 9 1Andhra Pradesh - 1 - -Bihar - - 1 1Orissa - - - 1Maharashtra 2 20 10 -Gujarat 1 4 - -______________________________________________________

TOTAL 6 53 37 7 ______________________________________________________

BEST STATES TO DO BUSINESSFrom Inter-Link/Xerox study

STATE MENTIONS

1. Maharashtra 652. Karnataka 523. Gujarat 414. Andhra Pradesh 365. Tamil Nadu 276. Delhi 97. Haryana 38. Punjab 39. Goa 310. Rajasthan 211. Uttar Pradesh 112. Madhya Pradesh 1 Note: Andhra Pradesh has only 1 US company, but the perception of the state is very positive

OVERALL BUSINESS CLIMATE

State business climate is good!

93% of the American find the business climate in the states they are located in is fair to excellent.

50% find it good to excellent !!

28% have noticed an improvement in past year.

__________________________________________________________________________American Business Experience in India: A study by Inter-Link India/ Xerox/ Optima

Best Investment Climate States

Maharashtra, Delhi

Good Investment Climate States

Gujarat, Andhra Pradesh, Karnataka, Punjab, Tamil Nadu, Haryana

Poor Investment Climate States

Madhya Pradesh, Kerala,West Bengal,

Uttar Pradesh

Other States Assam, Bihar, Himachal Pradesh, Rajasthan, Orissa

Classification of states according to Investment Climate

SOURCE: (FACS 2003)

State groupings by investment climate: 2003

Good Investment Climate States

• Maharashtra• Gujarat• Andra Pradesh• Delhi

Other States

• Punjab• Tamil Nadu• Karnataka• Haryana• Madhya Pradesh• Kerala• West Bengal• Uttar Pradesh

Percent ranking factor as major or severe obstacle to business growth

Maharashtra versus Tamil Nadu

16.48

11.11

45.05

44.69

42.86

46.15

42.86

65.38

9.94

11.80

27.95

28.75

30.43

32.30

36.02

47.83

0 10 20 30 40 50 60 70

Skill Shortage

Access to Land

External Finance

Macro & Policy Instability

Tax & Customs Admin.

High Taxes

Infrastructure

Regulations & Corruption

Tamil Nadu Maharastra

Percent ranking factor as major or severe obstacle to business growth

Maharashtra versus West Bengal

13.93

17.36

26.72

22.81

36.89

27.87

26.23

47.54

9.94

11.80

27.95

28.75

30.43

32.30

36.02

47.83

0 10 20 30 40 50 60 70

Skill Shortage

Access to Land

External Finance

Macro & Policy Instability

Tax & Customs Admin.

High Taxes

Infrastructure

Regulations & Corruption

West Bengal Maharastra

Percent of outsiders ranking a state vis-à-vis own state

-100%

-50%

0%

50%

100%

Best Better Worse Worst

The “Good” and the “Not-so-good” IC States

Andra Pradesh

Delhi

Gujarat

Haryana

Karnataka

Kerala

Madhya Prad.

MaharastraPunjab

Tamil Nadu

Uttar Prad.

W Bengal

-40

-20

0

20

-100 -50 0 50 100

Net percent cost saving

Percent ranking worse Percent ranking better

The "Good" IC and the "Not-so-good" IC states: FACS-2000

KeralaUttar Prad.

Karnataka

Andra Pradesh

PunjabW Bengal

GujaratTamil Nadu

Delhi

Maharastra

-40

-20

0

20

-100 -50 0 50 100

Net percent cost saving

Perception of firms outside the state - FACS 2000

-100%

-50%

0%

50%

100%

Best Better Worse Worst

Average annual growth rate of sales

8.8%

6.4%

8.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Good IC Group Other States All India

Annual Gross Investment as % of initial fixed assets

13.6%

12.3%

12.7%

11.5%

12.0%

12.5%

13.0%

13.5%

14.0%


Sources of Inter-state competitiveness gap:all sectors ( All India=100)

112.3

98.793.696.3

100.2 102.4

80.0

90.0

100.0

110.0

120.0

Labor productivity Wage rate Unit labor cost

Good IC Other States

Sources of Inter-state labor productivity gaps: all sectors

0.5

-1.6

9.6

-0.3

0.8

-3.7-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Skill gaps Capital stock gaps TFP gaps

% s

ho

rtfa

ll f

rom

all

In

dia

ave

rag

e

Good IC Group Other States

Reported overstaffing rate (%)

14.0

9.210.9

14.1

8.610.5

0.02.04.06.08.0

10.012.014.016.0


All firms Small firms

Annual inspection visit days (number)

9.78.6 9.0

8.37.7 7.9

0.0

2.0

4.0

6.0

8.0

10.0

12.0



Days to clear customs

7.06.4 6.76.2 5.8 6.0

0.0

2.0

4.0

6.0

8.0



Management time spent dealing with regulations

18.2

12.914.6

17.6

12.113.8

0.0

5.0

10.0

15.0

20.0



Output lost due to power outages (%)

6.1

10.1 8.96.5

10.7 9.4

0.0

5.0

10.0

15.0


All firmsSmall firms

Other Challenges

• Incentives for States• Varying opinions• Indians tend to be critical of India

– Therefore look at comparative data between India and other countries

– You will find India compares well

• Do follow the same methodology you would use in the US for investment decisions and location..

Appendix I

Inter-Link Services Pvt. Ltd. Tel: 011-26922006, 26831226; Fax: 011-26929055; E-mail: [email protected] / [email protected] Website:

www.interlinkindia.net

Incentives for Investments in Indian States

Incentives Offered by Indian Government

General Incentives• Developing Backward Areas• Exports or Some Specific Industries• No Distinction is made between Domestic and Foreign Investors

Regional Incentives • Specified Backward Areas• Free Trade Zones

Special Industry Incentives • Certain Industries, eg. Jute Textile, Tea Plantation, Replanting, etc.

Export Credits

Comparison of the Incentive Packages of All Indian States

The National Council of Applied Economic Research (NCAER)

Incentives offered by Andhra Pradesh

Rehabilitation of Sick Industries• Major Sick Industry Come Under the Purview of BIFR

Special Incentives and Services For the Mega and Pioneer Industry

Sales Tax Incentives

Incentives offered by Kerala

State Investment Subsidy for Pollution Control Devices

Subsidy for Expansion / Diversification / Modernization of Industrial Units

Incentives for Mega Industrial Projects, Large Industrial Projects and Exemption in Electricity Duty• Waiver of Stamp Duty and Registration Fees• FDI and Large Infrastructure Projects• Exemption in Electricity Duty and Enhanced Tarrif

Incentives offered by Rajasthan

Subsidies• New Industries Exempted from Income Tax in 12 Backward Districts

Power Concessions

Total Octoroi Exemption

Incentives for Export Oriented – Units

Facilities for FDI and NRI Investments

Land and Building Tax Exemption

Special Package for Auto Units

Special Land Package for IT Industries

Incentives Offered by Karnataka

Marketing Assistance for the SSI Sector

Special Concessions for Export

Revival / Rehabilitation of Sick Industries

Investment Subsidy

Entry Tax Exemption (5 Yrs For Backward Areas)

Incentives Offered by Gujarat

Incentives to Industries

• Interest Subsidy

• Assistant for Research and Development and Patent Registration Scheme

• 92 Talukas of 21 Districts are Declared by the State Government as Backward Areas Which are eligible for Enhanced Benefits

Incentives Offered by West Bengal

State Capital Investment Subsidy

Interest Subsidy

Waiver of Electricity Duty

Employment Generation Subsidy

Remission of Stamp Duty and Registration Fee

Subsidy for Conversion for Use of Piped Gas

Subsidy for Quality Improvement in the Small Scale Sector

Incentives Offered by Maharashtra

Special Capital Incentives for SSI Units

Sales Tax Incentives for Medium / Large / Small Scale Units

Interest Subsidy to New Textile, Hosiery and Knitwear SSI Units

Incentives offered by Tamil Nadu

Most Backward Area Subsidy

Backward Area Subsidy

For Thrust Industries

Appendix II

Inter-Link Services Pvt. Ltd. Tel: 011-26922006, 26831226; Fax: 011-26929055; E-mail: [email protected] / [email protected] Website:

www.interlinkindia.net

India vs other Countries:Lessons to be learnt fromInter-Link Xerox study on

The American Business Experience in India

Before State Selection

• Don’t get overly concerned about the difficulties: You are in a level playing field with competition

• India competes well with many countries• Get the experience of your peers• Follow same due diligence as you would in

America• Do not take short cuts (Avoid consultants who

advise you to)• Know the rules

– Follow ethical procedures and follow rules

See some comparisons

INDIA VS. CHINAPolitical Stability

38%

13%

49%

India Better

(Ratings 5 & 4)

Same

(Rating 3)

India Worse

(Ratings 2 & 1)

Market Opportunity (Size/Growth)

59%31%

10%

Management Capability

73%

27%

Manpower Quality/Availibility

60%

35%

5%

Legend:Language Capability

92%

8%

Overall Country Risk/Return

52%

33%

15%

Corruption

24%

38%

38%



INDIA vs S-E ASIA

0%

20%

40%

60%

80%

100%

Overa

ll risk

/retu

rn a

sses

smen

t

Gover

nmen

t int

erfer

ence

/con

trol

Impa

ct o

f poli

tical

stab

ility

Corru

ption

Leve

l Play

ing fie

ld for

mult

inatio

nals

Lega

l Sys

tem

Mar

ket s

ize

Mar

ket g

rowth

Quality

/Pric

e co

nscio

usne

ss

Compe

tition

Man

gem

ent C

apab

ility

Quality

of m

anpo

wer (s

kill &

cos

t)

Availib

ility

of sk

illed

man

power

Overa

ll cos

t of m

anufa

ctur

ing

Overa

ll cos

t of d

istrib

ution

Cultur

al dif

feren

ces

as a

n im

pedim

ent

Lang

uage

as

an im

pedim

ent

% o

f R

ES

PO

ND

EN

TS

India better

India equal

SE Asia better

INDIA vs BRAZIL / MEXICO

0%

20%

40%

60%

80%

100%

Overa

ll risk

/retu

rn a

sses

smen

t

Gover

nmen

t int

erfer

ence

/con

trol

Impa

ct o

f poli

tical

stab

ility

Corru

ption

Leve

l Play

ing fie

ld for

mult

inatio

nals

Lega

l Sys

tem

Mar

ket s

ize

Mar

ket g

rowth

Quality

/Pric

e co

nscio

usne

ss

Compe

tition

Man

gem

ent C

apab

ility

Quality

of m

anpo

wer (s

kill &

cos

t)

Availib

ility

of sk

illed

man

power

Overa

ll cos

t of m

anufa

ctur

ing

Overa

ll cos

t of d

istrib

ution

Cultur

al dif

feren

ces

as a

n im

pedim

ent

Lang

uage

as

an im

pedim

ent

% o

f R

ES

PO

ND

EN

TS

India better

India equal

Brazil better


CONVENTIONAL WISDOM vs STUDY FINDINGS

The economic and political environment is not conducive, if not hostile

You can’t do business without pay-offs

The market opportunity is huge

Not hostile, however -• bureaucrats are a

hindrance but also a stabilizing factor

• political and policies stability and reduction in duties are important

• exchange rate fluctuation and level playing field important

• Corruption is an issue, but not a major issue

• But, assess real market potential


CONVENTIONAL WISDOM vs STUDY FINDINGS (contd.)

Indian customers are price-driven

India is an incremental market for current/ obsolete products and technology

The supplier base is poor

• While they want value for money, they are willing to pay money for value (Americans have discovered this segment, which has been ignored by Indian companies)

• Indianise products and bring in current/state-of-the-art technology

• Suppliers do not understand just-in-time and down-stream value chain impact. Suppliers are OK in service and availability


CONVENTIONAL WISDOM vs STUDY FINDINGS (contd.)

India has a huge talented workforce

Indians perform better outside of India

The profitability and ROI are poor

Foreign companies are unhappy in India

India cannot make quality products

• Managerial talent is rated as outstanding and a key success factor

• Workers are good • True• Profitability and ROI are

outstanding• Satisfaction rating very high• Sectoral issues are clouding

the press• India can make quality

products


FUTURE PLANS85% had operations in other parts of Asia Came to India primarily for Indian market, and not to export or source from India. Now, However

• 87% expect more product launches by 2000• 90% will expand operations in India by 2000 and 100% by 2005• 46% to expand Indian operations outside India by 2000, and 53% by 2005• 64% will develop India for exports, by 2000, and 77% by 2005.

Bullish on India - here to stay


FUTURE PLANS

Indian managers will play a greater role in global management of American Companies

India will become a more important R&D center

More products will be developed for the Indian market.

More state of the art products will enter India

TODAY IBM HAS 43000 PEOPLE IN INDIA, GE IS EXP[ECTED TO HAVE 11000


WHAT IT TAKES TO SUCCEED :LESSONS FROM THE FRONT LINE

• People Hire local managers, use their local expertise Pick your people well, train them well

• Business Processes/Practices Don’t compromise your values Leverage corporate capabilities smartly Adopt processes, tools and techniques when proven internationally Focus on costs, even as you grow


WHAT IT TAKES TO SUCCEED :

LESSONS FROM THE FRONT LINE (contd.)

Market Assess the real market potential vs. conventional wisdom Create markets to tap latent demand Educate customers regarding quality and life cycle costs Adapt global distribution model to local conditions

Environment Know the rules, follow the rules, don’t take short cuts Hire informed, experience, competent consultants Learn from fellow MNC’s


SUCCESS FACTORS

0 1 2 3 4 5

Role of U.S. Government

Expatriate managers

Having a joint venture partner

Government relations

Being the first in the market

Availability of information

Indianisation of products

Infrastructure

Indian managers

Knowing the rules and following them (Do it right)

Mean Score(5 - Very Important, 1 - Irrelevant)

• Results Expectations Have patience, no quick results Leverage India for worldwide capabilities … sourcing, back-end operations, R&D

Build an Indian companywith MNC capabilities


FINAL ASSESSMENTS:INDIA EXPERIENCE

• 25% of U.S. companies believe their operations in India are highly successful.

• 43% believe their operations in India are successful. • 31% believe that their operations in India are a

springboard for the future. • 1% regard their India venture as a failure.


A real vote of confidence in India!!The bonus of being in India, apart from the

local market, is: – manager and manpower resource, – R&D sourcing, – using India as a service point,– imports from USA, – develop India as a source for cheaper exports, – and for developing business outside India.


India versus other countries

• Some data from other sources

Comments from Dell

• Dell is talking about increasing India presence from 10,000 people to 20,000 for outsourcing– Initial entry was for cost– But today Dell says

And at the end of the day, frankly, it doesn't make a difference what the cost was. We used to say "Come for cost, stay for quality." But now, just as much, it's "Come for quality and stay for innovation."

Thank you

For more information, please contact:

Gautam MahajanPresident - Inter-Link Services Pvt. Ltd.

Tel: 011-26922006, 26831226; Fax: 011-26929055; E-mail: [email protected] / [email protected]

Website: www.interlinkindia.net

location and other challenges where to invest? indian states competing for foreign investment the...

Documents

tamil nadu276

andhra pradesh365

statessignificant problems

best states

pro corporatetime

management time

exitlabor laws pro labor

statesease of entry