Ten Things to Know about Doing Business in India

Just 10 years ago, if a U.S.-based company such as Microsoft wanted to sell a simple software package in India, the poor customer had to pay not just the retail price, but also an additional 114 percent import duty. Such was the price Indians paid for trying to do business with the world—and vice versa. So fearful that foreign enterprises would sweep across India’s borders and wipe out native merchants, the insular central government had erected a barrier of duties, tariffs and regulations so restrictive that they might as well have hung a “Closed for business” sign on India’s front door.

But times have changed. Beginning in 1991, former Prime Minister Narasimha Rao (who, to be fair, was pressured by the International Monetary Fund and The World Bank, which threatened sanctions if India didn’t loosen up) introduced a series of economic reforms to encourage freer world trade. Import duties were slashed (today the Indian customer pays no duties on imported software), and licensing processes were streamlined to actually encourage foreign companies to do business in India. In 1992, the Indian rupee became a convertible currency. Since then, even some long-protected industries such as power generation and telecommunications have at least begun to be deregulated and privatized.

Today, India is awash in foreign investment. Literally scores of U.S.-based companies have set up shop to produce or sell goods in India. The business opportunities are clear: With 1 billion people (and counting), India is a great resource for foreign companies seeking cheap labor and eager consumers.

Yet balancing these opportunities, several significant challenges remain for foreign companies wanting to do business in India. How do you maintain business continuity when India’s poor infrastructure can’t even support reliable power supply and telephone lines? How do Western businesspeople learn to navigate India’s chaotic cities and cope with local social norms? These are just two of the obvious issues. Clearly, whether selling goods, setting up a satellite office, transplanting employees or hiring native workers, foreign business leaders encounter a daunting series of political, economic and cultural hurdles that can impede—if not halt—operations. To minimize the gotchas, we’ve boiled down our research and resources and developed a list of 10 tips for successfully doing business in India.

1. Understand That Open Doors Don’t Mean Free Rein

Yes, India’s central government has made it easier for foreign companies to do business in India, but there are still some significant catches:

* Foreign companies opening branch offices are not allowed to earn income (above basic operating costs) in India, and their expenses must be paid exclusively from funds received from the parent company. Any profits made by a foreign company in India must therefore be funneled back into the Indian-based enterprise. This might seem elementary, but the Indian government is quite explicit that it will not subsidize foreign companies doing business in India. Even visiting businesspeople are forced to produce documentation that their parent companies will assume their expenses while in India.

* Foreign-owned shipping companies, airlines and banks are permitted to open branch offices only on a reciprocal basis (their governments must allow India to open similar operations in the parent companies’ country).

* Foreign acquisition of Indian companies is subject to regulation and approval by the Reserve Bank of India, the country’s central bank, which shows favoritism to companies controlled by nonresident Indians.

For more information on business do’s and don’ts, see the Indian Investment Centre’s “Highlights of India’s Economic Policies” homepage at iic.nic.in/vsiic/iic3_a.htm.

2. Also Know That Big Businesses Can Get Big Breaks

Size definitely counts—especially if you employ significant numbers of IS workers. So eager is India to grow its IT industry that the central government and individual states have created lucrative incentive packages to lure big businesses to set up shop there.

At the national level, the central government has established 13 software technology parks (STPs) designed to promote software exports and IT training. Located in such far-flung cities as Calcutta, Kanpur and Pune, these STPs combine Indian- and foreign-owned software companies in regulated developments that include reliable infrastructure, duty-free zones and special income tax breaks for member companies.

At the state level, in Karnataka, home state of Bangalore (which bills itself as the Silicon Valley of India), new (not just foreign) companies that employ a minimum of 250 native IT workers are eligible for discounted or even free land for building office space. They also qualify for scalable breaks in registrations charges, zoning regulations and tariffs. In Hyderabad, capital of the central state of Andhra Pradesh, a similar incentive package offers zoning and sales tax exemption, a 25 percent break in power tariffs and nearly a $450 land-purchase rebate for every new job created. Hyderabad also has given telecom companies free rights of way to lay fiber-optic cables throughout the state. Says J. Satyanarayana, the state IT secretary (essentially the CIO who oversees state IT initiatives), “We get out of the way of industry.”

For more information about special incentives for businesses in Karnataka and Andhra Pradesh, see www.bangaloreit.com and www.ap-it.com. And see www.nasscom.org for more on the STPs.

3. Beware Customs Agents Assessing Duties

OK, so the Indian consumer no longer pays a 114 percent duty on imported software, and cumbersome customs regulations generally have been loosened. But foreign businesspeople still are frequently unable to slip past customs without paying huge duties on products being brought into the country—even if they aren’t for sale. Example: When CIO magazine shipped over some boxes of logo merchandise to be given away to Indian CIOs, customs demanded more than $1,000 in duties. These items had no commercial value, but because they had been assessed at roughly $1,000 for insurance purposes, customs demanded that amount in duties. No arguments dissuaded customs officials, and ultimately the items were abandoned. This case seems more the rule than the exception, and businesspeople bearing gifts are urged to forget about “for insurance purposes only” and declare their items of no commercial value. If importing products to be sold, it’s best to at least attempt to clear hurdles up front by contacting India’s Central Board of Excise and Customs at www.cbec.gov.in.

4. Infrastructure: You Can’t Live With It…but You Can Get Around It

No place in India is immune from the daily power outages, unreliable phone lines, tainted water and poor roadways that plague the nation. The best one can hope for are tolerably short outages—and yet no outage is tolerable to a business that relies on 100 percent uptime. To get around infrastructure issues, most major Indian companies have installed backup generators and either leased private phone lines from the central government or invested in satellite communications links. Even so, infrastructure issues occupy an annoyingly significant part of an Indian CIO’s time, and they spill over into other decisions.

“I’m in a constant state of dilemma about whether or not to choose hot new technologies when the infrastructure may not support them,” says U. Ghosh, director of corporate planning of BPL Telecom and CIO of BPL Group in Bangalore. Of course, the good news about poor telecommunications infrastructure is that it’s pushed India to become an early adopter of wireless technologies. Cell phones and other personal digital assistants are ubiquitous among Indian businesspeople, who will be quick to embrace wireless technologies and standards as they emerge. A new trend among foreign companies is to move into newly constructed high-tech office parks such as Electronic City in Bangalore, HITEC City in Hyderabad and Tidel Park in Chennai. These ultra-modern facilities include private power, water, and telecommunications and transportation services, and they even have recreation, health-care, shopping and residential facilities to minimize employees’ need to leave the cozy confines of work. (For more on these high-tech parks, see “Nirvana [Under Construction],” Page 182.)

5. Allow Plenty of Time (and Patience) for Air Travel

It’s actually harder to get into India than it is to get around the subcontinent. This is because every visitor needs a special visa from the Indian Consulate General. Yet these visas are not necessarily easy to obtain because of bureaucratic red tape. For businesspeople traveling to India, special business visas are available from the Consulate General of India for $85 to $150 and are valid for one or more years with multiple entries. The only catches:

* Each visit to India is limited to six months.

* Travelers must produce a letter from their sponsoring organization indicating the nature of the applicant’s business, probable duration of stay, and places and organizations to be visited. The letter must also guarantee that the parent company will pay the visitor’s basic living expenses.

* Business visas valid for 10 years with multiple entries are available to foreign businesspeople who have set up or intend to set up joint ventures in India.

Typically, travel visas take 15 working days to process, but expedited service is available. Just be sure to track your application’s progress; the line between approval and delay (or even denial) can be very thin and entirely dependent on a judgment call within the Consulate General’s office. It does pay to establish and maintain a contact with someone in your local Consulate General’s office. For more on travel visas, see www.indanembassy.org/consular/list.htm.

Once in India, domestic air travel is every bit as reliable (or not) as what we deal with in the United States or United Kingdom. Indian Airlines, Jet Airways and Sahara Airlines are the big domestic carriers, and although they don’t run many daily routes between major cities (one or two roundtrips daily, generally), they are inexpensive. It’s possible to travel first class between, say, Delhi and Bangalore (roughly 1,000 miles, or the same distance as Boston to Jacksonville, Fla.) for under $500 roundtrip.

Do be prepared, though, for India’s full-force airport security measures. Armed guards are everywhere in and outside the terminals, checked and carry-on bags are examined at least twice, and passengers generally are frisked before being allowed even into the departure lounges. Frequently, checked bags must be identified by their owners outside the terminal (sometimes on the runway!) and stamped “OK” by airline personnel before being loaded. On top of the normal hour you should allow for check-in, give yourself an extra hour to clear security before your flight—and an extra hour on top of that if you’re leaving the country and have to clear customs.

6. The Priciest Hotels Provide the Best Value

If you’re staying in India for more than just a few days, your best bet is to check into one of the major five-star hotels, which offer Western-style amenities at Indian-style prices. The Oberoi, Taj Group and Welcome Group all operate lavish facilities in each of India’s major cities. Prices range from $150 to $250 per night (with discounts for extended stays), and the amenities include large rooms, ample work space, business and laundry services, multicuisine restaurants, meeting room space and on-demand limousine rental. In addition to being ideal places to host business meetings, these hotels offer good networking opportunities with fellow foreign travelers. And although stomach disorders are a rite of passage for most visitors, the hotel restaurants do adhere to basic health standards, and they serve plenty of bottled water—a must in India, where tap water (even for teeth-brushing) is always suspect.

7. Resist the Urge to Get Behind the Wheel

Do not drive in India. Do not let your employees drive in India. The streets are way too congested with cars, trucks, motorbikes, bicycles, pedestrians and livestock, plus the local driving customs (lots of horns, little courtesy) are puzzling to most foreigners. When first arriving in India, call ahead to your hotel and arrange for a pickup (a driver will show up outside the terminal, holding a sign with your name on it), or go directly to the prepaid taxi booth inside the terminal and pay a set fee (tip included). Do not just leave the terminal and expect to hail a passing cab. You’ll only be met by a sea of porters and cabbies eager to serve, and there is no way to differentiate between the honest businesspeople and those who will try to take advantage of your naivete. We know one unsuspecting visitor whose unscrupulous cab driver tried to charge him $60 for a $7 trip to a hotel in Mumbai. Once settled in, rent a driver, not a car. Chauffeur-driven cars are available commercially and through the hotels and even some businesses for rates of about $25 to $40 per day—a bargain considering the time and energy you’d lose trying to navigate these streets by yourself.

8. In the Workplace Hire Local

India is a nice place to visit, but it would be difficult to transfer foreign staff there long term. First of all, work visas only allow for six-month stays, but the greater challenge is for Westerners to adjust to life in a developing country. The sheer volume of pollution, people and poverty would be sensory overload for many foreigners on extended stays in India. These days, with ubiquitous e-mail and viable videoconferencing, companies are advised to hire locally and manage remotely. Even without the cultural advantages (which are considerable), think of the situation in pure economic terms: Well-paid Indian business professionals earn between $8,000 and $12,000 per year—a bargain in any country. Do be aware, though, that the Western concept of teamwork is foreign to some Indians. “The average Indian is a philosopher, but two of them together can be a disaster,” says Vasant Kumar, vice president of strategic planning and CIO of Ranbaxy Laboratories in New Delhi. “The average Indian, whether he is a programmer or a business systems designer, is an individual; he delivers as an individual. How do you make him work as a team? That is a challenge for us to face.”

9. Adjust to the Indian Life (and Work) Style

Forget your notions about leaving the U.S. rat race for a slower, easier lifestyle. If anything, Indian businesspeople work more days and longer hours than we do, and they rarely turn off their telephones. The Indian workday generally runs from about 9 or 10 a.m. until 7 or 8 p.m., while the workweek is Monday through Saturday, although the five-day workweek is catching on as a perk in Western-influenced companies.

Deependra Moitra, general manager of quality for Lucent Technologies India Product Realization Center in Bangalore, describes the average Indian IS professional’s workday: “He typically arrives at 10 a.m., spends 30 to 45 minutes at the coffee machine talking to colleagues. Then he takes a lunch break, a tea break and ends up staying late at night to get the work done. People from the United States or Germany come here and are shocked that we’re not working as hard as they do, but we are—just differently.”

Another adjustment for foreigners is the ubiquity of cell phones. It seems like every business professional carries a cell phone in India, and—perhaps as a result of phone lines being historically unreliable—no ringing phone goes unanswered. Desk phone or cell phone, in the middle of a private meeting or not, if the phone rings, Indians are likely to answer it and deal with the caller’s situation before getting back to yours. They’ll also expect you to respond similarly to them when they call—even if they reach you at the hotel at night or at home over the weekend.

10. Be Prepared to Confront Caste Issues

India’s historic caste system of segregation supposedly was done away with by the Indian Constitution in 1950. Yet during the month CIO toured India, one of the big news stories in the newsweekly India Today was about two young lovers who were exiled from their village because they married from within two sub castes—an act considered incestuous to higher-caste village elders. Not only was the couple exiled, but their families were excommunicated as well.

Indeed, the caste system, originally established as a means of keeping India’s invading Aryans from mixing with the country’s dark-skinned natives, remains prevalent in Indian society. While more a part of everyday life in the villages, castes still play significant roles in the cities—and in business. The big daily newspapers are filled each weekend with matrimonial ads from upper-caste Brahmin men seeking “fair-skinned” brides. City streets are lined with lower-caste women who sweep the dusty roads with flimsy hand brooms. Even most business offices have a “peon pool” of worker-caste laborers who spend their days waiting for a supervisor’s summons to serve coffee, set up a meeting room or clean up a mess. Such obvious caste signs are an eye-opener to foreigners, but to Indians, they’re a legacy.

We mention caste just because it can be jarring for Westerners to suddenly be confronted by the disparity between India’s haves and have-nots. And frankly, the recent influx of IT wealth has only widened this gulf in favor of those Indians who are fortunate enough to work in the IT sector. Some observers are optimistic that IT dollars will have a trickle-down effect and improve the standard of living for all Indians. Others foresee only greater disparity and displays of social unrest. Just this past August, the city of Bangalore was shut down for two days by rioters upset by the kidnapping of local film star Rajkumar. N. Kailasnathan, vice president of IT at Titan Industries, a Bangalore-based watchmaker, feels the riots were less about the kidnapping and more about the growing frustration of the have-nots in the Silicon Valley of India. “I think we will see a lot more situations like that,” Kailasnathan says. “A lot of social issues are going to come.”