Prepared by Nerella Campigotto in conjunction with our India Partner
Indo Canadian bilateral trade stands at CAD 5 billion at present and is expected to increase to CAD 15 billion in the next 5 years. India’s exports to Canada in 2011 were up 25% and imports from Canada registered an increase of 31.7% over 2010. Total bilateral trade during 2011 registered 28.35% increase over the previous year.
While it is clear that investment and trade relations between the two nations are growing, there is tremendous scope for increasing business. For example, Canadian investments in India are only 0.38% of the total investments received by India! Canadian companies need to look at new emerging markets like India to expand their business.
The simplest route for a company from Canada wanting to sell its products or services in India is through the appointment of an Indian distributor or agent. These arrangements do not generally need any entity to be established in India and generally no government approvals are needed to be taken by the Canadian company.
Companies from Canada wanting to do research on the India market and assess the business potential by getting a firsthand feel on the ground can open a Liaison (or Representative) Office in India, post approval from the Reserve Bank of India.
For companies that are sure about their India plans or those that are willing to take a longer term perspective on their business plans, opening a Wholly Owned Subsidiary (WOS) or a Joint Venture (JV) with an Indian partner are options that can be considered. With progressive economic liberalization, most sectors in India are open to foreign investment. Certain sectors like broadcasting, defence, insurance, telecommunications, retail etc. have a maximum permissible ceiling up to which foreign investments are allowed. Any proposed investments over the permissible ceilings will need to be cleared by the Foreign Investment Promotion Board (FIPB) which meets every week to clear proposals.
What are the potential challenges of operating in India?
The challenges of operating in India can be best illustrated by the World Bank’s annual Doing Business Study which compares measures regulations impacting 10 stages of a business’ life. The 2012 study which compared 183 countries saw India being ranked at 132, down 7 places from 139 from the Doing Business 20011 Report. Canada ranked 13 in the Study and Singapore ranked number 1. This gives a comparative perspective of the challenges that companies from Canada need to be prepared for when doing business with India.
‘Trading across Borders’ at 109 (Canada: 42), ‘Starting a Business’ 166 (Canada: 3), ‘Dealing with Licenses’ 181 (Canada: 25), Closing a Business 128 (Canada: 3), and ‘Enforcing Contracts’ 182 (Canada: 59) are some of the areas where Indian rankings trail those of Canada by a wide margin. While the rankings showcase India’s progress in modernizing its financial sector and in dismantling trade barriers, it also highlights continuing problems with relatively complex tax administration and endemic delays in the legal system.
The latter two factors are key concern areas for companies from Canada to watch for while doing business in India
What is our advice to companies from Canada wanting to do business in India?
- Research the market before you invest. Understand the size, potential and price dynamics and how and where you want to enter it. Do not go by the overall size of the Indian market, segmentation is important. Take time to study the market, the demand/ supply situation, pricing trends and competition. Do not go by overall Indian market size, segmenting the market for your business is critical.
- Make sure that you have top management commitment and adequate resources to manage a business relationship in India.
- Visit the market and take time to build personal relationships. Be prepared to make follow up visits. Choose your partner with care – conduct thorough due diligence and take independent advice.
- Allow plenty of time for meetings and travelling around the market. Be patient – it always takes longer than you think!
Canada can take advantage of India’s growing economy for promoting solutions in mining, clean energy, high end technology, biosciences, pharmaceuticals and Telecom/IT. With growing awareness about mutual opportunities for cooperation and growth, trade and investment ties between India and Canada are poised to show excellent growth in the next decade.