If Indian companies in China have varied strategies, Chinese companies in India are a different kettle of fish altogether. To start with, they are fewer in number. While there are more than 150 Indian companies in China, the Chinese companies in India add up to barely 20. When the Chinese Embassy in New Delhi sought to catalyse the formation of a chamber of commerce for these companies in early 2006, only 21 turned up. The chamber is yet to be formed.
Two issues are holding up this invasion from the north. First is the actual invasion of 1962, when India and China fought a war over Aksai Chin, which India considers a part of the northern state of Jammu & Kashmir, and China considers its own territory. The war ended when China declared a unilateral ceasefire after having achieved all its territorial objectives; it continues to occupy Aksai Chin and some other areas till today. Large sections of the Indian establishment still look upon the Chinese with suspicion.
That war has become one of the defining moments of the history of Independent India. “It is considered a great betrayal,” says Roy Sagnik, a director of the Shaoxing-based Yongtong Group, a Chinese conglomerate with interests in textiles and other sectors. The view from India is that Chinese leaders were proclaiming “India, China bhai, bhai” (the two countries are brothers). Then they attacked a country totally unprepared. Adds Sagnik: “Nearly half-a-century later, it is still part of the Indian psyche.” There is still (some) resistance to all things Chinese.
On the other hand, the 1962 war does not loom that big in China’s memory. “In schools, children are taught that it was a minor border skirmish,” says Zhao Gancheng, senior fellow at the Shanghai Institute for International Studies. There is no racial memory of the Indian as enemy, he adds.
The Security Hurdle
Thus, while Indian companies have by and large been welcomed in China, Chinese companies have had to run the security gauntlet in India. Consider Shenzhen CIMC-Tianda Airport Support Ltd, a Shenzhen-based subsidiary of the world’s largest container and trailer manufacturer CIMC. The core business of CIMC-Tianda is airport support and modern logistics equipment. CIMC-Tianda has been involved in some bridge construction projects in India, but was turned down, apparently on security grounds, when it sought to bid for a aerobridge project for several Indian airports.
Another company — Zhongxing Telecom Equipment (ZTE), China’s largest listed telecom manufacturer with its headoffice in Shenzhen — is planning to pump in an additional $22.5 million to beef up its equity; it has already invested $10 million in a factory near Delhi and an R&D centre in Bangalore. The additional capital was to enable ZTE to enter after-sales service and wholesale trading in telecom equipment. But India’s Foreign Investment Promotion Board (FIPB) has deferred decision on an expansion plan. The government’s security agencies want additional vetting.
Huawei Technologies, based in Bantian, in the Longgang district of Shenzhen — a vendor of telecom products and solutions — has also been meeting similar roadblocks. The company has spent nearly $100 million on its Indian operations since inception in 2001. It has plans to invest an additional $150 million to set up a software campus and manufacturing facilities. Huawei is awaiting a trading licence from the government to speed up the manufacturing plans.
The company is understandably diplomatic. “Since the submission of the proposal, Huawei has met with the FIPB several times to further the discussion,” says Sanjay Kumar, Huawei director of marketing. “This evaluation process by the Indian Government is a normal part of foreign investment approvals, and we are confident of a positive outcome.”
Huawei is no chicken in the Indian market. The company declines to share exact numbers but says its turnover in India has been rising steadily. “Sales of Huawei Telecommunications (the Indian subsidiary) grew by 186% over the previous year,” says Kumar. “Huawei has posted cumulative sales turnover on the order of around $300 million in the past three years.” The company employs over 350 marketing professionals and technical support engineers at its base in Gurgaon (near Delhi) and at regional marketing and engineering support offices located in Mumbai and Bangalore.
The other arm — Huawei Technologies India — is in software product development. It employs over 1,200 Indian engineers at its facilities in Bangalore. This will be stepped up to 2,000 soon.
“The security issues are not going to go away overnight,” says an Indian defence analyst. “Besides, there are several powerful thinktanks in Delhi whose very raison d’être is the China threat. Former Indian defence minister George Fernandes has declared that China is India’s enemy No 1. It will take some time to defang these vested interests.”
Indian Ambassador to China Nalin Surie says that Chinese companies are indeed going to India. But they are doing so as part of joint ventures (JVs), where they are not so much in the public eye, or in major projects, for which they are bidding with Indian partners. In the metals sector, Baosteel, Anshan Iron & Steel, and Benxi Iron & Steel have begun to talk to Indian steel companies about JVs and technological cooperation. Chinese companies such as China State Construction are participating in various Indian highway projects. There is considerable cooperation in other areas as well. “Our economic ties are progressing in leaps and bounds,” says Surie.
The security concerns are primarily in the high-technology area. But Indian companies have faced threats too. Cheap Chinese imports have impacted some sectors. For instance, the unorganised – and in some cases, unsafe – Indian toy industry has been practically wiped out.
In dry cells (the most common type of battery used today, found in consumer rather than industrial goods) established Indian manufacturers initially felt the heat of products that were one-fifth their prices. Fortunately for Indian manufacturers, Chinese products had a considerably shorter life. In several areas, however, these products have made their mark; today, if consumers want to buy a cheap gift, they go to a dollar shop (which sells only Chinese products).
These Chinese wares are not the sort that America or the western world is used to. “China has three categories of products,” says Harpreet Singh Puri, chief executive of the Tianjin-based BusinessLinks, which represents international and Chinese companies for direct trade in goods and services, and offers consulting services to companies interested in direct investment, joint ventures, representative offices, or strategic tie-ups in China. The number one category is exported to countries such as the U.S. That’s top quality. The number two category is meant largely for the home market. The number three quality is meant for countries like India where the only consideration is price.
“You can’t blame the Chinese,” says S.S. Naik, the Shanghai-based chief representative of the Mumbai-based $22.6 billion Reliance Industries, India’s largest private sector company. “Indian traders come and tell the Chinese manufacturers that they want a certain product at a certain price. The Chinese never say no. They just cut manufacturing costs. What you get is your problem.”
For some years now, everyone has been happy. The manufacturers had their margins. The traders made a minor killing. The Indian consumer got something very cheap. He, too, was satisfied as he didn’t expect too much quality at that price.
Cheap No Longer Thrills
This seemingly win-win situation has now come back to haunt several Chinese companies and even Indian manufacturers. In the Indian mind, China has become associated with cheap and low quality — an association that will be difficult to change.
A prominent Indian manufacturer of white goods is sourcing almost 95% of the components of its top-end washing machine from China. “All that is done in India is the packaging,” admits a source in the company. “We are selling well. But if our customers know that the machine has Chinese parts, the bottom will fall out of the market. Nobody is prepared to pay a premium for China.”
T. K. Banerjee, president & CEO, Haier Appliances (India), a wholly-owned subsidiary of the home appliances major, the Haier Group of China, says that “the company’s strategy in the Indian market has been that of introducing high-end products and making its presence felt in high-end retail markets”. The strategy, he adds, “seems to be working well.” Yet Haier is looking elsewhere for real growth. “For the mass segment, the company’s focus is to bring in India-centric products,” says Banerjee. “These innovative and differentiated products will expand our consumer base. While doing so, the strategy will be to shift the focus from price-driven positioning to value-driven positioning.” He feels that there is enormous scope for growth at the bottom end of the pyramid.
Haier is setting up a manufacturing facility later this year. Its turnover last year was around $65 million. (The company is not confirming numbers but says it has met its targets.) “By 2010, Haier aims to be among the top three brands in the Indian market,” concludes Banerjee, adding that Haier has made a conscious decision not to stress its country of origin.
The most prominent Chinese brand in India is Lenovo, which came about through the acquisition of IBM’s personal computer business. Interestingly, the Lenovo India site does not give much indication that it’s a Chinese company. In fact, the site says that “Lenovo’s executive headquarters are in Purchase, New York”. That’s true, but “what is equally true is that we are keeping our Chinese identity under wraps,” says a Lenovo executive who does not want to be quoted by name. “We don’t know whether it will harm us, but it definitely won’t help.”
In the short term, therefore, observers note that the strategy of Chinese companies in the consumer space in India is to deliberately hide the fact that they are Chinese. Meanwhile, Korean companies are doing very well in India. The $1.7 billion LG India (a subsidiary of the $87 billion South Korean LG Group, which has interests in electronics, chemicals, telecommunications and services) is market leader in several categories. The $1 billion Samsung India (a subsidiary of the $82 billion Samsung of South Korea) is fast catching up. The Samsung Group’s main lines of business are digital media, telecommunications network, digital appliances, semiconductors and LCDs (liquid crystal displays). Most of these have been launched in India too.
For the man on the street in India, Haier is clubbed together in this group of Korean companies. Few recognise it as a Chinese company. Galling though it may be to the Chinese, that’s why it is progressing.
Without a quality leg to stand on, though the products may actually be very superior, Chinese consumer goods companies will therefore have to concentrate on the lower, rural end of the market, according to marketing experts in India. Once they establish this base, they can then move upwards.
One very obvious point that is often ignored is that Chinese companies coming to India are all looking to sell in the domestic market. Almost automatically, investments (which include marketing costs) are higher than those of Indian companies going to China, which are looking more at shipping their output back to India or elsewhere in the world. This is why the image of India in China is not as important as the image of China in India. Indian companies don’t have to sell themselves to the Chinese public as they don’t operate in the domestic consumer space. Chinese companies, however, are operating in the Indian consumer space.
China does enjoy a good image in some industries, like infrastructure. Corporate India believes that the Chinese success at home is almost entirely because of the roads and expressways, ports and airports. “If India had that infrastructure, we would have been miles ahead of them,” says Rajeshwar Mishra, group managing director of the Bayuquan (Liaoning)-based Orind Refractories, an Indian manufacturer of refractories — the material used in the furnaces of, say, steel mills. In terms of infrastructure, Chinese companies will always be welcome, once they resolve the security problems.
Chinese companies already in India are also going that extra step to Indianise. Most have Indian CEOs. (It’s not true the other way around.) They want to depend on local staff and components. “We want to indigenise (manufacture in India) 90% of the components,” says Banerjee.
They even want to look Indian. “We have already hired 14 Indian airhostesses,” says Edward Zhu, the New Delhi-based chief representative of China Eastern Airlines, headquartered in Shanghai. He is planning new flights to India and new destinations. Chinese companies may not land in huge numbers in India tomorrow. But many are booking their flight plans.