New Zealand companies told they need more scale to tap into India's fast-growing economy

Monday 16th March 2015

Indian billionaire Nandan Nilekani says scale is a problem New Zealand companies need to overcome to crack the growing Indian market.

Nilekani has been twice named by Times magazine as one of the world’s 100 most influential people and is the former chairman of the Unique Identification Authority of India (UIDAI) which is providing all 1.2 billion Indian residents with a unique identification number. He is also co-founder of Infosys Technologies, which has 100,000 employees.

Nilekani understands scale, even in his philanthropic efforts. After losing a bid to get into politics last year, he’s poured US$10 million into a not for profit initiative, ekStep, which is developing a platform based on gamification to change the way primary school education is taught in India.

The first iteration of the platform will be released next month and Nilekani said while it was aimed at resolving India’s literacy and numeracy problems, it could easily be rolled out in other developing countries.

In his first visit to New Zealand, Nilekani said what struck him about the Kiwi companies he’d talk to was they weren't used to dealing with scale because of the country’s small population.

“Scale is not something you do after you have built your solutions. If you’re going to have an impact in India, you have to have scale, and solutions need to be made differently so they’re highly automated, low-cost, and developed so they can be used anytime, anywhere,” he said.

New Zealand companies tend to be low volume and high cost and it needs to be the other way around to do business in India, which is a “price sensitive” market, he said.

Developing scale is a mindset, said Reuben Abraham, chief executive of Indian think tank the IDFC Institute who, along with Nilekani, was in Auckland for the India New Zealand Business Council summit.

“If you think small, you will remain small. You have to think big to have a shot,” he said.

New Zealand companies should also look to do business at state rather than country level, Abraham said. “India is not a single market activity and if you try to do that, you’ll be in trouble. Governance at city level is broken, so you’re stuck with states.”

Companies should do their homework on which Indian states would suit best as there are significant differences between the progress and wealth achieved in some over others, he said.

“It depends on the industry and the state. Some states have a business environment where companies can go in without collaboration but getting an Indian partner is a good idea to help navigate the market better,” he said.

Abraham said India’s decline in absolute poverty levels started in 2005 when 271 million people were living below US$1.25 a day. Some 140 million have since been removed from that list.

“The southern and western states have pulled off a miracle in the last 20 years,” he said.

India is at the point China was 20 years ago in terms of becoming a fast moving urban economy, and already 31.2 percent of the country is urbanised, Abraham said.

The urbanisation shift provides opportunities for foreign companies with McKinsey forecasting 80 percent of Indian’s infrastructure needs for 2030 are yet to be built, he said.

Indian Prime Minister Narendra Modhi is intent on modernising, rather than liberalising the country. That nuance means it’s not an enthusiastic participant in trade talks which is why there is still a “massive gulf” between New Zealand and India on negotiating a free trade agreement, he said.

“India says let’s be pragmatic and do business anyway,” he said. India doesn’t have an FTA with its top 5 trading partners, and only has one within the top ten.

“If I was Kiwi I’d focus on the place SMEs can play which is a back end play for lots of your stuff. Even in the dairy industry there are multiple ways to get involved rather than just saying ‘let me sell my product into India’.”

He’s also critical of the low number of Indian tourists coming to New Zealand, 38,000 last year as opposed to the 190,000 who went to Australia.

“I was in Mumbai looking at the hoardings for the World Cup Cricket and the biggest advertising was by South Africa which isn’t even hosting any matches and then Australia. There was nothing from New Zealand.”

He said Bollywood could play a huge role if more films were shot on location in New Zealand, which is something the Swiss have done to their advantage, he said. Switzerland has 550,000 Indian tourists annually, many of whom were inspired by Swiss scenery in Bollywood movies, he said.

BusinessDesk.co.nz

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