On July 15, MSLGROUP released its latest whitepaper, ‘Leveling The M&A Playing Field’, an excellent piece of thought leadership authored by our China team.
As I read it, it struck me that India and China, apart from being the fastest growing economies, also form one of the most intense regional rivalries in the world. The rivalry spans the business and military spheres and involves a heated dispute over territory.
The standoff has impacted what should have been a thriving trade relationship.
India-China trade in goods for 2012 stood at $66.57 billion, recording a decline of almost 10%. This can be attributed to a fall in both India’s exports to China (20%) and India’s imports from China (5%). Bilateral trade was dominated by reactors, boilers, machinery, electric machinery, sound equipment, organic chemicals, ores and cotton.
India’s exports to China for 2012 reached $18.8 billion, recording a decline of almost 20% y-o-y whereas imports touched a total of $47.75 billion, recording a decline of more than 5% over the figure for 2011.
In 2012, India was only the 15th largest trading partner of China with a share of just 1.72% in China’s overall trade, recording a decline of almost 10% y-o-y.
Yet, I have always felt things could have been different. As former prime minister Atal Bihari Vajpayee was fond of saying, “You can change history, not geography.”
One way of changing the relationship could be the entry of more Chinese firms into India – and Indian firms into China. The merger and acquisition (M&A) route is ideal.
In India, M&A deals have been flagging, but there seems to be a revival with sectors such as clean energy and clinical research in focus. European and Japanese corporations are also buying Indian firms in sectors such as polymers, engineering, clinical research and auto ancillaries. There is no reason for Chinese corporations to not do the same.
However, they are looked upon with great suspicion in India, and completing transactions is troublesome due to regulatory issues and red tape. Also, there is a perception that China only produces cheap, low-quality goods that are not reliable.
However, I don’t believe that the door is completely shut for Chinese businesses. Here are a few things Chinese firms should do to be accepted in India:
• Spend a lot of time engaging influencers and decision makers in government. You need a strong media engagement strategy and a transparent approach to ensure you are not viewed with suspicion.
• Understand that acceptance will take time, no matter how good your intentions are.
• You might also find it tougher to get regulatory approvals, given the relationship between the two countries.
• Hire as much local managerial talent as possible.
• Adopt a strong corporate social responsibility culture. Work closely with local communities to gain their trust.
I’m certain that Indian corporations can thrive in China too. They would, naturally, face their own challenges; but that’s a blog I leave for an MSLGROUP expert based in China.