Friday, December 01, 2006


What's next for Watching India?

Our dedicated research centre on international business in/with India generates and disseminates knowledge on issues of interest to firms and governments in the area of Indian and South Asian business. Many academic research centres, and most academics themselves tend to fail to engage with their user base, be it made of firms, governments, NGOs, and what we often call the "wider community" - a very convenient way to describe what we can't even identify..!

India is a fast changing country characterised by progressive liberalisation - this in turns creates huge opportunities for both Indian and Western firms.

However, this is easier said than done: earlier this year, the UK House of Commons Trade & Industry Committee was so concerned that UK firms were falling behind their competitors in seizing these opportunities that it took the (unusual) decision to conduct an "Inquiry on Trade & Investment Opportunities with India". The final report -published in 3 volumes- was made available some time before the Summer.

Our India Centre contributed to the inquiry and submitted written evidence of the lack of knbowledge about india.

The Committee wrote in its final report that "during our inquiry we were struck by the lack of importance too many UK companies afforded to India as a prospective trade and investment opportunity. While we were in India, we were told by many of the people we met that India was changing so fast that things companies had looked at and realised they were not able to do two years ago were possible now. Whereas some UK companies had simply given up on India, many of the UK’s competitors had leapt on new opportunities which had arisen since. Many UK companies also saw India only as a low cost, low quality place which manufactured products. Up-to-date knowledge of the Indian market was lacking amongst some UK companies".

The Committee concludes that "there is a worrying lack of familiarity with the Indian market amongst some parts of the UK business community. The UK Government needs to address this by making more information available on the Indian market to UK companies, even those which are not currently seeking to enter the market there".

As part of our commitment to serve our user base, and in particular UK and European firms wishing to do business in/with India, our staff at the James E Lynch India & South Asia Business Centre will produce Watching India, our very own series of market research briefings on the Indian economy and key sectors - such as manufacturing, pharma, IT, BPO/KPO, retail, entertainment among others.

Published ten times a year and made available to firms on a subscription basis, Watching India will make use of the best and most reliable sources to keep you fully up-to-date with key developments in India.

The official launch of Watching India will take place on January 24th when Dr Paul Davies, former MD Unisys India, will address our corporate guests at the next Financial Times Speaker series, due to take place at our parent institution, Leeds University Business School.

For more info on Watching India, our market research briefings please email Watching India. For more info on the forthcoming FT Speaker event on India, please email use this link.

So that's the next step for Watching India - the blog. It will go from strength to strength and nicely complement Watching India - the briefings. Make sure you do join us in celebrating our achievements and be among the first to subscribe to Watching India..!


Seizing India's Opportunities

Leeds University Business School, in partnership with the Financial Times organises the FT Speaker Series, a series of lectures presented by distinguished experts from the business community. The series, which this year focuses on international business, aims to inform and educate anyone with an interest in international affairs, with a key emphasis on the challenges brought about by globalization.

Dr Paul Davies, former Managing Director Unisys in India and Managing Director Onshore offshore Ltd – and a University of Leeds alumnus - is the speaker at our next event on January 24th at 6pm. Having been Managing Director of Unisys India, where he was responsible for developing the domestic market and for planning both BPO and IT offshoring, Paul wrote What’s this India business? published in Europe, the UK, the US and India.

Prior to the role in India, he was the strategic marketing director looking after the business development of India, southern Africa, and the Middle East, and was responsible for a number of key developments. He took on this role having been the European sales director for financial services for Unisys, after a period as the Account Director for a major UK bank. Paul Davies has a PhD in English, focused on the novels of George Eliot, and is a University of Leeds alumnus.

His talk will focus on the opportunities brought about by the rise of India in the world economy. This India lecture will be of interest to those wishing to understand and seize opportunities created by the emergence of India in the world economy. The lecture will be followed by a networking reception.

Previous topics covered in the series have included the threat of “new protectionism” and business success in a globalised world.

This FT lecture is organized by our research centre on Indian business, the James E Lynch India & South Asia Business Centre.
On this occasion, the India Centre will launch Watching India, its series of market research briefings on the Indian economy and key sectors of the economy. The event will be attended by companies and organisations wishing to benefit from India’s locational advantages, and those who support the India Centre.

This event is strictly by invitation only. For more information, please do feel free to email our Knowledge Transfer officer, Ms Helen Ashworth.

Wednesday, October 25, 2006 Engages with India - at last..

It is good to see the FT waking up to the emergence of India in the world economy - and the FT recently beefed up its coverage of Corporate India.

Among the initiatives that are worth mentioning:

Finally, also worth mentioning is adopting RSS technology. Do not miss out on the FT's coverage of corporate India by subscribing to their India feeds. A real time-saving feature. feeds of relevance include:

I use Newsgator to access my feeds - Newsgator enables synchronisation of feeds, which is handy if you access your feeds on your work PC, laptop and Windows Mobile device - Newsgator ensures you never see the same item twice.

Alternatively, there are good, web-based and free RSS readers out there such as Google Reader. Or upgrade to Internet Explorer 7 or Firefox 2.0 with their feed-reading capabilities.

Watching-India makes its full content available by RSS, and you can subscribe to the feed here.

Tuesday, September 12, 2006


Nobel Prize Winning Economist Joseph Stiglitz on Globalisation

Joseph Stiglitz is one of the world's leading thinkers on globalisation. He has put theory into practice, advising President Clinton and working as the chief economist at the World Bank. He is frequently at odds with big institutions, putting social justice at the top of his agenda.

"There's nothing wrong with globalisation, just the way it has been managed" he says.

Is it acceptable within his community to be a campaigning economist? And with one economist accusing him of peddling "snake oil" in place of arguments, why are economists such an argumentative group? Joseph Stiglitz talks to Carrie Gracie on the BBC World Service this week.

You can listen to the interview here.

Saturday, March 25, 2006


The Shape of Indian Multinationals

The official opening of the James E. Lynch India & South Asia Business Centre at Leeds University Business School by His Excellency Kamalesh Sharma, High Commissioner of India in the UK could not be more timely.

India is emerging fast in the world economy, and the recent increase in the number of mergers and acquisitions of UK and European firms by their Indian counterparts has recently made the headlines. Recently, these also triggered tense political negotiations between 'Corporate India', Heads of States and governments at both national and supra-national levels.

India is everywhere. Or rather, Indian success stories are everywhere. We all know and read about the success of the IT industry in Bangalore, the shift of jobs from the UK to India, the huge disparities in levels and distribution of wealth. What else do we know? What do we know about the challenges ahead, not only for India itself, but for the Western world too? What do we know about the way Indian firms are managed? Or about the way they compete in the world economy? What do we know about the demographic challenge that will affect us all -which will be far more significant in shaping India and the rest of the world than the success of the IT industry in Bangalore?

The truth is we know very little about India, its firms and the specificities of its business and management practices.
Leeds University Business School, ranked third in Europe for the quality of its research in the latest FT rankings, sought to address the widening gap that exists between inches devoted to Indian success stories in our media and the state -and the quality of our knowledge.

Indian Overseas Investments

Indian firms have been investing abroad for a long time, but it is only in recent years that Indian FDI has become prominent. The United Nations identified two waves in the Indian foreign investment process, the first taking place in the 1970s and 1980s, and the second since 1992. The characteristics of these two waves are fundamentally different.

Throughout most of 1970s and 80s, Indian overseas investment took place mostly in the manufacturing industries -65% of these were in low- and mid-tech manufacturing industries- in countries with levels of development similar to, or lower than, those of India, and were motivated by access to larger markets, natural resources, and by the desire to escape government restrictions on firm growth in their home market.

More recently there has been a dramatic shift in the profile of Indian overseas investments. The share of manufacturing declined to 40% while the service industries now constitute the bulk of Indian foreign investments (60% of equity value). Western Europe and North America have become the main destinations, in particular the UK and the USA.

If Indian investments in the UK are not new, the means used to enter the UK market have changed dramatically over the past decade. The emergence of mergers and acquisitions (M&As) as a mode of internationalisation for Indian firms is what has attracted recent media interest. As many as 119 overseas acquisitions were made by Indian firms in 2002-2003, mostly in the software, pharmaceuticals and mining industries. The bulk of these M&As took place in the USA and the UK. Indian firms are increasingly using M&As to venture abroad to access markets, technologies, strategic assets and operational synergies.

Not all investments originate from large multinational firms (MNEs). Indeed overseas direct investment approvals by Indian small and medium-sized firms (SMEs) accounted for 26% of the cases of manufacturing activities and 41% in the software industry. Software SMEs contributed significantly to the stock of Indian investment abroad, whereas manufacturing investment by SMEs was small. SMEs in the software industry are disproportionately more internationationalised than SMEs in the rest of the economy, and this reflects the competitiveness of Indian SMEs in software activities. The software industry is skill-intensive and largely dependent upon foreign markets, and these characteristics have encouraged Indian SMEs to operate abroad.

The Shape of Indian Multinationals

The quasi-totality of Indian overseas investment in the manufacturing sector is made by large firms. Unlike in Western Europe and North America, large firms in emerging markets such as India are often conglomerates. While managers in the West have dismantled most conglomerates assembled in the 1960s and 1970s, the large, diversified business group remains the dominant form of entreprise in India and throughout most emerging markets.

In an article published in the Harvard Business Review some time ago, Tarun Khanna and Krishna Palepu attempted to identify how these Asian conglomerates created value in their home country. If Western firms have been advised for over a decade to follow the 'small is beautiful' mantra and focus on their core competencies, why are many successful Asian firms large diversified businesses? A significant share of Indian GDP is accounted for by a handful of very large, diversified businesses - some of which operate in as many as 50 unrelated business areas.

Khanna and Palepu pointed out that what we call 'emerging markets' usually fall short in providing the institutions necessary to support basic business operations. They argue that highly diversified business groups can be particularly well suited to the institutional context in most developing countries.

In product markets, buyers and sellers typically suffer from a severe dearth of information as a result of poor communications infrastructure, lack of reliable information and inefficiencies in legal systems. Although the number of mobile phones has been increasing at a rate of 1 million every month in India over the past few years, vast stretches of India remain without telephones. Power shortages often render the modes of communication that do exist ineffective. Then, even when information about products does get around, there are no mechanisms to corroborate claims made by sellers. Independent consumer-information organisations are rare, and government watchdog agencies are of little use. The few analysts who rate products are generally less sophisticated than their counterparts in advanced economies.
Finally, consumers have no redress mechanisms if a product does not deliver on its promises. Law enforcement is often capricious and incredibly slow.

Because information is not available or is of little use when it does exist, firms in emerging markets tend to face much higher costs in building credible brands than their counterparts in advanced markets. In turn established brands wield tremendous power. A conglomerate with a reputation for quality products and services would use its group name to enter new businesses, even if those businesses were completely unrelated to its current lines. Groups also have an advantage when they try to build up a brand because they can spead the cost of maintaining it across multiple lines of business. Such groups then have a greater incentive not to damage brand quality in any one business, because this will undoubtedly affect their reputation in their other businesses as well.

Lack of reliable information in capital markets means potential investors are unwilling to invest in unfamiliar ventures. Well developed instititutional mechanisms in the Western world minimize these problems. However, most of these are either absent or ineffective in emerging markets. Conglomerates can use their established record of providing returns to investors to access external capital markets.
They can also use their internally generated capital to help grow new activities or enter new businesses. Besides acting as venture capitalists, third-world multinationals also act as lenders to smaller existing members of the diversified group, that would otherwise be too small to secure access to capital if they were stand alone businesses.

The labour market of most emerging economies is characterised by a scarcity of well-trained and educated people. Developing human capital becomes a challenge in such a context, and this provides firms with an incentive to develop their own corporate training programmes, and spread the cost among businesses within the group. Firms can also bypass the rigidities of labour markets in most emerging countries by developing their own internal labour market. This provides the firm with the flexibility that it needs to operate in what is often a challenging environment - employees can be transferred from one business to another within the same group when market conditions change - thus making best use of available talents.

Filling institutional voids is therefore the key raison-d'etre of third world multinationals. Given the UK's increasing exposure to M&As from emerging countries' firms such as India's, appreciating the shape of third-world multinationals and understanding its drivers will no doubt be on top of the agenda in the boardrooms and the minds of CEOs of UK and European firms, that might find themselves considering a take-over offer from the likes of Tata and Reliance.

Nicolas Forsans is Director,
James E. Lynch India & South Asia Business Centre (ISABC), Centre for International Business, University of Leeds. He can be reached at


His Excellency Kamalesh Sharma, High Commissioner of India formally opened The University of Leeds' James E Lynch India & South Asia Business Centre

His Excellency Kamalesh Sharma, the Indian High Commissioner in the UK (picture, left) and Prof. Michael Arthur, Vice-Chancellor (picture, right) officially opened the University of Leeds’ James E. Lynch India and South Asia Business Centre (ISABC) on Wednesday the 22nd of March, 2006.

ISABC is the only research institute outside of India to concentrate specifically on international business and management issues relevant to India and South Asia.

At the welcome ceremony, the Indian High Commissioner spoke of a world in which long-standing values were shifting. The traditional east/west political split and the north/south wealth divide, he explained, were dissolving and it was countries such as India and China that were leading the way in radically transforming the balance.
The High Commissioner stated:

It is not a time to feel threatened by these developments – but a time to take advantage of them. The UK has traditionally been a favoured trading partner with Indians, and much can be made out of this special relationship.”

He continued:

Business Schools are well placed to disseminate this message out to companies and organisations within the UK. I am very excited by the opening of the James E. Lynch India and South Asia Business Centre Business. It’s a place where knowledge can be gathered, analysed, lodged and disseminated. Knowledge is a key human resource, and we need to create bridges, such as this one, to share that knowledge around. I offer my full support to the Centre.”

On the picture, from left to right: Prof. Andrew Lock, Dean of the Business School, Prof. Michael Arthur, Vice Chancellor of the University and His Excellency, Kamalesh Sharma, the Indian High Commissioner during the reception sponsored by UKTI.

ISABC is the only research institute outside of India to concentrate specifically on international business and management issues relevant to India and South Asia. ISABC, as part of Leeds University Business School, will:

- help the corporate world, government organisations, and academic institutions to increase their knowledge and understanding of international business and management issues related to India and South Asia.
- provide PhD and post-doctoral researchers with a state-of-the-art research-oriented environment that fosters academic excellence and innovation in research methodologies.
- provide a forum where knowledge and understanding of business, and business practices can be exchanged

In an area where there is so little existing research, and where the business opportunities are so big, it is certain that the mutual exchange of information, ideas and experience, will be profitable to all parties concerned.

To find out more, please read:

or contact Dr. Nicolas Forsans, Director,
The James E. Lynch India and South Asia Business Centre (ISABC), Leeds University Business School, Tel. +44(0)113 343 4497

Ms. Charlotte Johnson, Marketing and Communications Manager, Leeds University Business School, Tel. +44 (0)113 343 4648

Thursday, February 09, 2006


The Explosion of Consumerism in India...

... and how it affects India's large cities and the countryside: this is the topic of this week's BBC World Service documentary on the Psychology of Consumerism.

You can listen to Mike Embley's report here.

I will report on it as soon as I've managed to listen to it, so watch this space!

Thursday, February 02, 2006


The New World taking over the Old?

The story broke about a week ago, and made the headlines everyday since. Mittal Steel, owned by the 3rd wealthiest individual on the planet, launched a hostile bid for Arcelor, the European steel manufacturer. We all know the story - the steel industry is highly fragmented, which means the combined group, should the bid succeed would become market leader with a market share of about 10%.

Arcelor, created from the merger of Luxembourg's, France's and Spain's steel producers in 2002, is now headquartered in Luxembourg - the state of Luxembourg is Arcelor's single largest shareholder (with about 5% of the shares).

Given the hostile nature of the bid which took Arcelor's Board by surprise, the fact that the bid is un-welcomed does not come as a surprise. Arcelor's CEO and other Board members have unanimously rejected the approach, criticised the approach used (as one would expect) and who knows what will happen next. A war of words involving not only usual suspects -CEOs and members of the Board- but also politicians, secretary of States, prime Ministers, Heads of State, the European Commission -even Peter Mandelson had to get involved, although he unsurprisingly did not support the views of the Old Guard...

Arcelor is still looking for a defense strategy -a friendly take-over by Nippon Steel looks unlikely. Meanwhile, convincing individual shareholders and pension funds (who own 86% of the capital) not to sell their shares to Mittal and convincing whoever wants to listen that Mittal does not have an industrial project for Arcelor is high of the agenda. Hence a nice set of powerpoint slides created overnight by Arcelor to make the case against the bidcan be found here. Meanwhile, Mittal toured Europeand Heads of States and the medias. His arguments in favour of his approach can be found there.

Let's see what happens, but there are already a number of interesting issues here.

First, the story was reported as an Indian company taking over a European one; the "new world" taking over the "old world"... as the "new economy" was supposed to take over the "old economy" at the height of the telecom/internet bubble in the late 1990s. We know what happened with the latter -the hype created more hype which eventually ended in a dramatic way.

I am not saying the same will apply to India. India is an emerging power. True, india made fantastic progress over the past decade. True too, there is a lot of hype about India. The fact is India's success story has -mostly- been confined to the IT industry -which accounts for less than 10% of India's GDP-, and to a lesser extent to the services industry. The agriculture sector still accounts for a large share of India's GDP. India's second largest sector is the services industries, unlike China where manufacturing accounts for the bulk of China's GDP - making China the "factory of the world".

The very story of Mittal attempting to bid for Arcelor raises the issue of what makes an Indian firm. What makes BT a British firm? And is Vodafone, which operates in 25 countries a British firm? What makes Mittal Steel an Indian firm? True, Mittal is what you could call an Indian family-owned firm: owned by Lakshmi Mittal, of Indian origin, and his family -they own about 90% of the shares. Lakshmi's son is Mittal Steel's CFO, and so on. They built an empire by taking over their competitors. But the firm is headquartered and managed from London. Is Mittal Steel an Indian company? A global company? This is subject to debate. How's the firm managed? What management style prevails in Mittal's daily dealings with its subsidiaries worldwide? These questions can seriously under-play the "the new economy taking over the old one"-kind of argument.

The French were quick to teach Mittal a lesson or two -"this is not the way we do business over here", referring to the act of mounting a takeover bid without consulting/informing the Board of the target firm. Thierry Bretton, ex-CEO of France Telecom and France's Finance Secretary was happy touring the medias on Tuesday night, denouncing Mittal's lack of industrial vision and consideration of cultural dimensions (i.e. an Asian firm that has no plan to work out cultural issues involved in taking over a firm whose workforce is mainly European).

These arguments are probably complete rubbish. Arcelor's CEO is trying to save his job by arguying for the superiority of his own vision, and French politicians are merely trying to reassure the workforce -we'll stand up for your rights, Mittal will lay you off as he did in Eastern Europe, etc. 28% of Arcelor's workforce is located in France - a total of 30,000 people.

All this reminds me of the French government's attitude that followed rumours circulating on the stock market back in October allegedly involving Pepsi secretely mounting a (hostile) takeover bid for Danone, arguably a French success story on the global stage. What did the French government do? They announced the creation of a list of "strategic sectors" that would be closed to foreign ownership! We'll save your jobs, but because we are pretty bad at dealing with unemployment let's go for old-style protectionism! The rumours remained rumours - but the workforce was happy: the government stood up for their rights. The riots in the French suburbs diverted attention away from Danone, the stock market and the french government's promise to draw that list. Nevertheless, the list of "strategic" sectors was made public, quietly, very quietly, on New Year's Eve. It did not include Danone...

Any comment?


Consumerism in India

The BBC World Service broadcasts nearly everywhere in the world from Bush House in London, Washington and Asia. Over the ast couple of years, it has also been made available to those who pay for it: the UK taxpayer! It is a treat - it broadcasts in the UK on various digital platforms -and this includes DAB digital radio and live streams over the internet.

In a series of documentaries looking at the Psychology of Consumerism, Mike Embley -one of the most familiar faces of BBC World, the 24hour news and information TV channel- travels to India and reports on recent trends in consumerism in India.

The documentary is to be broadcast on February 6 at various times (see below) and over the next seven days on

I will upload the file and/or link to the broadcast next week.

Australasia: Sun 2206 rpt Mon 0306, 0806, 1506, Fri 2206, Sat 0406
East Asia: Mon 0306 rpt 0706, 1306, 1906, Sun 1506
South Asia: Mon 0506 rpt 0906, 1406, 1906 , Sun 0606
East Africa: Mon 0706 rpt 1306, Tue 0006, Sun 1306, Sun 2306
West Africa: Mon 0906 rpt 1406, Tue 0006, Sun 0906
Middle East: Mon 0806 rpt 1306, 1906, Tue 0106, Sun 1306, Mon 0006
Europe: Mon 0906 rpt 1306, 1906, Tue 0106, Sun 2206, Mon 0006
Americas: Mon 1406 rpt 2006, Tue 0106, 0606, Mon 0006

Picture courtesy of Associated Press (AP) - Indian customers stroll in one of the malls in Gurgaon, near south of New Delhi, India, Sept. 23, 2003. Here, in the malls of this once-quiet town south of New Delhi, is where India's exploding consumerism meets its growing prosperity - and where just about every Indian stereotype is crushed beneath an endless variety of stuff.

Thursday, January 26, 2006


"India Everywhere" v. "A Child of India's Streets"

India is a country of contrasts. The excellent International Herald Tribune has two articles today on India. The co-existence of these two articles in the same edition reminds the specialist, and the non-specialist alike of the extent of the contrast.

In the recently-revamped "Business" section, the IHT recently published a number of articles related to the big push India is making this year at the World Economic Forum (WEF) in Davos. The latest one is entitled "India mounts a charming offensive" and focuses on the "India Everywhere" campaign orchestrated by the India Brand Equity Foundation (IBEF), a subset of the federation of Indian Industries.

At a cost of $5million, this year's edition of the WEF sees a 150-person strong Indian delegation, including 3 top cabinet ministers and 41 CEOs -including those of Reliance, Infosys, etc. The key message is that India is open for business, despite the relative closeness of the indian economy. Only the day before the start of this year's WEF it was announced that FDI in single-brand retail would be allowed -although multiple-brand retailers such as Wall-Mart and Tesco will have to wait.

Questions arise as to whether the strength in the Indian economy can be sustained given poor infrastructures, social tensions and huge and damaging bureaucracy. More on these later.

In the same edition, another article published in the "Opinions" section of the paper reveals the other face of India. This is what strikes first-time visitors to Delhi or Mumbai. How to deal with it can be heart-breaking. The article is by Prathima Manohar, an architect and contributing writer to the Times of India.

Entitled "A Child of India's Streets", it is reproduced below.

I first saw the boy on the grimy floor of a vestibule in the local train, lounging among soiled wrappers and bills.

I moved past him, like most others, and sat down in a coveted window seat.
He started to thump his head against the dividing screen. I ignored the nuisance for a bit, but soon I had had enough. I marched up to him to demand that he cease the mindless noise.

At first, he was not quite sure how to react. Most people in the frantically paced city of Mumbai don't even acknowledge his existence. I asked him what he was doing alone so late.

"I come here everyday to ask people for money," he said.

"Where are your parents?" I asked.

"They're dead."

The boy's name was Wasim. He told me he was 6, but he didn't seem certain. As the train gathered speed, we bonded, though rather awkwardly. He spoke tenderly about his older brother and sister, whose ages he described by raising his hands high up in the air. He said he attended school in the suburbs and came to the city in the evening to find money for food. After a bout of animated discussion, there was a moment of silence. Then he started to spiritedly recite numbers from 1 to 10 to display the proficiency he had acquired in school.

"I will become very successful one day," he declared.

Before long, other passengers joined in the conversation. Wasim was now the center of attention, fielding questions from all directions. Without noticing it, we had managed to break the element of social exclusion that our aloof society imposes on kids like him. As we reached his station, he jumped out, excitedly waving to us.
I wasn't really saddened by the contact. Like most other people of the city, I have developed a sense of emotional distance from the intense poverty and destitution that I witness daily.

According to the UN High Commissioner for Human Rights, India has the highest number of street children in the world. There are no exact numbers, but conservative estimates suggest that about 18 million children live and labor in the streets of India's urban centers. Mumbai, Delhi and Calcutta each have an estimated street-children population of over 100,000.

The problem is apparent. Poverty-stricken children are all around, selling newspapers, books, food and flowers or begging for money and food. Many labor in shops or small hotels; many work as shoe shiners or car cleaners. Some take up rag picking, sifting through garbage, collecting and selling waste paper, plastic or scrap metal. A few become embroiled in organized crime or fall into the world of pickpocketing, stealing, drug trafficking and prostitution. They can be found in alleys, bus stops, railway stations, under bridges, in public places, mosques or temples. Lucky ones find shelter in shanty towns. They buy food from hawkers, beg for snacks or accept free meals from charitable organizations. They drink water from municipal taps or small roadside restaurants. Taking a bath is not a high priority. In Mumbai, it is often a quick dip in the sea. Physical, mental, sexual exploitation and drug abuse are an everyday reality. Street children are vulnerable to malnutrition, hunger and dreadful diseases, including AIDS.
A large proportion of the street children are boys, but girls are the more vulnerable. Many young girls end up at the mercy of pimps.

Many factors have contributed to the problem. They include migration caused by extreme rural poverty; children who run away from abuse; broken families or orphaned children; children rendered homeless due to natural calamities and toddlers who are abandoned because of poverty or unwelcome pregnancies. The children are naturally attracted to big cities. Mumbai is known as "the city of dreams," where Bollywood movies have created a myth around street children - the "Sadak Chaap," literally the "stamp of the streets" - who rise from rags to riches.

The reality is usually viciously different, but every dream - or conversation - carries a welcome bit of hope.

Revised 26/01/06

Tuesday, January 17, 2006


Watching Indian business and financial news in the UK

Given the increasing interest for India across the world, it comes as no surprise that one has been able to watch live television programmes from India on his TV set in the UK. The UK being home to a large Indian and South Asian diaspora, cable and satellite operators have been marketing Star News and other pan-Asian channels for the past ten years. The surge in interest on "Corporate India" over the past couple of years means things are changing on your little screen, as far as Indian business and financial news are concerned.

We've already reported the existence of a live free stream from CNBC-TV18. CNBC-TV18 is India's premier business and financial news station. You can watch it live at You can also access the stream by clicking on CNBC-TV18's logo on the left-hand side bar of this site. Essential viewing for anyone interested in daily Indian business, finance and politics.

For the past couple of days, a new India-based TV station has been made available on cable and satellite in the US and the UK. Available at no extra cost for any Telewest Digital TV subscriber, South Asia World broadcasts live from New Delhi and Mumbai. Owned by TV18 -who also owns and manages CNBC-TV18- it is mainly a news channel, although primarily targeted at the sizeable South Asian diaspora in the US and the UK.

In addition to its own news & current affairs programmes and documentaries, SAW also broadcasts live streams from CNBC-TV18 and the recently-launched, and highly criticised CNN-IBN (CNN's latest attempt to get a foot in India, years after its rival CNBC secured leadership in that part of the world). Unfortunately, no live stream is broadcast over the internet, although things may change.

South Asia World is launched by India World Network USA Inc. and has operational arrangements with Television Eighteen India Limited (TV18), a company founded by Raghav Bahl. TV18 runs and manages CNBC-TV18, India's leading business news channel. South Asia World promises to "draw from TV18's world-class production and broadcast experience. South Asia World covers politics, sports, entertainment, business and the arts."

South Asia World is available on Channel 820 in the London region of Telewest.

Monday, December 12, 2005


The Promotion of FDI and the Role of Policies in Attracting FDI

Still related to my previous post below - understanding the gap between China's and India's success in attracting FDI.

A related argument is that China does better in attracting FDI than India because of its attitudes, policies and procedures.

The Evidence

The World Bank Group carried out a survey of a sample of firms in China and India and found that, on average it takes 10 permits compared to 6 in India and 90 days in India compared to 30 in China to start up a new business. China is also thought to have more flexible labour laws, a better labour climate and better entry and exit procedures for business.

Wei mentions a survey by the Economist Intelligence Unit that indicates that China is more attractive than India in the macroeconomic environment, market opportunities and policy towards FDI. India scored better on the political environment, taxes and financing.

The A.T. Kearney survey revealed that in 2002, China came first as FDI destination in terms of investment plans of the MNEs surveyed, displacing the US for the very first time. India came 15th.

The Federation of Indian Chambers of Commerce (FICCI) 2003 survey suggested that China had a better FDI policy framework, market growth, consumer purchasing power, rate of return, labour laws and tax regime than India.

The contrast in the performance of China and India can also be related to the timing, progress and content of FDI liberalisation in the two countries and the development strategies pursued by them.

The Role of Policies

China opened its doors to FDI in 1979 and has been progressively liberalising its investment regime. India allowed FDI long before that but did not take comprehensive steps towards liberalisation until 1991 (Nagaraj 2003). Two distinct phases can be identified in India’s foreign trade and FDI regimes: the pre-1991 reforms phase, and the post-1991 phase. These are looked into in detail by Balasubramanyam et al., among others. Prior to 1991, the Indian government exercised a high degree of control over industrial activity by regulating and promoting much of economic activity. Licensing, import controls and reservations were three forms of protection that resulted in monopolies, leading to inefficiencies. FDI policy put severe restrictions on foreign direct investment. The policy framework specified industries in which both foreign financial and technical participation were allowed, those in which only technical collaboration was permitted, and those in which neither technical nor financial participation was allowed. India’s reputation for hostility towards FDI though is mostly due to the restrictions on equity participation and export obligations imposed during the 1970s. These restrictive policies resulted in a dramatic decrease in the number of collaboration agreements over the period 1967-79, and the proportion of agreements with foreign equity participation fell from 36% during the years 1959-1966 to 16% over the period 1967-1979 (Kumar, 1994).

The policy regime that pre-dates 1991 has had an impact on the distribution of FDI across economic sectors, away from plantations and minerals and into manufacturing industries which accounted for 85% of the total FDI stock. A substantial proportion of FDI in India has been located in the higher-end spectrum of industries and services, while most FDI in China has taken place in the lower-end of the spectrum, mostly in electronics, which relates to assembly operations. Some view India as being unique among developing countries in the sense that it has a very large share of its GDP in the mostly informal part of the services sector. In 1980, around 25% of its GDP originated from the services industry, against 49% in China-. The services industry contributed to 21% of the Chinese GDP, against 37% in India. In the following two decades, India saw the decline in the share of agriculture to be absorbed by services, not manufacturing industries as in China.

Therefore, the two countries attracted very different types of FDI and pursued different strategies for industrial development. As summarised by the United Nations (2004) India long followed an import-substitution policy and relied on domestic resource mobilization and domestic firms, encouraging FDI only in higher-technology activities. This contrasts with China’s strategy which, despite the imposition of joint venture requirements and restrictions on FDI in certain sectors, has favoured FDI, especially export-oriented FDI, rather than domestic firms (Buckley 2004). It is that policy that contributed to round-tripping through funds channelled by domestic Chinese firms into Hong Kong (China), reinvested in China to avoid regulatory restrictions or obtain privileges given to foreign investors. Buckley (2004) suggested that, because of domestic market imperfections associated with problems of outsourcing, regulations and local inputs, some FDI has been undertaken as a second best response by manufacturing MNCs to the Chinese environment.

In India, MNC participation in production has often taken externalized forms (such as licensing and other contractual arrangements) as a result of the restrictive trade and FDI policies implemented until the early 1990s. Even since, internalisation is not necessarily dominant as firms have been successful in outsourcing to private Indian firms.

The relaxation of controls over FDI constituted a significant element of the wide-ranging economic reforms introduced in 1991. The three main elements of the reform were the abolition of the licensing requirements governing domestic investments, a reduction in tariffs on imports and the relaxation of controls over FDI. Possibly as a result of the change in policy regime, FDI approvals increased from around Rs 10 billion (around $384 million) during the late 1980s to around Rs2.5 trillion ($3 billion) during the late 1990s. However, the volume of FDI relative to the size of the economy is still low, accounting for only 5% of gross domestic capital formation. The volume of FDI India has attracted shades into insignificance compared with the sizeable volume China has attracted in recent years. The United Nations (2003), in their latest World Investment report ranked India 120th (out of 140 countries) in terms of inward FDI performance index. China is ranked 59th.

Tuesday, December 06, 2005


Round-tripping in China and India

One attempt to account for the contrast in the performance of China v. India

This follows my
earlier post on the extent to which China has been more successful in attracting FDI than India. Such a contrast in performance
can be explained by a number of factors, some of which would include the role of the diasporas –far more business-oriented in China- and the timing and extent of liberalisation policies that were implemented in both countries.

Before touching upon these important issues, we first need to look at what makes official FDI statistics in both countries. And it is very much a case of comparing apples with pears!

Particular attention has been drawn to the double counting of investments coming out of China, through Hong Kong, and back into China, in search of tax breaks – money that is double-counted in FDI terms, in both Hong Kong and China, when in reality it is not strictly speaking ‘foreign’ at all. This phenomenon, known as “round tripping”, is explored in Wei’s paper. Round tripping can take many forms such as under-invoicing exports, over-invoicing imports, and overseas affiliates of Chinese companies borrowing funds or raising capital in the stock market and reinvesting them in China. Evidence of round tripping can be found in the destination of China’s FDI outflows. Chinese outflows to Hong Kong rose sharply in 1992 as did Hong Kong’s outflows into China! Hong Kong’s share of China’s FDI inflows has been declining since 1992. The decline continued after 1997 when Hong Kong was handed over to China. Meanwhile, inflows from overseas tax heavens such as the British Virgin Islands, Bermuda and Cayman Islands have been on the rise and make up for the declining contribution of Hong Kong. The 10 largest sources of FDI into China include Hong Kong, Virgin islands, Samoan and Cayman islands.

Wei mentions a number of studies, and it appears their magnitude varied considerably from 7% of total FDI inflows to 37%. The most recent estimate is from the World Bank, and they estimate that between 20 and 30% of FDI in China was due to round-tripping.

However, even after adjusting for round-tripping, China is still far ahead of India in FDI. In 2003, China’s FDI (inflows) were $40 billion. If 25% of that amount was down to round-tripping, China’s inflows still amounted to 10 times those for India.

Another element that distorts the figures is that round-tripping takes place in India too! Wei says that in terms of shares, FDI from Mauritius into India is like FDI from Hong Kong into China. Mauritius has been the dominant source of FDI inflows into India since 1995., In 2001-2002, Mauritius accounted for 60% of total FDI inflows into India.
It appears that most investments from Mauritius to India are affected through Mauritius Offshore Companies (MOCs) which are special purpose vehicles best suited to foreign investors wishing to utilize Mauritius as an investment platform benefiting from its network of double taxation treaties.

The Reserve Bank of India was reported to have found that the percentage of round tripping in total FDI inflows was “almost insignificant”. Wei suggests a percentage as low as 2 to 3% of FDI inflows.

What makes an FDI?
There are also more technical issues concerning what are and are not included in the FDI figures in India and China. The Economist says ‘many economists argue that its [China’s] growth figures overstate the truth by one or two percentage points’. The Economist also cites Srivastava, writing in the Economic and Political Weekly, offering a radical reinterpretation of the FDI figures. Technically, both Chinese and Indian FDI statistics are not comparable. This is because India’s definition of FDI does not include any of the 12 elements that make up for the IMF’s definition of FDI –with the exception of equity capital reported on the basis of issue/transfer of equity/preference shares to foreign direct investors.

The IMF definition of FDI includes equity capital, reinvested earnings of foreign companies, inter-company debt transactions, short-term and long-term loans, financial leasing, trade credits, grants, bonds, non-cash acquisition of equity, investment made by foreign venture capital investors, etc. India’s definition of FDI only comprises equity capital. China’s definition includes all 12 elements! UNCTAD’s statistics show that in 2000-2001, foreign affiliates’ reinvested earnings accounted for one third of all China’s inflows. China also classifies imported equipment as FDI while India captures these as imports in the trade data.

Efforts are taking place to align India’s definition of FDI with the IMF’s. Under the previous definition, India’s reported inflows amounted $2.57 billion in 2002-3, compared with $3.91 billion the year before. Under the revised norms, these figures are boosted to $4.66 billion in 2002-3, and $6.13 billion in 2001-2. These -more comparable- figures are still about one tenth of those reported in China. Whatever you do with the figures, important differences seem to remain. So we need to look elsewhere for proper explanations.

A third response is to try to explain the disparity in objective terms. Why is China growing faster than India? Why is China more attractive to foreign investors than India? Our earlier paper focused on these very questions. Forget the numbers, as the disparities remain whatever the way you look at the India v. China comparison. These questions provide fruitful grounds for discussion, and have been extensively discussed by Balasubramanyam and Mahambare (2003). These will be discussed next.

Wednesday, November 30, 2005


Contrasting the performance of China and India in terms of FDI Attractiveness

An interesting article by Wei recently published in the Journal of Asian Economics that will keep me busy for a few days.

The question under investigation focuses on explanations for the idea that India has lagged behind China in terms of FDI attractiveness. The research is closely related to our very first attempt to compare and contrast India’s performance in terms of foreign direct investment (London Business School’s India Business Forum, 2004). In many ways, Wei’s paper provides with the statistical justification for the evidence that India has not fared as well as China has, and goes beyond the facts by attempting to identify the determinants fot the gap in the performance.

General economic performance
First, Wei notes that both countries have enjoyed sustained economic growth since the 1980s. However the gap between the two countries widened considerably. China’s GDP in 1980 was roughly the same as India’s. By 2002, China’s was 2.5 times larger.
In terms of GDP per capita, China fared worse than India in 1980. By 2002, China’s was twice as large as India’s. And the story goes on.

FDI Attractiveness
What’s more phenomenal, the author notes, is the difference in their FDI performance.
Official statistics show that that China reported FDI net inflows of $52.7 billion in 2002, from £0.4billion in 1980. India’s official statistics reveal an increase over the same period to $2.6 billion, from £0.07 billion in 1980.

Whatever way we look at FDI, the story remains the same – in terms of annual inflows relative to GDP and gross capital formation, rankings in UNCTAD’s FDI Performance Index, rankings in A.T. Kearney’s FDI Confidence Index.

GDP and gross capital formation
Since the early 1990s, annual FDI inflows into China represented at least 3.6% of its GDP, and 10% of its gross capital formation. India’s figures never exceeded 1% and 4% respectively.

In the FDI performance Index, measured as the ratio of a country’s share in global FDI flows to its share in global GDP, China ranked 54th and India 122nd in 1999-2001.
The survey of executives at the 1000 largest MNEs responsible for 70% of FDI flows ranked China 1st in 2002 and 2003, while India ranked 15th in 2002 and 6th in 2003.

UNCTAD’s World Investment Report, FDI helped drive economic growth in China. In 1989, foreign affiliates accounted for less than 9% of total Chinese exports, and their contribution had increased to 50% by 2002. In high-tech industries, the share of foreign affiliates in total exports was as high as 91% in electronic circuits and 96% in mobile phones. About two thirds of FDI flows to China went into manufacturing in 2000-2001.

In India, by contrast, FDI has been less important in driving export growth except in IT. A previous study by Sharma revealed that FDI “appeared to have statistically no significant impact on export performance although its coefficient had a positive sign”.
FDI in Indian manufacturing industries has been and remains domestic market-seeking FDI. As a result, FDI accounted for only 3% of India’s exports in the early 1990s. Even today, it is estimated to account for less than 10% of India’s manufacturing exports.
In China, FDI tends to target a broad range of manufacturing industries. In India, most of it goes to services, electronic and computer industries.

What does it mean? The fact that a large share of China’s exports is accounted for by local affiliates of multinationals probably means that China does not have many home-grown multinationals, capable of competing successfully in world markets. India, by contrast, has been successful in creating local firms with strong ownership advantages. By exporting their ownership advantages, Indian firms compete successfully in world markets where internalisation and location advantages can be sought. More will follow soon.

Tuesday, November 29, 2005



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