Getting to know India.
Both India and Taiwan have long looked West and consequently their gazes have seldom met. Recently however, the yin and the yang of the IT industry--software and hardware--have readjusted their lines of sight and locked in on one another to unite their complementary strengths.
D-Link, a Taiwanese manufacturer of network and telecommunications hardware, has long been in this pan-Asian embrace. The company entered the Indian market in 1993 selling products through a local distributor. Two years later, the two companies pooled their capital to form D-Link India. "Our Indian partner allowed us better access to local resources so we decided to work together," says Lilian Tseng, senior director of D-Link's international division. Good connections in the local market, strong infrastructure such as factories and distribution channels all contributed to D-Link's decision.
D-Link India now has 17 branch offices and 21 regional distributors across the subcontinent, plus three plants in Goa on the southwestern coast. In 2001, the company was listed on the Bombay Stock Exchange and became the first Taiwanese-Indian joint venture to go public. Today, D-Link India is one of the few Taiwanese investments with a solid foothold in India and has emerged as one of the top three network hardware vendors.
In order to broaden its product range, D-Link India joined up with Giga-Byte Technology, a Taiwanese motherboard manufacturer. This union led to the birth of Giga-Link, a joint venture that has done extremely well on the back of D-Link India's solid infrastructure and distribution network. Today Giga-Link is the No. 2 brand in the Indian motherboard market with 26 percent of market share.
Subodh Kulkarni, a software entrepreneur, saw the potential synergy between Mercuries Data Systems (MDS)--a Taiwanese designer of automated banking systems--and D-Link. He led them to launch M-Link in 2004. The company, financed by MDS and D-Link India, utilizes the latter's infrastructure to manufacture money-counting and automatic teller machines.
These international successes have been abetted by Taiwan-based China Airlines cargo flights between Taipei and New Delhi since 1999 and passenger flights since 2002. With passenger flights almost completely full, the airline is about to increase their frequency. Statistics on the relationship between the two countries have been available since 1995's watershed agreement to set up representative offices in each other's countries. The India-Taipei Association issued a record 22,000 visas in 2004, up from around 16,500 the previous year, while the Taipei Economic and Cultural Center in New Delhi issued 11,000 visas for Taiwan.
Y.S. Rajan, principal advisor to the Confederation of Indian Industry, a policy-focused nongovernmental organization, wants to change Taiwanese people's preconceptions about India by letting them know of the fundamental changes taking place there. He cites the landmark economic reforms of 1991 put in place by then finance and now prime minister, Dr. Manmohan Singh, the burgeoning middle class and the massive reduction in the number of people living below the poverty line. A growing interest in understanding modern India will lead to a more balanced view of his country.
"I hope Taiwanese first travel here as tourists and then as investors," says Kiran Karnik, president of the National Association of Software and Service Companies, or NASSCOM. Taiwanese do appear to be seeing beyond the slums of Mumbai, the Taj Mahal and the ubiquitous throng of people. The trade volume between Taiwan and India has grown rapidly, reaching US$1.93 billion in 2004, with Taiwan enjoying a surplus of US$209 million. While India is ranked as Taiwan's 26th largest trading partner, in Asia it only trails Laos and China in terms of growth. The trade is basically characterized by raw materials and commodities going east to Taiwan and electronics and machinery going west to India.
As an investment destination, the Indian government approved Taiwanese investments worth US$111.8 million between August 1991 and December 2004, accounting for less than 0.3 percent of all Taiwan investments abroad during the period. Taiwan businesses are still taking a cautious stance when considering investment in India. Approved Indian investment in Taiwan during the same period is even more cautious at less than US$6 million.
"If you want to grow, you can't be absent from major international markets, especially those with potential," says Peter Liu, director of the international banking division at Chinatrust Commercial Bank. This major Taiwanese bank established a branch in New Delhi in 1996. To this day it is the only Taiwanese financial institution in the country.
But Chinatrust is prepared to wait for bigger opportunities in the future. Liu confidently expects India to attract more Taiwanese businesses, from which the New Delhi branch derives just 15 percent of its current revenue. "In Taiwan, we provide information on investments in India to potential clients. If they come to India, they'll naturally look to us for help," he says.
Statistics seem to support Chinatrust's long-term optimism. According to the 2004 Foreign Direct Investment (FDI) Confidence Index released by A.T. Kearney, a management consultancy firm, India has become the third most attractive FDI destination after China and the United States, up from sixth place in 2003. Not unaware of this trend, the Taiwanese government signed an agreement on promoting and protecting investment with India in 2002.
Growing interest in India also has much in common with the government's stance on investment diversification, as set out by Ho Mei-yueh when she took office as head of the Ministry of Economic Affairs (MOEA) in May 2004. To ease potential problems of over-reliance on investment in China, which accounts for more than 50 percent of Taiwan's overseas investment, Ho has made the strengthening of links with Eastern Europe and India central to the ministry's policy.
In response to the favorable atmosphere, last year around 40 groups organized by government agencies and commercial associations visited India looking for business opportunities. Some participated in trade shows, while others talked with Indian government officials and local enterprises about potential cooperation. "Business tours prepare Taiwanese business men for future exploration of India," says China Airlines' Li Yung-chun, who has served as director of the Taiwan Chamber of Commerce in India since its inception in 2003.
Such preparation is key to success in the subcontinent. "I've seen so many small and medium businesses (SMEs) come here unprepared, with little knowledge of the culture, customs and consumer behavior in this country, which is vastly different from those of Taiwan," he says. "They thought that they could make a fortune if even a small fraction of the population bought their products." Lack of capital to adapt strategies, plans and products to local needs has led to loss.
Failure to understand Indian consumers' tastes and expectations is not uncommon. "India is a very price-conscious market, while people here also want the latest technology," says Sandeep Viswanathan, investor relations manager at D-Link India.
There is no shortcut to success. "You have to invest in exploring the market and build your brand without expecting any return in at least the first five years," says Andrew Kao, representative of the Taipei Economic and Cultural Center in New Delhi. He says Taiwanese companies should look to their Korean counterparts, the eighth largest investors in India. Today Samsung and LG have already become household names throughout India. Kao thinks that inexpensive prices are one reason for their success, but sees their commitment to long-term investment as equally significant.
The attention India receives from international businesses owes much to its software sector. With a workforce of nearly 1 million in this field, India is now the second largest exporter of software in the world after the United States. Many software developers have worked abroad, like Kulkarni who worked in Silicon Valley for three years before coming home in 2002.
Taiwan started tapping Indian talent in 2000, according to Stanley Wang, deputy general director of the Public Affairs Office at the Institute for Information Industry (III). These days hundreds of Indian software engineers are working on the island or for Taiwanese companies on the subcontinent. "Indian engineers receive solid training in school and pay attention to detail," D-Link's Tseng says. "They have the advantage of being able to speak English, which is especially necessary when we conduct global projects."
But Wang sees a different set of criteria. "The real reason for the trend is the serious shortage of human resources that Taiwan suffers, not because Taiwanese software engineers are more expensive or poor in quality," Wang says. He has been to India more than 10 times since 2001 acting as a bridge between Taiwanese companies eager to enhance software capabilities and the Indian software sector.
A corporate body partially financed by the government, the III now has India high on its priority list when seeking support for Taiwan's IT industry. To further take advantage of the Indian labor force, it is planning to set up a software R&D center in Chennai by the end of this year.
D-Link India has already set up three software R&D centers, the biggest in Bangalore, a Southern Indian city thriving on the software business. BenQ Corp., a Taiwanese electronics and telecommunications manufacturer, increased its 2004 revenue four-fold from 2003 and is thinking of expanding its existing mobile software integration R&D center in Mumbai.
Apart from the electronics industry, Taiwan's strengths in food processing could reap great rewards in India according to Y.S. Rajan. "In India 30 percent of fruit goes wasted because we don't have adequate processing facilities," he says. Potential for growth in the industry is huge, especially considering Indians' changing eating habits fueled by an increasing preference for instant foods and fresh juice.
The MOEA has also determined the textile, construction and motor parts industries as worthy investments. India produces more than 1 million cars and around 5 million motorcycles annually. Demand for car and motorcycle parts is increasing at a breakneck speed, and thanks to its geographical position, India is expected to become a hub exporting these products to Africa, Europe and the Middle East.
With its abundant range of investment opportunities, India also boasts the advantages of the firm rule of law and an even cheaper labor force than China's. But unlike Taiwan's preferred investment location, important challenges still remain, particularly infrastructure. Indian roads are poor in quality and power supply erratic. These factors impinge on the manufacturing sector which thrives on efficient productivity.
Employee management also poses a challenge to Taiwanese investors. "No matter how experienced you are in doing business in other places, you'll need advice because India is just so different," says Lin Jin-guo, managing director of Yang Ming Marine Transport Corp., India. He says Indian employees stand up for their rights, so labor unions are quite powerful while worker efficiency is not high. This may not be what managers are used to in nations less democratic than India, but they will have to get used to it.
India is changing in ways similar to Taiwan's experience over the past 30 years, in ways too dramatic to be ignored. The success of Taiwanese companies that have prepared for and persevered in India attests to the depth of this change. Adapting and adjusting, the two nations are united in engaging each other, one looking East and the other West.