ndia is a country with tremendous economic potential and can be an attractive place for Canadian companies to do business. Before the pandemic threw world trade into disarray, our goods exports to the country by 2019 had been rising steadily for five years. Even in 2020, despite the effects of COVID-19, India remained our ninth-largest export market and 10th-largest trading partner overall.
In this blog post, we’ll examine:
- India’s economic environment
- The India-Canada trade relationship
- Key opportunity sectors in India
- Challenges for operating in India
- Top tips for doing business in India
- Where to get help
India’s economic environment
India began a long-term economic liberalization process in 1991. Since then, successive governments have deregulated industry, reduced tariffs, cut domestic taxes and simplified international investment. The result has been steady growth—with occasional setbacks—that has created one of the world’s largest economies.
As with many large and populous nations, there’s no single “Indian market.” Instead, the country contains many different marketplaces, each distinguished by factors such as religion, geography, language, ethnic group, income bracket, social status, occupation and political persuasion. These markets are highly competitive and price-sensitive, and most local companies are well-managed, aggressive and very capable of competing with foreign businesses.
The India-Canada economic relationship
India is a priority market for both Export Development Canada (EDC) and the Canadian government, and more and more Canadian companies are finding customers and partners in India.
In 2019, we shipped goods worth $4.8 billion to the country. This declined to $3.7 billion in 2020, owing mainly to the effects of a countrywide lockdown imposed because of the pandemic. It’s expected the goods exports recovery will take place over the next year. As for India-Canada bilateral trade, it reached a high of $10.1 billion in 2019 before falling back to $8.62 billion in 2020, again because of COVID-19. When the effects of the pandemic have passed, it’s highly likely that our two-way trade will rebound.
At the policy level, Canada and India are actively engaged in exploring next steps in negotiations toward a Comprehensive Economic Partnership Agreement and a Foreign Investment Promotion and Protection Agreement.
Key opportunity sectors in India
A number of industrial sectors offer good prospects for Canadian companies wanting to operate in India. These include:
- Artificial intelligence (AI) and digital services, including gaming and the “internet of things” (IOT).
- Cleantech, focusing on water treatment and the control of vehicular and industrial emissions.
- Renewable energy, including wind, solar and hydroelectric.
- E-commerce and retail, with growth substantially driven by a widespread shift to online shopping. (Example: The Amazon India online “Canada store” devoted to Canadian brands.)
- Agricultural technologies, especially in the areas of farm mechanization, supply chain management and food processing.
- Electric vehicle ecosystems, including electric charging, battery storage technologies and EV drive motors.
- Health care, including high-end diagnostic services, medical devices and medical consumables.
- Advanced manufacturing, especially in the pharmaceutical, precision machining and robotics sectors.
- Skills development in various trades skills.
Undoubtedly, the after-effects of the pandemic will be more pronounced in some sectors than in others. The post-pandemic construction industry, for example, will continue using the same inputs it did before the pandemic. Consequently, not much is likely to change in that sector.
But in areas, like health care, companies are increasingly adopting technologies such as video conferencing and virtual teams. This gives Canadian businesses an opportunity since our firms have developed highly efficient and cost-effective ways to deliver solutions to remote areas. Our expertise in this subsector dovetails neatly with the needs of the Indian market.
On the retail side, the pandemic has changed the buying habits of a significant part of India’s population. These consumers now prefer to shop for goods such as electronics, clothing, groceries and medicines on e-platforms rather than in brick-and-mortar stores. This shift can allow Canadian companies to sell directly online instead of investing heavily in an on-the-ground business presence in local Indian markets.
For Canadian companies doing business in India or thinking of setting up shop, worth noting is the production linked incentive (PLI) introduced by the Government of India in November 2020. This program aims to give companies incentives on incremental sales (over the fiscal year 2019-2020) from products manufactured in Indian locations. The incentive structure ranges between 4% and 7% for different categories and years. The 10 sectors presently covered by the scheme include pharmaceuticals, automobiles and auto components, telecom and networking products, advanced chemistry cell battery, textiles, food products, solar modules, white goods and specialty steel. As an example and for more information on Invest India and the PLI for electronics manufacturing, click here.
Challenges for doing business in India
Like any market, India presents a range of challenges for both exporters and investors. The major ones include:
You’ll be up against deeply entrenched competition from both local and overseas businesses. Indian companies and consumers are also extremely price-sensitive. Consequently, your profit margins may be paper thin, even if you reduce costs by setting up operations in India. So, a key challenge here is whether you can sell your products at a price that Indian consumers or businesses are willing to pay.
- Unpredictable and opaque regulatory regimes
Regulatory and tariff regimes can change arbitrarily and with little notice (India has a higher tariff regime as compared to some of the traditional export markets for Canadian businesses), depending on shifts in government policy. Rules and procedures may lack transparency, making it potentially difficult to navigate customs clearances, permits and visas.
- Absence of a Canadian industrial ecosystem
There’s no Canadian industrial ecosystem within the Indian economy that will pull related Canadian businesses into the country. Developed Asian economies have in contrast been immensely successful in building an ecosystem of interconnected players, especially in India’s automotive and industrial engineering sectors.
- Undeveloped infrastructure
The country’s inadequately developed infrastructure can present other challenges. India is urbanizing rapidly and is straining to create and upgrade the roads, railroads, ports, airports, power grids, and telecommunications systems that can sustain a modern economy. If you’re going to operate in India, you’ll need to adjust to these realities.
- A different business culture
Indians place great importance on personal relationships, and this extends to business dealings in a way that isn’t common in Canada. Establishing a personal side to your business relationship is part of building mutual trust and without that trust, it will be much harder to negotiate and close a sale. Without a knowledgeable guide, a Canadian company new to the Indian market may struggle to make inroads. This is why local partners can be so important, especially at the market-entry stage.
Using local partners—or not
Working with Indian partners can often help Canadian companies deal with the challenges presented by the country’s markets. They can:
- Identify and hire local talent as a “front-end” for business development and for interacting with local business and government entities.
- Help you navigate the culture and develop strategies that will work in India to reduce the time needed to establish yourself in the market.
- Help you work with Indian companies, which prefer to do business with companies that have a local presence or strong local ties to ensure continued post-sales support.
You may also consider partnering with strong, credit-worthy corporate groups (some of whom are EDC customers) to gain from their expertise as you enter the Indian market.
But there are some emerging sectors where you may not need an in-market presence to succeed. In areas such as AI, IOT and advanced manufacturing, for example, the product is often delivered remotely, and technology and price are the only product differentiators—the rest of the playing field is level for everyone. When that’s the case, you may be able to compete on equal terms in the Indian market without seeking an Indian partner.
Top tips for doing business in India
There are three P’s for doing business in India.
- Patience: It can take three to five years to go from your first market exploration to completing your first contract.
- Presence: India’s markets are relationship driven, so face-to-face meetings and having a local presence are vitally important.
- Price: Indian markets are highly price-sensitive, and while Canadian companies are known for providing quality products, they have a reputation for not being as price-conscious as they should be.
Where to get help
The Canadian Trade Commissioner Service (TCS) can help you determine whether your company has the potential to succeed in the Indian market, and find vetted business contacts and strategic partners for your export operations there. Once you’re doing business in India, the TCS can also assist you by providing solutions for a successful outcome in the Indian market.
EDC can use its relationships with Indian businesses and institutions to find opportunities that Canadian companies might otherwise overlook. We also provide many other financial and knowledge services for Canadian firms that want to do business in India and elsewhere. For more details, visit EDC’s Solutions pages.
Last but not least, being part of other India business networks helps to broader perspectives and build connections. For example, EDC is a member of the Indo Canada Business Chamber (ICBC) and the Canada India Business Council (CIBC); these associations help connect companies through introductions, networking events, business events and more. Canadian businesses may reach out to these organizations for guidance on their plans for doing business in India and also for in-market business promotions/networking events.
Worth noting is that the information in my column uses publicly available information and isn’t intended to provide specific advice and shouldn’t be relied on as such. No action or decisions should be taken without independent research and professional advice.