Issues in R&D JV in IndiaIndian partners think foreign companies withhold important knowledge and technology.Protection of intellectual property is an advantageIn India, IP is, on the whole, respected, and lawful rights are enforced. Major violators of IP rights are prosecuted. Our interviewees feel that India understands the value of IP and honors it by paying royalties or licensing fees, and they believe that this is an advantage India has over China.Developing India’s own R&D capabilitiesIndia’s ability to perform its own automotive R&D is perceived as a gap between India’s domestic companies and the international automotive companies they compete with, especially in the areas of powertrain and alternative fuels. Indian executives report that this gap is large and may take more than five years to overcome.The cost of running full-scale R&D programs is beyond the grasp of some Indian original equipment manufacturers (OEMs) and many suppliers. Also many Indian OEMs and suppliers have relied on their foreign partners for technology for so long that they have not developed their own competencies.Strengthening India’s supply baseIf India is to compete with established global manufacturers and suppliers on the world stage, then it needs to get on par with those competitors in terms of scale, quality, and delivery capability. Right now India is still catching up to the global multinationals.
Demystifying The Indian Tiger P.R. Ramash Deloitte India
Encouraging labour intensive, export driven manufacturing segments by formulating conducive Foreign investment policies.</li></ul>4<br />
List of pending reforms / legislation<br />5<br />
Stated intention to execute<br />“Fiscal prudence and disinvestment of public sector units, all these issues will be tackled by the Finance Minister in the Budget” Prime Minister Manmohan Singh<br />“The government would speed up its rural electrification programme under which it has brought electricity to over 61,000 villages against targeted 1.18 lakh” Power Minister Sushilkumar Shinde<br />“In the past, there has been enough planning. Now thoughts have to be transformed into action. In a few weeks, a new model will be found so that India can build the highest number of road kilometers. We have to see that all the outlays are utilized” KamalNath - Union Minister for Road Transport and Highways<br />“The issue of deregulation is being discussed and would be put up before cabinet for a decision” Petroleum & Natural Gas Minister Murli Deora<br />“India will intensify its global economic engagement in sync with the country's profile and the Government will take "every possible step" to give a fillip to the industry.” Commerce and Industry Minister Anand Sharma<br />“By the end of this year, process for auctioning 3G spectrum would be completed. Mobile Number Portability, which would allow users to switch operators without changing numbers will begin in October.” Communication & IT Minister A Raja<br />6<br />
Enabling institutional and regulatory environment
Progressive reform process </li></ul>“Indian economy is now ranked 12th largest in the world in terms of GDP……It is projected that it will be the 8th largest economy in the next 20 years with a GDP larger than that of Italy, France and Germany by 2025”<br />CII-AT Kearney ‘MNC Survey’:70% MNCs surveyed say “high likelihood” of making additional medium and long term investments in India <br />3 out of every 4 MNCs state performance in India ‘met’ or ‘exceeded’ expectations(Source: IBEF)<br />8<br />
StrengthsAdapting to Local Conditions<br />9<br />Workable solutions to investing in physical infrastructure<br />McDonald's: unique cold chain network ensures food products move from farms to fork absolutely fresh and at the lowest possible cost<br /> Reverse osmosis water treatment plant in every restaurant to provide pure water<br />Developing processes and allocating resources for clearances and approvals<br />(Source: IBEF)<br />
StrengthsAbility to Leverage Opportunities In India<br />10<br />Opportunity<br />Suzuki: India remained the only major market to grow and saw first half sales moving up by as much as 24% at 4.7 lakh units (Oct 2009)<br />ABB: Parent sales growth 11 per cent while in India subsidiary grew by 15 per cent (FY 2008) <br />Using Indian operations to boost global revenues<br />Colgate: worldwide sales rose by 4.5 per cent, subsidiary in India recorded 26 per cent growth<br />
StrengthsUtilising In-born Strengths<br />11<br />Well- trained sales force<br />Pfizer: Sales force automation tool ‘Optima’ implemented across entire sales<br />organisation to plan customer contacts and implement marketing programmes <br />‘Leaders Academy’- comprehensive management development programme<br />Novartis: Dedicated sales force for targeting disease segments more prevalent<br />Corporate Social Responsibility<br />Novartis: Joint Effort to Eradicate Tuberculosis, “Glivec International Patient Assistance<br />Programme,” Comprehensive Leprosy Care Programme<br />Leveraging brand strengths<br />Pfizer: Corex and Becosules are leaders in respective segments <br />Customer care initiatives<br />Volvo: Provides driver training, preventive maintenance and service agreements<br />Works closely with customers to improve vehicle utilisation and returns<br />(Source: IBEF)<br />
StrengthsUtilising In-born Strengths<br />12<br />Launching high quality, best in design, technology rich products <br />Volvo: FM range of trucks launched recently in<br /> India are already Euro III compliant <br />Quality conscious<br />Whirlpool India: initiated Six-Sigma program in 1999<br />Initiative extended from sales and marketing to customer focus<br />Innovative promotion and advertising initiatives<br />Pfizer: OTC segment brand-building supported by good ads. <br />Campaign for Gelusil tablets won award for Creative Excellence at 36th ABBY<br />Creation of effective distribution network/dealer network<br />Novartis: Process of expanding business into new markets. <br />Planning to enter Tier-II and Tier-III cities and rural markets<br />Wide product portfolio<br />Whirlpool India: Shift in strategy from premium-player to a mass-player. Has introduced products in all price categories<br />(Source: IBEF)<br />
However threats remain…Infrastructure<br />India's infrastructure need in next few years is estimated at over US$ 340 billion<br />Power: Total investment opportunity of about<br />US$ 150 billion to generate an additional<br />78,000 MW in the next five years <br />Road infrastructure: To develop 8,737 km of <br />highways<br />Urban infrastructure: Expected spend of <br />US$ 50 bn over next 5 years<br />Ports: Need of US$ 12.4billion in major ports<br />in the next 9 years<br />(Source: Deloitte Report on Infrastructure Opportunities in India)<br />14<br />
Threats…Operational Issues<br />15<br />Time Delays<br />Delays in project implementation for Mittal Steel in Jharkhand <br />Delays in providing Posco a mining license <br />(Source: World Bank, ISI Emerging Markets)<br />
Threats …Operational Issues<br />16<br />Red Tapism<br />(Source: World Bank, http://dipp.nic.in/invindia/appclea.htm)<br />
Threats…Regulatory Issues<br />17<br />India: Industrial Disputes Act (IDA), 1947: requires firm employing more than 100 workers to get state government permission before retrenching workers<br />45 laws at national level and close to four times that at state government level to monitor functioning of labour markets<br />Labour Laws<br />(Source: BBC)<br />World Bank: India Rigidity of Hiring and Firing Rank: 48. China: 30, Korea: 34, Norway: 30, Singapore: close to 0<br />In 2004, 482 cases of major work stoppages in India, for China is close to zero <br />(Source: World Bank)<br />
Success of JVs in India<br />Global companies are attracted to India because of its skilled workforce, its low wages, and its growing domestic market. Many have sought to navigate with the help of a local partner<br /><ul><li>Manufacturing, purchasing, and product adaptation are considered the most successful JV collaboration areas
The major problem area seems to be in research and development (R&D).
For JVs to work well, there needs to be equality in the relationship
Protection of intellectual property is an advantage in India</li></ul>Source: IBM Inside India Study Survey 2007<br />Today, companies seem satisfied with how the JV collaborations are progressing<br /><ul><li>Indian partners have realized the inherent conflicts of JVs
A thorough research goes in identifying the right partner</li></ul>22<br />
Exchange control regulations<br /><ul><li>FDI up to 100 percent permitted under automatic route in most sectors subject to some exclusions, sectoral caps, conditions (e.g. retail, defence, telecom)
Import of components is allowed without any restrictions
Payment for Brand name/ trade mark royalty subject to:
Without technology transfer – up to 1% of domestic sales & 2% of exports
With technology transfer – up to 5% of domestic sales & 8% of exports
Lump sum payment on account of foreign technology collaboration up to USD 2 million under automatic route</li></ul>24<br />
Intellectual property rights<br /><ul><li>India has a well-established statutory, administrative and judicial framework to safeguard Intellectual Property rights
India is a signatory to, and compliant with, the Agreement on Trade Related Intellectual Property Rights.
Well-known international trademarks have been protected in India
Major Indian laws governing protection of Intellectual Property rights
Funding options<br />27<br />Apart from the above, local borrowing by the Indian company is also an option. This may be done either by securing local assets or under a parent company guarantee. However, the rate of interest under the local borrowings tends to be higher than the rate of interest on an ECB.<br />
WHT and Service tax implications<br /><ul><li>Intellectual Property Rights
150% deduction for all capital & revenue expenditure (excluding Land & Building)</li></ul>Note:Eligibility conditions ,as set out under Income Tax Act ,are required to be complied with to claim the above benefits<br />30<br />
How does India figure?<br /><ul><li>Highly educated workforce:</li></ul>English is lingua franca<br />We even have a God for education!<br /><ul><li>High savings – Natural thriftiness. A value for money proposition always finds success
Entrepreneurial talent:</li></ul>A nation of shopkeepers and businessmen<br />Increasingly Indian operations a source for the global talent pool<br /><ul><li>Rule of Law – The judiciary seen as the bedrock of our democracy. Stable Government.
Large domestic market </li></ul>31<br />Advantage India <br />
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