PATIENCE & PROSPERITY: TRADING WITH INDIA

Written on the 14 May 2010

PATIENCE & PROSPERITY: TRADING WITH INDIA

With a rapidly rising middle class and a need for mining expertise, India’s cashed-up businesses are looking for international partners to bolster growth. Brisbane Business News speaks with companies from completely different fields, as they discuss patience and prosperity when dealing with Australia’s $22 billion trade partner.

WHEN people talk about Indian ‘profits’ they often use a different spelling, but Buddha’s line that ‘a jug fills drop by drop’ seems all too true for its business world, where patience is the key to success.

Austrade lists 54 Queensland-based companies operating in the country, while its Chennai-based trade commissioner for India, Aminur Rahman (pictured), points to a resilient growth rate that presents a diverse range of opportunities.

“India is one of the fastest growing markets globally and it didn’t get as affected by the financial crisis,” he says.

“It’s growth rate fell down to just over 6 per cent, they’re projecting 7.2 per cent this year and next year around 8.5 per cent.”

He highlights the fact that 80 per cent of Australia’s exports to India are in resources, but as the middle class grows the range of products is widening, especially from the top end.

“From services to education, financial services to sport and energy, you’ve also got advanced manufacturing, ICT, agribusiness, food and construction. But if a company wants to access the Indian market they need to think long term,” warns Rahman.

Several publicly-listed Brisbane players have come on the scene in India. Arrow Energy, Ludowici and Flight Centre are a few, but there are many other companies that are quietly making their fortunes in the world’s second most populous country.

Salva Resources

Salva Resources’ Kolkata office is a far cry from its Eagle Street headquarters, but since 2007 this is where the mining services company has been building the jewel in its crown.

CEO Grant Moyle says nothing will ever pan out the way you expect it to in India, but Salva is aiming for 100 per cent per annum growth over the next five years.

“With the wealth in India and the growth at the moment, we’re seeing growth in infrastructure development that is far outstripping what they can manage domestically,” he says.

“In India you have a lot of steel and cement production and they’ve realised quickly that they need to mine their own raw materials to be more efficient, but they don’t have the expertise – interestingly, they don’t really have any major coal companies.”

To fill this gap Salva Resources provides technical, financial and strategic expertise in the mining and infrastructure industry, with plans to open a new office in Delhi or Mumbai within 12 months.

“Starting an office is very different from state to state, but in Kolkata to set up an office there’s very high rent comparative to the high-end Brisbane rent – people have very little trust for fulfilling contracts or payments,” says Moyle.

“So they like to see upfront payments, which can be a bond of two years’ rent in some cases, but India is a negotiating country though so never accept the first price. At the moment India for us is without a doubt for the long term going to make up the majority of our company – now it’s not but it’s still a big proportion of revenue.”

When Salva stepped into India it went ‘guns blazing’ but Moyle soon realised that everything takes longer there, basing himself in Kolkata for a year to establish the business.

“You have to remember that timeliness and delays in India are much greater than what you expect, so to succeed you have to be flexible,” he says.

Salva has 40 staff in its Indian office, with total staff of 80 including its Brisbane, Singapore and Indonesian offices.

“We don’t stop growing. It’s ridiculous.”

Games building wealth

With the Commonwealth Games bound for Delhi in October, Carole Park’s Rebound Ace Sports has won a $500,000 contract to surface 23 tennis courts for the competition.

Business development director Meredith Gray says the contract adds to 500 courts throughout the country, including tennis, basketball and multipurpose surfaces.

“We’ve always got things happening, with some major ones including the National Games in Kerala, and hopefully with the Delhi Development Authority, restoring old courts,” she says.

“Disposable incomes of the middle class are getting higher and I can’t see that changing, but India has always been a very price-conscious market and they’ll go for budget rather than top of the line, but that’s changing too.

“A lot of government and defence organisations are specifically looking for cushioned courts, which is good because it prevents injuries and avoids strained ligaments.”

But while Gray is confident of future growth, she always keeps an eye on the political situation.

“There have been a few terrorist attacks in India and Pakistan and we’re always conscious that if that happens then obviously some projects may not be able to go ahead.”

Good local knowledge is paramount in India, so Rebound is involved in a joint venture with Indian financiers under the name Rebound Ace India, while the Australian arm holds the IP rights.

Another company set to benefit from the Games is Taiyo Membrane Corporation, which recorded $20 million in revenue last year.

CEO Bernie Neylan says much of the revenue comes off the back of contracts to build fabric rooves for stadiums, growing from a $2 million annual revenue in 2008 when Taiyo opened an office in Delhi.

“But you can only build a stadium roof once, however you can keep building airports and schools,” he says.

“We’ve seen all major airports upgraded and what they need to do is create new space – our product of a fabric roof is perfect as they can go up quite quickly or you can put up a temporary one.

“We’re seeing educational facilities grow in India which is another factor helping us, and the Indian Premier League (IPL) has a lot of activity for its stadiums.”

After a Commonwealth Games-related boom Neylan expects a steady annual revenue of $10 million from now on in India, which is necessary due to the high costs of projects.

“To be at a volume of $3 million or $4 million would be of no use to us as we really need to be at higher volumes for it to be worthwhile – we’re at the high end of the market.”

The Aromas of India

For some it can take a long time to build contacts, but for Aromas Tea and Coffee Merchants the opportunities arrived on its doorstep.

Co-director Steve Skarparis would never have considered opening up his franchise in India before Ideal Roads made a joint venture proposition.

“They were a large road company looking to expand their business and channel other avenues for revenue, so they looked at us and thought we were a good fit,” he says.

“We get a small percentage from the franchise licence, but it’s given to us in gratis because of our name, and Aromas coffee comes from Australia so we have a supply agreement too.”

He says with five stores in India, as well as three more underway, Ideal Roads is aiming to put out 200 stores in the next five years.

“It’s a small percentage but for the long term it could be significant, so we’ll wait and see. As we continue to grow in India we’re looking at building a roastery there to avoid import duties, definitely in the next 12 months.”

The honey pot

Capilano Honey export manager Peter McDonald says it isn’t easy to enter the market of one of the largest honey producers in the world, but cites a growing demand for imported products as the driving motive.

“We export retail jars of our honey to India from a distributor in Mumbai – we expect it will be another five years before we see significant retail sales, but it’s a growing market,” he says.

“India is a big producer of honey and they consume a lot too, but the middle class population is looking for imported food products and that’s what we’re going for.”

The biggest issue facing Capilano is parallel imports from Dubai.

“We’ve been active for 12 months and one of the issues we’ve faced is that there’s a 50 to 60 per cent tax on honey in India, but some people in Dubai are undervaluing invoices and sending our product. So we end up competing with ourselves,” says McDonald.

To get around this Capilano differentiates the product with English labels instead of Arabic ones, which McDonald says clearly shows authenticity for the discerning market.

India abounds with challenges yet Brisbane’s export community continues to gather speed in this emerging market. Many businesses draw the parallel of China 15 years ago as an indicator for India now, so there’s no better time to start building contacts.

By 2020 it has the potential to overtake Germany as the world’s fourth largest economy, so it will be interesting to see how many Brisbane businesses make their Indian fortunes by then.


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