Do Japan And Korea Need India To Enter African Market. How To Business From Japan/korea Compete In Emerging Scenario.

International Business – A Thought paper with Ideas on Beating the present Economic Turmoil Date: 22nd March 2009

Sho ul d Ja pa n an d K ore a p ar tn er Indi a t o t ap Af ric a By : Amit Bhushan

The on going Economic Crisis, unprecedented in near term Economic History of last 30-50 years, is having a damning effect on global trade & supply chain. The big consumerist markets such as the US & the Western Europe are clenched-fisted towards new consumption expenditure. This can be noted by the spurt in savings rate of the population in these countries. The savings tendency of the population is unlikely to come down in near future as a result of loss of confidence that the current crisis has ushered. In order to ease the “blow” on “Jobs”, which is a result of this new found predisposition towards savings, the governments in these countries have resorted to expanding government expenditure (fiscal expansion) to save primarily “domestic jobs”. In future though, this is likely to result in a higher tax rate & thus subdued consumption. Some other governments are responding to the crisis with “Quantitative Easing”, a euphemism for printing more currency, to “throw at the problem”. While this might support some expenditure programs in the near term, & thus ease pressure on job losses front, this shall result in inflation and devaluation of currency in medium to long term (which shall again retard consumption). Thus it may be reasonable to conclude that restoration of past scale of consumption in the consumerist nations is not a near to medium term probability.

Some of the production engines of the world namely China, Japan, Korea and Taiwan are among the worst “collateral damage” of the crisis. Demand for produce (manufactured goods) of these countries has evaporated almost suddenly and they are witnessing “economic meltdown” with resultant job losses. To fight this meltdown, China has taken the lead by kick starting huge infrastructure development to develop Chinese Infrastructure beyond its shore cities in Inner China to mitigate job losses on export front. This is even while corporate China continues to aggressively chauffeur its “cheap wares” to new markets in Eastern Europe, Central Asia, India and Africa with support from its government. The other production power houses of Asia are still pondering at policy choices available to them. Some may be weighing to brace for their own brand of “Quantitative easing”. While it may make their goods a little more competitive, however the policy of yesteryears (resorted to by most Asian nations in the era when overall consumption is consumerist nations was expanding at fast pace) may not provide much help. This is so because, overall consumption in the US and Western is no longer expanding and “Quantitative easing” by Asia shall not curb propensity of the West to save. The nations driving consumption are basically Asian nations of China, India and Central Asia & Eastern Europe to some extent, who might resort protectionist measures towards

By: Amit Bhushan Contact: [email protected] Author works with a major International Bank in India. Views expressed are personal.

International Business – A Thought paper with Ideas on Beating the present Economic Turmoil Date: 22nd March 2009

such policy as there need for fair trade to uplift the populations out of poverty is much more. Thus there may not be many policy alternatives available to the Asian production houses in near to medium term However in all this gloom some traditional giants of Asia, namely India and Iran might want to present themselves as opportunities to help the Industrialized Asia chug their way to markets in Africa & Central Asia respectively. While the case of Iran might be apparent due to its geographical proximity to Central Asia, how India can be a way tap the Dark Continent needs to be learned more about. We shall explore more about opportunities and challenges provided by both these traditional Asian Giants as we go along. Let us first examine the crucial case of India being the “Door” to Africa. This is made possible by the presence of its vast “Diaspora” in Africa who have retained strong links with their roots back home. Basically, a large number of Indian were “exported” as indentured laborers to farm at the “White owned” farms in Africa during the British Rule in India. During the post-colonial period, these Labourers spread out to almost entire Africa be it Anglophone, Francophone, Spainophone or any African nation and form an important part of the communities there. The Indians in Africa have done well and hold sway over Banking, Trade & Commerce, Law & even Politics. Their linkages back home with places such as Gujarat have helped companies in that region of India

hold a dominating global presence in business of Diamonds, Bullion & Elephant Tusks trade, Engine & Motor parts exports, Utensils & Chemicals exports and so on. Africa looks towards India as a place to help it participate in the “New Economy” ushered by Information, Communication & Entertainment industry, to solve its need for affordable Telecom & Satellite Communication, Railways, and Industrial Machinery etc. India also happens to be an affordable source of Education & Training and lately Medical Facilities for a large number of English speaking Africans. It might be of value for the Asian Factory nations, to market there wares using these networks in the hitherto unchartered waters of the Dark Continent. Their Indian counterparts may only be even more willing to assist to beat the current slowdown. However, we also need to examine the challenges to this daunting task (since there is not much to write about). It may be noted that for much of India, ties with Africa are Family matter & hence informal rather than a formal relationship. Quite often trade is settled on cash basis rather than through banking channels and rampant corruption in both geographies have encouraged the ties to remain that way. Similarly, India’s Legal Eagles make almost no noise about their professional jaunts & tie-up to/with Africa as the same is not seen as a professional acclaim of their work in India. In banking, Indian banks remain reluctant players to assume risk in merchant trade transactions (i.e. do not assume risk if goods are not reaching Indian shores). They have shown the same disdain of

By: Amit Bhushan Contact: [email protected] Author works with a major International Bank in India. Views expressed are personal.

International Business – A Thought paper with Ideas on Beating the present Economic Turmoil Date: 22nd March 2009

any High Street Western bank in their relations with their poorer African cousins rather than some greater understanding of those markets to help trade with Africa. Similarly, direct logistical linkages are yet to be fully developed, though sea routes links are growing leaps and bounds by the day. As far as conditions within India are concerned, it has a modern Banking Industry with Electronic Exchanges for Stock & Commodity trading, a progressive constitution based on English Common Law, a vibrant Service Industry & a growing Industrial base. It may however be noted that the process of getting a judicial remedy in India is pathetically slow & physical infrastructure for manufacture & trade leaves much to be desired. The upcoming SEZs and an enterprising and well trained workforce makes up well for the lacunae to trade with India. Koreans, who already have a significant presence and with Japanese, who are steadily ramping up their act in India, may actually want to explore these linkages offered by India. To make good of these opportunities, the Indian companies need to bring their informal relations to formal & hence legally binding ties and ensure that the same can be stretched to accommodate any upcoming trade opportunity. They also need to ensure mechanics to show their greater understanding of Africa by keeping risk for such trade at manageable levels and assuming responsibility of “collections”. While some NRI groups in locations such as London & Singapore have developed sophisticated models to trade with Africa, players in India shall also need greater support of banks and

India’s official encouragement to interactions with Africa to become fully alive to this opportunity. As far as quest to enter Central Asia through Iran is concerned, the same is limited by the limitations of logistics infrastructure of Rail & Sea Transport, a yet to be reformed banking in Iran which has little international presence and people to people tie-up. Some internal reforms in Iran and an expansion of logistics which might take 2-3 years) might do the trick. The same are more a matter of political will and reconciliation with international community for which the nation has to make its decision.

By: Amit Bhushan Contact: [email protected] Author works with a major International Bank in India. Views expressed are personal.