Strategy: Exports

Exporting services to India

Statistics show that companies that export tend to do better at home. Sheila Khatri, president of Moti International, has some valuable advice for companies thinking of exporting services to India.

Recently, I was enjoying a café latte with a university professor who is a thought-leader in a cutting-edge field useful to vaccine development. Not only is he smart with a Ph.D., having established his biotechnology company five years ago, he’s also entrepreneurial.

Being in the vaccine business, he’s had opportunities to work with a number of Indian vaccine research and manufacturing companies. Our conversation revolved around some of his recent contracts with Indian firms. He’s providing training to the laboratory staff of a Bangalore R&D company, and he sold a license to his patented technology to a Mumbai vaccine manufacturer. So when I mentioned whether he was leveraging various state and federal resources to expand his business abroad he was bewildered. When I clarified, that I was referring to the services available from the federal National Export Initiative (an initiative to double US exports over five years) and the State of Maryland’s Export grants, he assured me that he didn’t export.

I took a long sip of my latte and corrected the professor. Exports aren’t just physical things you put in a box and ship to a foreign country. With the United States exporting over $500 billion worth of commercial services, I am surprised that service exports require outside the box thinking. In fact, the US exports more services than it imports – in 2010 we had an export service surplus of $140 billion.

Of those commercial service exports, the sector classified as “business, professional and technical services” comprises the biggest sector, which includes management and consulting, research and development, computer services, accounting and financial services, public relations, architecture, copywriting, education. In addition, service exports also include such things as travel and hospitality (including meals and hotel stays by foreign visitors on US soil), music and movies. In fact, in 2009, the US film industry had a trade surplus of $11.9 billion. When foreigners pay licensing fees or royalties to use American-made patented or other protected intellectual property – from aerospace and biotechnology to semiconductors and telecommunications, these are also examples of exports.

Despite the vast diversity of services that can be exported, a lot of companies these days are too busy trying to stay afloat or stay ahead of domestic competition to devote attention to export opportunities. Unfortunately, some statistics say this approach may cause your “exporting competition” to eat your business for lunch. Since I once made a guy spill his coffee with that comment, I like to use it. Often businesses have such a perception of exports, they need to be jolted into understanding how important it can be to include it in business strategy.

Some statistics indicate that exporting companies tend to be more competitive in domestic markets, can afford to pay higher wages, and grow at a faster-rate than non-exporting companies. Moreover, recent US data shows that export growth is much faster than GDP growth, meaning that foreign demand for US products is growing faster than domestic demand. 

While there is a strong case to be made to encourage exports, however, it’s not always easy. US export growth is coming from fast-growing economies like India, where these markets seem foreign on many levels. So it’s important to understand these markets, figure out what services you can sell to them, and what proven tactics you should incorporate into your business strategy to leverage this large and lucrative marketplace.

No doubt you’ve heard about the opportunities in India, its population growth, its rapid economic growth, and its incredible rise in the global economy. But the World Bank also ranks it at 132 in its Ease of Doing Business ranking of 183 countries. So there are some challenges that have to be overcome, and considering India imports about $118 billion worth of services, there is good reason to seek to overcome the challenges. 

The first challenge is to accept that doing business in India is a little different than what you might be used to in the West. While the basics remain the same, it’s a different ball game. And just as when you learn a new game, it’s important to give yourself time. Patience and perseverance are strong virtues when it comes to doing business in India.  

When creating your market-entry strategy consider the differences between Indian states. Try to avoid creating a pan-India plan, as the tastes and influences vary between different parts of India. More importantly, state governments in India have significant power over business regulations, so learn the rules in each state for a particular industry.

A fact that tends to surprise US companies is that the Indian legal system is terribly slow, so much so that it’s hard to rely on the Indian legal system to adjudicate disputes. Often it takes decades to resolve a case through the system. Build into your India business relationships alternative formsof checks and balances. 

Be especially careful if you are retaining an independent contractor in India. India has rules that classify relationships as independent contractors versus employees. It’s easy to create an “accidental” presence in India by hiring a local Indian as an independent contractor. If you’re deemed to have a presence in India, without intending to, it could cost thousands of dollars in various penalties.

It’s easy to think that because the language of business and law is in English, everyone is speaking the same language. India has a unique business culture, and they are much more indirect in their communication style than in the US. One area that causes a lot of confusion is the expression of the word ‘no’. Saying ‘no’ or directly negating someone is considered disrespectful and impolite, so they have other ways of expressing disagreement. But it’s often so indirect that Americans don’t hear it. Spending time on cross-cultural training is a valuable investment to building relationships in India.

With these general considerations in mind, a good place to start to learn about India is with the US Export Assistance Centers (USEAC), which are an extensive network of regional offices created by the US Department of Commerce. In India, they are supported by US offices in each of India’s major metropolitan cities. USEAC can also connect exporters to buyers, and offers industry intelligence, trade counseling, and an array of export services. They can also guide companies through other support programs within the federal government such as finance options through the Small Business Administration and other agencies.

Next, check with your local economic development agency. They can offer grants and training to help companies engage in exports, and often they lead high profile delegations. For example, in Fall 2011 the Governors of Maryland and Virginia separately led high-level missions to India.

While you are in the process of researching your market, give consideration to how you plan to sell your services into India. Common options are:

- to hire an agent, which offers relatively low risk but also low control over how aggressively your services are promoted; 

- to establish a wholly-owned subsidiary to act as the Indian marketing and sales arm; this gives high control over your brand and the manner in which your services are promoted, but it can be costly in terms of accounting and legal fees and the cost of your physical infrastructure;

- to send US employees periodically to India to develop leads has been a viable option for many service companies, but recently India has been tightening its immigration policies restricting the frequency a person can come into India;

- to utilize the services of an employment surrogate, which offers high control over your India operations without the high upfront costs; over the long-term it may not be so cost effective but this can be a good stepping-stone into the Indian marketplace.

The resources outlined above, from the government to private sector, can help you each step of the way as you expand into India. It is an exotic country, where it is critical to understand the business playing field. But a lot of US companies are already there and reaping benefits, which is why India is one of our fastest growing large trading partners. And with service exports on the rise, nearly any business that offers a good service or technology should be evaluating its export potential. 

Sheila Khatri is president of Moti International, which offers employment surrogate services in India. Moti helps incubate US companies sell goods, services, and technology into India’s growing marketplace. While Moti focuses on business-to-business opportunities, it opened and managed the State of Maryland’s trade office in Bangalore.