India Calling How to Do Business with India & Opportunities in ITES Sector

India Calling
How to Do Business with India
&
Opportunities in ITES Sector
By
N K GOYAL
President, Communications & Manufacturing Association of India
Founder Member, TEMA Export Promotion Council
Chairman Emeritus. TEMA
[email protected]
98 111 29879
May 2008
Agenda
Hon’
Hon’ble Prime Minister of India, Dr. Manmohan Singh’
Singh’s recent statements
Super Growth Rate
Fastest Growing nation
5 Ds
Electronic Industry
Electronic & IT Industry
PC Market
Desktop Market
Set Top Box Market
Telecom Emerging Markets world Wide
Telecom Market in India
India Vision for Broadband
Broadband deployment Plan – Urban/Rural
USO Subsidy Support Scheme
Software & Services Market/Exports
Semiconductor Market
India Advantage
The Future
Venture Capital Industry
Emerging Manufacturing Destination
Service Sector
Leaders Recommend India
Dr Manmohan Singh
Hon’ble Prime Minister of India invites you…….
India has got off to a good start….
Savor the wonderful journey of creativity and
enterprise taking place in the country.
India is a nation on the move, set to regain its
place in the community of nations as a
plural, secular and liberal society with an
open economy.
Address at McKenzie Board Meeting in India
24.10.2007
PM to Fortune Global Forum
Be it FDI, investments in India’s stock markets or
investment in knowledge economy, the signals are
all positive. We will work to keep these positive.
Investment is an act of faith. It is shaped by
perceptions, by expectations and by all
uncertainties of life. India assure you that your faith
will not be misplaced.
All those who invest in India, who invest in its
future, who invest in India’s prosperity and who
invest in the capacity of Indian people will be
investing in the future of democracy.
29th October, 2007
India’s super growth rate
Slowdown in World growth : 5.4% in 2006, 5.2% in 2007
and expected to fall 4.8% in 2008. India : Fell from 11.5%
in 2006 to 9.8% in first five months of 2007 - but yet much
above the world level!
Current GDP : 1 $ Trillion. World Bank report (Oct’07)
foresee India can innovate to $5 Trillion GDP!
Stocks booming : Sensitive Index (Sensex) took 15 years
to sail from 1000-10,000 points & 20 months to reach
20,024 points!
With Market capitalisation at $1.58 trillion, India is
Number 9 in global pecking order after US, Japan, UK,
China, France, Hong Kong, Germany, Canada.
India foreign exchange reserves at US$261 Billion. Fifth
largest in world and very soon going to be fourth position!
GDP
3500
Fastest Growing Nation
3000
3228
GDP composition – FY 2007
GDP grew at 9.8% during 2007
Top 10% of nations since 1980
On the verge of sustained doubledouble-digit growth
Strong investment momentum
Market capitalization up from USD 140 Bn in FY
2001 to > USD 1.58 Trn recently
FDI on the rise - USD 7.6 Bn (06) and USD 19.4
Bn (07)
FII investment - USD 6.5 Bn in 20062006-07
140 + public traded companies with market cap
> USD 1 Bn
US$ BB
2500
2000
1229
1500
1000
635
722
FY2005
FY2006
891
500
0
FY2007
FY2010
FY2020
Industry
27%
Services
54%
Agriculture
19%
By 2050, India projected GDP is US$ 70 Trillion
Source: CMIE
India : The 5 Ds
• Democracy
– Largest democracy in
the world
– Largest digital elections
– 9 Prime ministers from 6
major parties, 50 + state
parties, 3 MM elected
representatives
– ONE POLICY
• Diversity
• Diaspora
– Highly diverse
– 23 languages, 30
provinces
– 6 major religions
– Cultural,religious,
& Climatic
• Demographics
– 1.12 Bn population, Remain a
‘young’ nation beyond 2050
– < 20 yrs population
– 442 Mn currently
– 479 Mn by 2050
– ~10 Mn finishing school, 600,000
Engineers and 3 Mn graduates
p.a
– Over 2 Mn Indians
outside India
– Indian companies
outbound M&A >
USD 15 Bn in 2006
• Demand
– 5th largest consumer market in
the world by 2025.
– 300 Mn growing middle class
– Rising incomes to lift 291 Mn
out of poverty to make middle
class 583 Mn by 2025
Ingredients for sustained and consistent economic performance
Electronic industry
The Market: 2006-07
Domestic demand: USD 34 bn
Production: USD 16 bn, Imports USD18 bn
Exports: USD 2.2 bn
Employment
Direct: 0.75 million
Indirect: 1.5 million
Components
$ 2.15 Bn
Strategic
Electronics
$ 1.09 Bn
Consumer Electronics
$ 4.87 Bn
Comm. &
Broadcasting Equip.
$ 2.32 Bn
Computers
$ 3.12 Bn
Industrial + Other
$ 2.55 Bn
Growth over 2005-06: 20%
Electronics & IT industry
The Market: 2006-07
IT Industry size: USD 48 billion +
IT Hardware Domestic: USD 7 bn: USD 1.7 billion
ITES & Software Exports: USD 31.3 bn ; Domestic: USD 8.4 billion
6.3 million PCs sold; Installed base: 22 million
13 million TVs consumed; Installed base 100 million +
Cable TV installed base 65 million
5 million + DVDs sold: growing at 40% annually
Internet users: 38 million+ including wireless mobile internet users 30+ million
Broadband connections: 2.65 million
Mobile sales: 75 million; Installed base: 209.08 million
Significant R&D and product development
Sizeable presence of MNCs: Intel, IBM, Cisco, Motorola, Nokia, Samsung, LG
India is suddenly attractive for hardware/electronics manufacturing
The PC market (Desktop + Notebooks)
7,500,000
Units
6,341,451
6,000,000
5,046,558
4,500,000
3,809,724
3,124,422
3,000,000
2,344,617
1,715,620
1,500,000
0
2001-02
2002-03
2003-04
2004-05
•
CAGR 2001-07: 30%
•
Growth over 2005-06: 26%
2005-06
2006-07
Desktop Market: Share of Indian, MNC &
Assembled
Indian Brands
MNC brands
Assembled
28%
37%
2005-06
Indian Brands
MNC brands
Assembled
23%
38%
2006-07
35%
39%
•
Consumption of Indian brands decreased 2% in absolute terms
•
Sales of MNC Brands grew by 33% and that of Assembled by 22% in absolute
terms
The Set top box market: 2004-07
Million Units
2.75
3
2.5
2
1.5
1.5
1
0.75
0.5
0
2004-05
2005-06
Set-top box
•
Annual growth 84%;
•
2007-08: sales expected to cross 2.5 million
2006-07
Telecom Emerging Markets World Wide
By 2010 the emerging markets will account
for more than 2/3rd of the world’s telecom
connections and almost 90% of growth in the
world’s mobile sector, with China and India
leading the way.
Emerging markets are also beginning to take
the lead in innovation, as users spend
increasing amounts on digital entertainment
and lifestyle services.
Telecom Market in India : 2002-07
Mobile Phones
171.21
180
Million Units
160
140
120
98.78
100
66.5
80
52.2
60
41.9
33.6
40
15.4
13
20
0
2002-03
2003-04
Annual Mobile Sales
2004-05
2005-06
2006-07
Mobile Subsciber Base
•
3rd largest in Asia after China, US; 2nd largest in Asia
•
Annual subscriber base growth 44%; Total 248.67 million sep.07, expected 500 million by 2010
•
2006-07: Base Stations installed: 100,000; Annual growth: 55%
•
2006-07: Towers installed: 100,000; Annual growth: 60%
India Vision for Broadband
Year ending
Broadband
subscribers
2007
9 million
2010
20 million
2012
140 million
(Wireless 100
Million)
Broadband Deployment Plan - Urban
Broadband deployment on ADSL
To use more than 25 million existing
copper loops in 1800 Towns/cities
To use existing 100 million Cable TV
network in all major Towns/cities
Broadband for all Secondary Schools &
Public Health care centers
Broadband Deployment Plan - Rural
Broadband
deployment in 20,000 rural
Telephone Exchanges on ADSL covering more
than 25,000 villages
Broadband on wireless through Wi-Max in 1000
Blocks covering 30,000 villages
To set up 100,000 Common Service Centres
(CSC) in Villages
USO subsidy support scheme
Universal support obligation (USO) subsidy
for shared wireless infrastructure in rural
areas
Support for 8,000 Towers by 2007
Subsidy for 10,000 additional Towers by 2010
Aim to provide wireless connectivity for
Broadband and Mobile services in rural areas
The Software & Services market
USD Million
45,000
39,700
40,000
35,000
Industry Size
30,300
31,300
30,000
25,000
22,600
20,000
15,900
15,000
10,000
10,100
7,680
12,450
9,870
Domestic
Exports
Total
23,600
17,700
12,500
5,000
0
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
Year
Annual growth: 31%; Exports growth at over 32% and domestic
at 25%
Source: NASSCOM
Software & Services Exports Markets
2003-04
2004-05
2005-06
Americas
69.4%
68.3%
67.18%
Europe
22.6%
23.10%
25.13%
ROW
8.0%
8.60%
7.69%
Source: NASSCOM
~ 80% of Fortune 500 outsource their IT from India
India Semiconductor Market
40
Revenues $ Billion
35
TM CAGR – 29.8%,
TAM CAGR- 29.4%
TM
36.3
TAM
30
TM in 2015 is expected to grow
by 13 times the TM in 2005
25
TAM in 2015 is expected to grow
by 14 times the TAM in 2005
20
15.52
12.67
15
10
5
5.8
2.82
1.14
0
2005
2010
2015
•
India’s share in the global semiconductor market is expected to increase from 1.2 % in 2005 and is forecast to be 5 %
by 2015
•
Telecommunication, Consumer and IT Hardware are the segments driving the market during the forecast period
•
Wireless handsets, Base Station Transceivers (BTS) are the major sub product categories driving the TAM for
telecommunications segment
•
Set Top Box, DVD players and writers are the emerging product categories in consumer segment
•
Few other emerging product categories are electronic clusters, Capacitive Discharge Units (CDI) and Engine
Management Systems (EMS)
Source: ISA – Frost & Sullivan
India advantage
Local Market
A very rapidly growing domestic
market: CAGR 30%+
Global recognition for back-end
services:
A proven case for IP, embedded
systems and IC design
Profit from Local
Sales
Attractive for Manufacturing
Investments
Skilled employee base
Fast and upcoming modern
infrastructure (SEZs)
Proximity to EU and MEA market
Freight Cost; 20% cheaper than
China - Faster delivery and
lesser pipeline inventory
Advantage
India
Harness low cost
manufacturing
base to service
local, European
and MEA markets
Use India for IP and ITes
Services
-New Product
development
-Engineering services
-BPO
Manufacture
Back-end Services
India is a great Opportunity - –Triple Advantage
The Future…
Electronic hardware market by 2015 USD 320 billion including production
USD 150 billion and exports USD 21 billion.
Telephone subscribers: 500 million by 2010
PC sales: 25 million; installed base 65 million by 2010
ITES & Software exports: USD 60 billion by 2010
40 million new internet connection; at least 50% broadband by 2010
Nationwide TV broadcast to be digital by 2015 beginning 2010: significant
opportunity for STB consumption & manufacturing
Over USD10 bn investment in e-governance and national id card by 2010
2015: Total expected Market USD 320 bn;
Domestic production USD 155 bn
Venture Capital Industry
An estimated USD 7.5 billion in VC/PE in 2006 across 299 deals
•
Over 250 deals in first half of 2007 with USD 5.6 billion
•
Expected to cross USD 10 bn in 2007
Key Investment Verticals – IT/ITES (23.5%), BFSI (12.1%),
Manufacturing (12%), Real Estate (7.1%); Engg & Construction (7.9%)
India Specific VCs: ChrysCapital, HSBC Pvt Equity, ICICI Ventures,
IL&FS Venture Corporation, Infinity Technology Ventures, SIDBI,
Walden International etc.
Source: IVCA
India emerging as a manufacturing destination
Surge in manufacturing confidence led by mobile players
Branded players: Nokia, Motorola, LG, Samsung, Ericsson…
EMS companies: Elcoteq, Flextronics, Solectron, Jabil
Circuits, Sanmina, Celestica and Foxconn/Honhai …
With new Fab policy several Semiconductor firms are keen to
manufacture in India
Taiwanese Companies just about coming in
Foxconn/Honhai; Compal (Reliance), Delta Electronics, Liteon
India Growing Services Sector
Today India is a services superpower in the making.
the 12th largest economy in world.
Indian growth can be attributed to traditional drivers
like growing urbanization, significant development of
small towns and rural India,
Increased focus on infrastructure and education.
Services sector that witnessed three waves
1990s the software services
2002s telecom services witnessing 80% growth
2005 financial services wave
Incentives provided by the Government:
Custom duty on ITA-I product reduced to zero w.e.f. 01.03.2005.
No industrial licence for manufacturing of telecom equipment.
100% Foreign Direct Investment (FDI) through automatic route permitted for
Manufactuirng.
Fully repatriable dividend income and capital invested
Payment of technical know-how fee of up to US$ 2 million and royalty up to 5% on
domestic sales and 8% on export sales, net of taxes, through automatic route.
Promotion of telecom product specific SEZs.
Import of all capital goods for manufacturing telecom equipment does not require any
license.
10 year income tax holiday for EOU/EPZ/STP/EHTP units.
Export income is exempt from income tax for all exporters.
Tax holiday 100% for five years and 30% for next five years in a block of 15 years.
Infrastructure Telecom equipment exempted from customs duty.
Exemption from Excise duty on Cellular Phones and it components, Pagers, Radio Trunking
Terminals and Parts.
Telecom services sector allowed the benefit of carry forward of losses on mergers.
Entry Strategies for Foreign Investors
STARTING OPERATIONS IN INDIA
Incorporation of Company
For registration and incorporation, an application has
to be filed with Registrar of Companies (ROC). Once
a company has been duly registered and
incorporated as an Indian company, it is subject to
Indian laws and regulations as applicable to other
domestic Indian companies.
A foreign company planning to set up business
operations in India has the following options
Indian Company
A foreign company can commence operations
in India by incorporating a company under
the Companies Act,1956 through
Joint Ventures; or
Wholly Owned Subsidiaries
Foreign equity in such Indian companies can
be up to 100% depending on the
requirements of the investor, subject to
equity caps in respect of the area of activities
under the Foreign Direct Investment (FDI)
policy.
Joint Venture
Joint Venture With An Indian Partner
Foreign Companies can set up their operations in
India by forging strategic alliances with Indian
partners.
Joint Venture may entail the following advantages for
a foreign investor:
Established distribution/ marketing set up of the
Indian partner
Available financial resource of the Indian partners
Established contacts of the Indian partners which
help smoothen the process of setting up of
operations
Subsidiary Company
Wholly Owned Subsidiary Company
Foreign companies can also to set up
wholly-owned subsidiary in sectors
where 100% foreign direct investment
is permitted under the FDI policy.
Foreign Company
Foreign Companies can set up their
operations in India through
Liaison Office/Representative Office
Project Office
Branch Office
Such offices can undertake any permitted
activities. Companies have to register
themselves with Registrar of Companies
(ROC) within 30 days of setting up a place of
business in India.
Liaison Office
Liaison Office
Liaison office acts as a channel of communication
between the principal place of business or head office
and entities in India. Liaison office can not
undertake any commercial activity directly or
indirectly and can not, therefore, earn any income
in India. Its role is limited to collecting information
about possible market opportunities and providing
information about the company and its products to
prospective Indian customers. It can promote
export/import from/to India and also facilitate
technical/financial collaboration between parent
company and companies in India.
Project office
Foreign Companies planning to execute
specific projects in India can set up
temporary project/site offices in India. Such
offices can not undertake or carry on any
activity other than the activity relating and
incidental to execution of the project. Project
Offices may remit outside India the surplus of
the project on its completion, general
permission for which has been granted by the
RBI.
Branch Office
Foreign companies engaged in manufacturing and trading
activities abroad are allowed to set up Branch Offices in India for the
following purposes:
Export/Import of goods
Rendering professional or consultancy services
Carrying out research work, in which the parent company is engaged.
Promoting technical or financial collaborations between Indian
companies and parent or overseas group company.
Representing the parent company in India and acting as buying/selling
agents in India.
Rendering services in Information Technology and development of
software in India.
Rendering technical support to the products supplied by the parent/
group companies.
Foreign airline/shipping company.
Branch office Contd…
A branch office is not allowed to carry out
manufacturing activities on its own but is
permitted to subcontract these to an Indian
manufacturer. Branch Offices established
with the approval of RBI, may remit outside
India profit of the branch, net of applicable
Indian taxes and subject to RBI guidelines
Permission for setting up branch offices is
granted by the Reserve Bank of India (RBI).
Branch Office on “Stand Alone Basis”
Such Branch Offices would be isolated and
restricted to the Special Economic zone (SEZ)
alone and no business activity/transaction will
be allowed outside the SEZs in India, which
include branches/subsidiaries of its parent
office in India.
No approval shall be necessary from RBI for a
company to establish a branch/unit in SEZs to
undertake manufacturing and service
activities subject to specified conditions.
Leaders Recommend India
Arun Sarin, Vodafone says….
I am getting a taste of how they do business in India.
My team studying secret of low cost business model
In UK average call costs 15 cents and in India only 2
cents. Margin remains 40%. Low cost labour is hardly
one third. The other two third is just how they do
business.
India has innovative approach to delivery, services
and distribution systems.
India more open in telecom. In China they own just
3% & balance Govt., but in India up to 74% and
balance with private parties.
Leaders Recommend India…
India has a fantastic pool of software professionals. The world needs to
benefit from this
Bill Gates, Microsoft Chairman
Not only are there brilliant engineers here [in India], I've been seeing that
the entrepreneurial spirit of the businesses is second to none
Mike S. Zafirovski President and Chief Operating Officer Motorola
Through the wisdom of its government leaders and the entrepreneurship of
its private sector, India has risen to become a major force in the global
economy
John Chambers, President and CEO, Cisco Systems Inc
India has evolved into one of the world's leading technology centres
Craig Barrett, Chairman, Intel Corporation
I put India on the top priority market among emerging markets
Yuanquing Yang, Chairman, Lenovo
GIO Factor
In Hindi – GIO means Live Long
Come…..explore….and be a part of the….
Great Indian Opportunity