Business opportunities ample in China and India

Canadian investors and entrepreneurs target infrastructure, IT and environmental services
Wednesday, January 6, 2016
By Barbara Carss

Steady urbanization and the associated need for environmental controls could bolster demand for Canadian goods and services in two of the world’s most dynamic economies. However, would-be entrepreneurs are advised to partner with credible local players in China and India to help navigate the complexities of deal-making and project delivery in what can often be unfamiliar business terrain.

Seminars at last month’s PM Expo in Toronto explored opportunities in real estate development, infrastructure design and construction and energy generation and transmission, with insight from speakers with records of success in the two countries. China’s aggressive target to reduce greenhouse gas (GHG) emissions and India’s ambitious scheme to embed information and communications technology (ICT) in urban development and infrastructure are now tagged as prominent opportunities for Canadian investors, businesses and professionals.

Infrastructure and IT expansion

“When the projects come up, they are very large,” noted John Farrow, chairman of LEA Group Holdings Inc., a planning and engineering consulting firm with more than 20 years experience in India. “This is a fast developing country, and some of it is very sophisticated and some of it is very basic.”

He pointed to the in-progress national road-building initiative with a projected $40-billion annual budget through to completion. This includes a vast network of toll roads, representing $3 billion in recently announced new projects. Canadian pension funds and other investors in alternative asset classes may also see possibilities in approximately 675 partially completed toll roads that now require refinancing after the original development proponents were financially distressed and unable to continue.

Toll roads, upgrades to railways and the redevelopment of 400 railway stations are part of a larger scheme to develop industrial corridors. “Along them, like pearls on a necklace, there are going to be new towns that are going to be built,” Farrow said.

Concurrently, Prime Minister Narendra Modi’s 100 Smart Cities mission is aimed at stimulating innovation through civic competition for available funding. Selected cities, to be announced in stages, will receive 1 billion rupees (CAD $21 million) annually for a five-year period to invest in smart infrastructure with an emphasis on the basics of city life: water; solid waste management, transportation; and energy.

“There are going to be 100 capital works programs spreading forward over 10 to 15 years,” Farrow said.

Looking at one large capital project, co-presenter Richard Samson, senior vice president with Formglas Products Ltd., discussed his company’s experience as a supplier and contractor on the Mumbai International Airport. As the manufacturer of the custom ceiling shapes suspended over 50,000 square metres (500,000 square feet) of the airport’s main hall and retail area, the company came to the project through its relationship with the architect, New York based SOM Architects.

Bridging business cultures

“India is a complex market to get into,” Samson said. “We bid the job like everybody else and, fortunately, ended up with it.”

The bidding process itself numbers among the complexities. “There is a ton of paperwork to fill out and if you mess it up, you get tossed out. The paperwork can drive you up the wall, but you have to get through it to get into the market,” he said.

Proponents were expected to bid on supplying and installing the product, even though the company typically doesn’t do installation. To meet that condition, Formglas partnered with a company that it had previously worked with on overseas projects.

Farrow suggested outsiders should retain Indian legal counsel and accounting expertise to guide business transactions. Some laws and regulations such as those enshrined in the Planning Act appear to be similar to Canadian counterparts, but legal interpretation can be very different. Meanwhile, labour laws can make it more onerous to terminate workers.

“The system doesn’t always act the same way every day. It’s so large and so complex, you get confused,” he said. “Hire local staff. I think that’s critical.”

Differing perspectives on communications and negotiations can also lead to culture clashes. Samson cited Indian reluctance to outright reject the other party’s position, and the relative rarity of delegating authority to underlings.

“You have to get to the top person to create a personal relationship,” he observed. “Everything is person-to-person and the (hierarchical) ladder is quite clear over there.”

Both presenters voiced skepticism that corruption is unavoidable or bribery the norm. “Just say: We don’t do that. You only have to say it about three times and everybody is fine,” Farrow advised.

“I feel, basically, that in Canada we are fairly respectful people,” Samson concurred. “If you talk directly to people and tell them like it is, they will respect you.”

Joint ventures favoured

Farrow credits a progressive outlook in Prime Minister Modi’s government. “They are interested in new ideas and they want to get it done. China is what they want to emulate,” he theorized.

That might be something of a stretch given India’s status as the world’s largest democracy — a governing structure that is clearly a more unwieldy agent of change than China’s state policy. Nevertheless, both China and India are in a transformative mode and grappling with many of the same issues in a rapidly urbanizing society with large diverse populations spread across vast territories, and both present lucrative potential along with a learning curve for Canadians hoping to penetrate their markets.

PM Expo presenters recommended joint ventures and using Hong Kong as a gateway to gain experience and make connections that can be helpful in China. On the flipside, Canadian investors can bring much needed capital to a country where the five-year interest rate is currently in the range of 20 to 30 per cent.

“It is hard for them (Chinese developers) to borrow money from banks and the interest rate is quite high compared to Canada,” reported Yan Liu, principal with Y. Liu Law Firm, one of the first Chinese firms to practice in Toronto’s financial district. “In China, there could be opportunities for foreign investors to partner with Chinese companies.”

She flags environmental services, pharmaceuticals, accessibility and transportation as sectors with potential. Many secondary cities are currently building transportation infrastructure and, despite economic downturn, housing prices are still climbing in the largest cities, including Shanghai, Beijing and Shenzhen. State policy is now targeting economic restructuring with an emphasis on high-tech and mitigating the environmental fallout of progress to date.

“They are trying to get away from labour-intensive manufacturing, which helped them grow,” explained Alan Tsui, a Chinese business consultant and real estate development specialist. “China is going to be in big trouble in the environment, but they are going to catch up fast.”

Administrative practicalities

As in India, local expertise can be critical to help outsiders decipher business practices and bridge cultural differences. “You need something to understand them and you need something to help them understand you,” Tsui said.

In particular, he stressed the importance of retaining Chinese legal guidance in making contracts, and the need for patents. “The ethics are different. You don’t protect yourself, your product is stolen,” he asserted.

Liu also outlined some administrative practicalities — reiterating that businesses will need an IT server based in China, and that Western standards like Google and Facebook will not be accessible.

“If you are considering doing business in China, you better get WeChat on your phone,” she instructed. “You will have to consider redesigning your website because most websites are censored. You might consider getting a Chinese name, just like we get English names, because it’s easier.”

Barbara Carss is editor-in-chief of Canadian Property Management.

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