28 September 2009

India is now the second-largest source of foreign direct investment (FDI) into the UK up from seventh last year, according to a recent UK Trade and Investment report*. The report found that Indian investments into the UK climbed 44 per cent to 108*. At the same time the UK has become the biggest foreign investor into India. In securing 1,744* inward investment projects the UK has maintained its standing as the number one investment location in Europe for the financial year 2008/09.

These results are an excellent example that trade and investment with India continues to deliver tangible value to the UK economy. These rapidly growing streams of investment are a clear indication that India and the UK are continuing to forge ever-stronger ties. It comes at a time when the full impact of the global downturn is still being felt. Inward investment will help stimulate the UK economy and speed economic recovery.

The UK has historically been an attractive investment location for Indian businesses who are able to capitalise on the supportive and open business environment that exists, infrastructure, science and innovation network, high levels of capital flows and investment.

India replaced Japan as the largest Asian supplier of FDI projects this year with significant investments in IT, life sciences, and advanced engineering. Companies from markets across the globe increasingly see the UK as an ideal hub for their international ambitions and this is being clearly demonstrated by recent trade trends with India. The UK's well-developed creative industries, life sciences, ICT, the energy sectors, advanced engineering, and research and development sectors are a major pull for Indian investors and include areas.

At the same time, the opportunity in India should not be overlooked. Anuj Chande, Partner and Head of South Asia Group, Grant Thornton UK LLP, explains, "There are immense opportunities in India,” he said. “India is still relatively under-developed, meaning there is room for growth. There are terrific market opportunities just in terms of the sheer size of the young, upwardly mobile middle class population.”**

Historically, India was initially popular with overseas companies due to offshore opportunities, Chande explained. “A lot of back office functions were initially transferred to India where costs were lower, and those opportunities do still exist.” More recently however, Grant Thornton has been advising UK-based companies on setting up complete operations in the country or supplying services to Indian industries such as construction, architecture and digital media.

Whilst many large overseas companies have already targeted India, Chande has been disappointed that more medium-sized UK companies have not seized the mettle. “There is money in India and the business community is receptive to working with overseas companies but the challenge is finding out how to do business effectively,” he cautioned.

Chande recommended finding an advisor with experience of working in India to take overseas companies through the regulatory and bureaucratic nuances of the country’s legal system. “The legal system is a lot more open now than when Grant Thornton first entered the market in 1991 and shares many features with the UK system, however there are other issues such as tax-related ones that need careful consideration.”

Chande recommended treading the joint venture path or forming alliances with local companies in India as a first step into the market. “Business is very much relationship-focused in India and it can take a long time to build that trust with a local partner. Patience is therefore key in building these relationships, but once the trust is there, then it is there for a long period.”

Finally, companies wishing to undertake business in India should not underestimate the impact of religion and family values, warned Chande. “Overseas business people may find that their contract with an Indian company is not signed on a certain day, because it is a religious festival. They need to be sensitive to cultural considerations.”

And that is not all. “A lot of business is undertaken in the country through word of mouth rather than written contracts anyway,” added Chande. “When you shake hands, the deal is done.”

* UK - Your Springboard for Global Growth; UK Inward Investment 2008/09 Report by UK Trade and Investment (UKTI). ** Excerpts taken from an article and interview with Anuj Chande, featured in Major Events International