India offers opportunities, but there are pitfalls to avoid

January 30, 2012

As the second-fastest growing market in Asia, with more than one billion people, India is considered by many small business owners fertile ground offering a variety of opportunities.
Total bilateral trade between the United States and India rose 18.4 percent to nearly $50 billion in 2010, according to Export.gov, which helps prepare U.S. businesses to sell and buy products in the global market.
Still, despite the phenomenal opportunities, it is prudent to remember India poses a challenging business environment. Here are tips for avoiding some of the common pitfalls to doing business there:
Do not create a generic national plan for India. The nation is similar to Europe in terms of cultural and linguistic diversity. Indians define themselves by their state of origin — for instance, I’d say I’m a Gujarati, versus saying I am Indian. The borders of Indian states are drawn on cultural and linguistic lines — the difference between a Kashmiri and a Keralite is not unlike the difference between a Swede and a Spaniard. The language, dress, tastes and influences are vastly different between various parts of India. Also, state governments have significant power over business regulations, so it’s imperative to know the rules of business under each state for a particular industry.
Do not expect significant results in less than a year. India requires patience. Seventy percent of Indian companies are family businesses. So when you do business with them, you are essentially marrying into the business. Indians don’t jump into business relationships very fast. This is frustrating for the American, who might say, “I believed we were going to get this done in three weeks and it’s been four months!” The more an American businessperson tries to push, the slower the process gets. The Indian will say, “Why is he rushing, is he trying to pull something over me? He’s erratic — one day he’s nice and the next day he’s pushy.”  Trust is a key element for a business transaction in India, and trying to rush a decision often erodes trust.
Do not be overly reliant on Indian contracts. Enforcement of contracts is a cumbersome process in India. It takes a lot of steps and time to resolve disputes in the formal legal system — it can take decades to resolve a case. Build into your India business relationships alternative forms of checks and balances.
Do not ignore Indian employment laws. It’s easy to create a presence in India by hiring a local Indian as an independent contractor — but don’t ignore India laws which might classify your relationship as an employer-employee arrangement, with all of the regulations regarding retirement funds, overtime and mandatory severance. Typically, laws of the country in which the employee resides will have jurisdiction over employment matters. Getting this issue wrong could cost you thousands of dollars in back payment of employment taxes, transfer-pricing issues and other regulations.
Do not underestimate language differences. While English is the language of business in India, don’t be fooled into believing the words have the same meaning. Saying the word ‘no’ is considered disrespectful and impolite in India, so they have other ways of expressing disagreement. But often it’s in a way Americans don’t hear it.
Sheila H. Khatri is president of Moti International, a Bethesda-based company that incubates U.S. firms in India.

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