5 prudent strategies for investing in India/China
April 12, 2010

Everyone wants a pie of India and/or China. With raised foreign asset investments, escalating GDP growth figures, higher exports, a sizable talented workforce and open investment policies, companies looking at expanding overseas are keen to invest in India and/ or China, however doing business in either of these countries remains fraught with their own challenges. During a recent seminar held by Deloitte and Blake, Cassels & Graydon LLP, panelists discussed strategies for overcoming business risks and structuring sound investments within these two countries. Here’s what you need to know:

  1. Track the trends: As one speaker noted, “This is no ordinary recession.” The American consumer is about to cede its role as the engine of growth to India and China’s massive emerging middle class. As growing demand in India and China offsets declining demand elsewhere, businesses must track these countries’ rapidly evolving consumer behaviour and consumption trends and adapt where necessary. Only in this way can they position themselves to take advantage of opportunities as they arise.
  2. Identify the right deal: Find the right opportunity for your company. Position your enterprise in the right industry and geographical location. Promising sectors in both countries include – energy, infrastructure, agri-food, healthcare, communications, financial services, real estate and India’s domestic tourism industry. Geographically, second tier cities in India and central regions of China offer companies incentives to conduct business.
  3. Choose the right structure: Companies that do decide to go global, or expand existing international facilities, should also adopt the right structure for their needs. This can include setting up a branch office, entering a joint venture, participating in a private equity placement or qualifying as a foreign institutional investor. In India, many European companies are also taking advantage of the Qualified Institutional Placement (QIP) route – a capital raising tool that allows domestic companies to issue convertible debentures or warrants to qualified buyers.
  4. Look for Long-term opportunities: Despite the apparent strength of both the Indian and Chinese economies, some market watchers wonder if the trend is short-lived – particularly in the case of China, which is currently fueled by US$600 billion in stimulus spending. When the cash infusion runs out, can growth be sustained? Yes, says Bob Kwauk, managing partner of Blakes Beijing office. China will continue to remain fueled by three main policies – the rising price of agriculture products, which has put more money in the hands of farmers and rural communities; aggressive lending by Chinese banks, which resulted in more than US$1 trillion of new bank loans during the first half of 2009 (compared to US$400 billion for all of 2008); and the creation of an environment conducive to infrastructure investment, which will see new construction projects running for at least two to three more years. Similarly, India’s long-term strategy is propelled by increased private sector spending, a boom in infrastructure investment and the development of rural areas which adds to the wealth of farmers.
  5. Protect Your Intellectual Property: Over the past decade, both India and China have vastly strengthened their intellectual property laws. Today, both countries are signatories to the World Trade Organization (WTO) TRIPS Treaty, which sets minimum international standards for the protection of intellectual property. Enforcing these rights, however, can be both costly and time-consuming, making it critical to draft strong contracts, retain financial control and take other creative commercial approaches, such as maintaining financial hold backs and discussing dispute arbitration before entering any deal.In India, fairly rapid injunctive relief is available in the face of intellectual property infringement, but World Bank statistics show it takes over three years, on average, to get a court date to resolve the underlying dispute. In China, cost-effective injunctive relief is also available under an administrative process, but it may not be granted in all situations – and if it is, it can only be enforced locally. The court system works more quickly in China, but it’s both expensive and difficult to collect any damages awarded. As an alternative, companies can reduce infringements with customs enforcement in both the country where the infringement occurs (from which items are exported) and in the country of destination (to which items are imported).Despite the present limitations in China’s and India’s intellectual property enforcement regimes, their markets are too important for businesses to ignore, making it critical to develop an IP protection strategy for these countries.

Also read – Before investing in China – consider this

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