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The Chinatown challenge

world Updated: Sep 14, 2009 15:24 IST
Reshma Patil
Reshma Patil
Hindustan Times
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After two hours down the highway out of Shanghai, there’s a little-known town where farms have transformed into factories that make the world’s nuts and bolts.

The China head of Sundram Fasteners, R. Premkumar, is proud that the town’s women also man the machines even on the night shift.

But the migrant workers often bolt after an annual vacation. When the temperature hits 38 degrees, the workers expect a day off.

“We started from scratch, so visiting Indians ask us how to do business in China,’’ Premkumar told HT in an office with a Mahatma Gandhi quote framed in Chinese. “Many Indian companies are still waiting and watching before entering China.”

You’ve heard India Inc. rave about the constant power supply, smooth highways and fast trains of the world’s factory and third-largest economy. But Indians heading business in the Chinatowns you never heard of describe the other side of this story, about a slow struggle to expand even years after coming to China.

Haiyan county of Jiaxing town is where one of the first Indian plants in China opened in 2004, when Chennai-based Sundram Fasteners of the TVS Group built a big factory to make nuts, bolts and fasteners. Eager officials named a road after the factory and ensured it never faced water and power cuts or clogged sewers.

Over the last five years, about 150 Indian manufacturing, sourcing and marketing companies (excluding trade companies) set up base in China, but several put plans on hold after the recession.

As we toured the factory, Premkumar described his big China challenge. “We are surrounded by cottage industries making cheaper and low-quality products,’’ he said. “Our new strategy is expanding the domestic business, but entering the Chinese market is very tough’’.

The Chinese market became critical for their growth after last October, when the plant began reeling from the impact of trade disputes against China at the World Trade Organisation. European demand slumped after steep import duties were slapped on made-in-China fasteners, though the case did not involve products of this plant.

China’s cost advantage is also vanishing.

“The labour cost in China is now almost the same as in India,’’ said Shanghai-based J.J. Shrikhande, who heads the India-China Business Forum. “In 20 years, the cost of wages in China will rise by 16 times.’’

In the hilly coal-mining city of Shuangyashan near China’s Russian border, three Indians including a CEO are often the only foreigners in the remote export hub where few speak English but the nearest airport is just 50 km away.

Two years ago, when Rajagopalan Krishnan landed in Shuangyashan in the northeast Heilongjiang province, he noticed that their AVT Bio-products plant to make a marigold extract for cattle-feed was set up in 90 days compared to over thrice as long in India. The power connection required three days.

But the shortcuts were about building infrastructure, not business.

“To do global business in China you have to battle a quality perception,’’ Krishnan, CEO of AVT-Biotech, told HT. “Most customers can be hesitant because of the quality question of made-in-China products.”

He learnt to see the advantage of ‘standardisation’ in managing a workforce without a ‘multi-tasking attitude.’ Inside new glass-fronted buildings, he encountered a ‘vintage’ banking system. “A simple fund transfer from India becomes cumbersome.’’

C.R. Sasikumar, the Shanghai-based China CEO of the State Bank of India, travels across the mainland, from the southern Pearl River Delta to northern Inner Mongolia. The SBI entered China in 1997 and got a branch license for foreign currency transactions in 2006. It was only this year that the Bank could apply for a license to deal in Chinese currency for domestic expansion.

“Even if we get a fraction of the future India-China trade it will be huge,’’ Sasikumar told HT. “But Indian banks are still unknown in China. Building trust takes time.’’

As Shrikhande put it: “Brand India has to be established in China’’.