Eyes Fixed on India  

Among the speakers at the 2017 Taiwan-India Industrial Collaboration Summit was Shri Sanjay Rakesh, joint secretary of India’s Ministry of Electronics and Information Technology. Photo: IDB

More and more Taiwanese companies are investing there, despite often challenging business conditions.  

As the China market matures, bringing higher production costs, many Taiwanese companies are looking for the next big site for their offshore operations. India, which the Taiwan government has included within the scope of its New Southbound policy, is among the obvious possibilities.

With a large and relatively young population of 1.2 billion people, economic growth that has outpaced China’s for the last two years, and a vibrant consumer market (a record 109 million smartphones were sold last year), India could present enormous opportunities for Taiwanese companies.

Indeed, a list of the approximately 90 Taiwanese businesses currently operating in India reads like a Who’s Who in Taiwan’s ICT landscape. HTC, Wistron, and Compal have invested in manufacturing operations in northern India, for example, while Silitech, LiteOn, Inventec, Volktek, and FIH Mobile have done so in the South and Foxconn has established itself in the country’s West.

In addition, Advantech, Delta Electronics, MSI, and BenQ are engaged in other electronics manufacturing in India, China Steel is producing electrical steel coils and sheets, and Meita Industrial is making auto parts. Smartphone chip designer MediaTek works closely with Indian smartphone makers such as Micromax, and is already one of major chip suppliers for India’s home-grown smartphones, taking a 30% market share. Other Taiwanese companies are involved in making medical devices and providing financial services in India.

Still, Taiwan companies’ presence in India remains tiny. In 2016 Taiwan ranked as the 38th largest source of foreign investment in the country, accounting for just 0.06% of the total, according to Taiwan’s Bureau of Foreign Trade (BOFT).

“In recent years, since China has been losing its advantage due to the rising labor costs and reduced preferential policies from the government, Taiwan’s electronics companies have switched focus to India,” says Joen Yang, an analyst with the Taipei-based Market Intelligence & Consulting Institute (MIC), a government-backed IT research institute.

“Some have been building plants in India, especially smartphone assemblers, as smartphones shipped to India are always subject to relatively high customs duties and the demand of local consumers for smartphones continues to increase considerably,” he notes.

According to MIC data, smartphone sales in India are forecast to increase by a huge 127.3% year on year in 2017. But the Indian government has raised customs duties for electronic hardware several times since 2014; the latest increase, in May 2016, brought the tariff for smartphones and peripherals such as battery cells, chargers, earphones, and USB cables to 12.5%.

Shobhit Srivastava, an analyst with the Indian IT analysis firm Counterpoint Research, says that bold reforms launched by Indian Prime Minister Narendra Modi, who swept into power in 2014 on a platform to open the Indian economy and accelerate its growth, has been attracting Taiwanese and other foreign investment. Modi’s flagship policy, the “Make in India” program, aims to increase the share of manufacturing in the economy from about 18% when he took office to 25% by 2022.

The prime minister has been seeking to encourage local production by raising tariffs on fully assembled mobile phones while keeping duties lower on components, though the government now is now trying to develop domestic component production as well, says Srivastava. “If any Taiwanese company would start manufacturing components in India, all the mobile phone manufacturers active in India, such as China’s Xiaomi, would want to buy components from them in order the save on the import costs,” he adds.

Srivastava went on to explain that such components could include displays or chargers, but not semiconductors, as setting up a semiconductor fabrication plant would require too much investment for the time being.

The really big splash for the India-based Taiwanese ICT supply chain, however, would come about if Apple eventually starts mass production in India for the domestic market, he says. Such a move has been widely anticipated since reports appeared in the Indian media in February that Apple will set up a pilot manufacturing base in the state of Karnataka to make iPhones.

While Apple has not divulged details of the plan, Karnataka’s minister for information technology, Priyank Kharge, has said that the plant will be operated by one of Apple’s main suppliers, Wistron of Taiwan. In May Apple confirmed that it had begun manufacturing a small batch of iPhones in India for the first time.

Another Taiwan company considering expanding in India as part of its planning for future business growth is Advantech, a leading maker of industrial computers and inter-process communication (IPC) equipment. Referring to the Indian government’s plans to build a Delhi-Mumbai Industrial Corridor and Smart Cities across the country, Mark Yang, Advantech’s India GM, says he views Modi as bringing India “into a new age.”

Besides the company’s Indian headquarters in Bangalore, it has a branch for automation in Mumbai and maintains representative offices in several other major cities across India. “Currently we only have manufacturing and application engineering in India, but we will likely bring this to the R&D level, as a response to Modi’s drive,” Yang said.

“Meanwhile, we are engaging more with local governments to extend business opportunities locally,” he added. Advantech’s long-range Wifi systems send data to the cloud and thus constitute a major backbone for Internet of Things (IoT) and Smart City solutions.

Alluding to the potential for an enormous win-win relationship between Taiwan and India, Yang noted that while Taiwan is a global leader in ICT hardware design, much of the world’s ICT industries rely on software developed by Indians.

Cultural differences

At the same time he cited a major drawback: India’s difficult business culture, due in part to India’s substantial internal cultural and administrative diversity. Regulations, customs procedures, and tax regimes differ markedly from state to state, and there are also stark disparities in levels of economic development. Only in July this year did the Indian government begin implementing a nationwide Goods and Services Tax (GST) in order to unify the different tax rates throughout the country.

As another example of the difference in business culture, Yang notes that “Indians will often argue with you for a day to cut the price by just $5 and sometimes even walk away from a deal after having negotiated for months.”

On the trade front, total commerce between the two countries grew from US$2.7 billion in 2006 to US$5 billion in 2016 – US$2.8 billion in exports and US$2.2 billion in imports – an increase of 85% over that decade. This year, however, the trade surplus in Taiwan’s favor has narrowed considerably, coming to just US$137 million over the first three quarters of the year.

The narrowed imbalance is attributable in part to India’s increased shipments to Taiwan of naphtha for the upstream petrochemical industry. The other main imports from India are refined copper, ferrochromium, aluminium, zinc, non-industrial diamonds, and diesel fuel.

Another factor in the reduced trade imbalance has been anti-dumping measures adopted by the Indian government against various Taiwanese exports. Taiwan’s main exports to India are downstream chemicals, ICT products and their components, and machinery.

“In terms of initiating anti-dumping measures, India ranks first in the world, and in recent years, India has imposed anti-dumping measures on chemicals, communication products, and steel products from Taiwan,” says BOFT Director-General Yang Jen-ni. “Such anti-dumping measures have significantly impacted Taiwan’s exports to India, and this is the most serious challenge we have faced in dealing with the Indian government.”

That said, Yang stresses that India is an important country included within Taiwan’s New Southbound Policy, an initiative of the Tsai Ing-wen government to enhance cooperation and exchanges between Taiwan and 18 countries in South and Southeast Asia, plus Australasia.

Under the program, Taiwanese government agencies and industry associations last year set up Taiwan Products Centers in Mumbai, Chennai, and Kolkata; established a machinery procurement alliance with Indian importers; and implemented cooperation for the training of Indian personnel in the ICT sector.

This May, the BOFT set up a platform to provide Taiwanese companies with information on India’s investment regulations, taxation, and other investment-related matters, as well as to offer consultation services. In addition a Taiwan-India Industrial Collaboration Summit was held in mid-October at the Taipei International Convention Center to explore additional ways of promoting bilateral cooperation.

The challenges of investing in India can be seen in its performance in the World Bank’s Ease of Doing Business Index. In the 2017 index, India was ranked 130th out of 190 countries, compared to Taiwan’s 11th place.

Vice Minister Wang Mei-hua (center) led the Taiwan delegation to the Smart Cities Expo India 2017. Ambassador Tien Chung-kwang is first on the left. Photo: MOFA

But Taiwan’s de facto ambassador to India, Representative Tien Chung-Kwang of the Taipei Economic and Cultural Center, notes that during the four and a half years he has been in the position, the business environment in India has improved considerably, particularly since Modi’s pro-business Bharativa Janata Party came to power in 2014.

“They are opening up to foreign investors, as illustrated by some sectors of the economy now allowing 100% foreign ownership, and at the same time they are working hard to eradicate corruption,” Tien says. He also expresses optimism that the New Southbound Policy’s program of providing scholarships for Indian students to study in Taiwan will make it easier for Taiwanese businesses to recruit managers for operations in India in the future.

In addition, the numerous seminars and trade shows being held under the New Southbound Policy are helping to drive interest on both sides in promoting bilateral commercial relations.

“The India-Taiwan relationship is becoming more mutually beneficial,” says Tien, “and our efforts are designed to make it easier for businesses on both sides to fully utilize those benefits.”

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