Sparta Strategy Ventures

Penning down the most basic and essential requirement of any business and comes the immediate thought ‘wealth’. The commonest of questions we face in business is how I meet up my ever-increasing requirement of finance. No matter how successful and strong businesses eventually become entrepreneurs face this question every single day of their lives, the only thing that differs may be that the best of lot remains comparatively stress-free. As a simple philosophy, my selection of funds is directly governed by my needs and most often when a need knocks at my door, it hardly matters what kind of finance key do I hold to open it up. Hence, emerges a catch as the selection may though satisfy me immediately but might lead to a messy future or would I like a superior level of satisfaction by strategizing it. And Entrepreneurs may thus avoid a tough time not only in the initial funds raising but meeting up its later repercussions. Thus, the thought process as to from how, when, where and how-much finance should be infused into the system.

The problems of finance raising are possibly as old as finance itself. We prepare a business plan, make future predictions, identify investors, make presentations and then, …..spend sleepless nights as the deal just does not happen. Typically finance has 2 origins – debt i.e. outsiders’ funds repayable after some time and compensated via. periodic interest payments and, one’s own private value i.e. equity funds. Apart from their nature and form, the above two sources can chiefly be differentiated on basis of the purpose they can serve and the stage at which their infusion become critical. About debt, so many banks, NBFCs, private lenders, Institutions, foreign ECBs & many avenues who are ready to finance for a periodic interest payment based on promoters own contribution, collateral security offered, repayment terms, nature of business etc. Debt is an inevitable option at every stage of business for I need to leverage out my capital structure at maxim by availing the huge funds available outside. No matter how much I try; my own funds would never suffice for my business and all the more, when I think like a smart entrepreneur who wants to block up a minimum of his own hard –earned money in projects intending to develop it by using outsider’s and yet retain his ownership. Debt is comparatively cheaper but brings along a fixed repayment commitment from future profits and thus, I need to be conservative with its volume and its future impact on my earnings. The most critical thing for my debt part – my future cash flow positioning and consequent ability to serve the debt and meet up other business obligations and my look-out - keep maximum of outsider’s money for minimum time period.

Talking about the money against my business value – equity funds, the thing becomes far more complicated as I raise capital by selling the stake in my company rather than a fixed future payout commitment as in case of debt. Also, equity is a one-time affair. Once diluted, I may not be able to get its value back and thus, one need to fetch the best of the crème by convincing the investors that mine is a feasible business model that can give them rich dividends and a capital appreciation in their holdings going forward. I typically include a person into my business by hand-holding him for the business growth. Thus, I have to select the best possible of the following options:

Venture Capital Funding Start-up Phases (Small investment) Special focus funds, Angel investors, HNIs, Institutions Sustainability in business · Generally higher stake is diluted · Essential during the initial / venture phase

Private Equity Placement Influx Point of business (Medium-term investment) Special focus funds, institutions Scalability in business · When business reasonably developed · Critical to tap the booming opportunities & grow manifolds · Exit route remains IPO

Public Issue for money Horizontal & Vertical expansion plans (strategic / long-term) General public, retail investors, private institutions, underwriters Feasibility in business · Direct infusion of capital from public via. stocks selling · Obligations prescribed

The above can be done inter-changeably depending on my kind of situation and is evenly done at a specific project / vehicle level than at an entity level. Therefore, once I assess my situation at best and identify the righteous kind of investor for me, it helps me substantially not only in striking the best deal but also at subsequent phases of this hand holding. Whenever we say the market is not responsive to the deal, it’s essentially the mismatch of above that’s happening.
Apart from above mis-match, the thing that keeps stumbling upon enterprises most of the times is the face of their existing financials. And then to blame our economists, management and researcher friends have spent their lives analyzing and developing the theories of capital and given us respectable conventions from the ideal debt-equity ratios, dividend pay-outs, and quasi-interest to the capital structuring components. It’s really not possible even for the strongest to obey such conventions life-long, but having crossed the thin line does not mean that I cannot have any funds inflow or I can’t manage myself effectively. I have to get my basics right to read and estimate and project my prospects even when my conventions fail to do the same for me. After all, what matters at the end of the day in the investment world are my business model and strength to generate and conclude business, not my present accounts.

Before any substantial step, I need to get certain things on track. Firstly, have to reduce my ‘financial distress’ that gives me a rational mind to think and identify my exact requirements. How do I do that – by having some small money already in the kitty to ensure a smooth flow in usual business and even urgencies. Now, before I work out a figure & develop a plan to justify such figure, I do a reverse exercise. Safely assuming that if the right money is made available to me at the right time, what is the potential with which my business can grow at the maxim and post estimating its best potential, I need to list down my requirements to make it happen & accordingly estimate a figure required for the same. Having done that I need to estimate to what extent and in what manner my business is strengthening to retain and serve any finance infusion and accordingly work out the ideal debt-equity factor that is justified by all means. The non-financial factors guiding any further decision would remain the tangible likely blockages of my wealth and my preference for hand-holding with easier and effective people. Rest as they say if it’s on my right-hand side and God’s right-hand side can always work out in my way….

….And eventually when a financial need strikes at my door, not only that I know which of my keys the best select to open it up, I have all resources to develop a customized one for me….

- Yogesh Mittal

Lehman Brothers files for bankruptcy, Merill bailed out by BankAm.

The Banking Gods are Angry!!!

Forget the foreclosures and the sub-prime mess, most analysts believe Bad Real Estate bets placed by the two former behemoths in the Finance world has led to this catastrophe.

Circa India, both the firms have made substantial investments in the booming Real estate sector, how much of this has actually crept in is anybody’s guess.Lehman has already pumped in $2billion in to the RE market in India and was preparing to raise it own dedicated fund here in India.

One thing we could expect in the near future atleast in the Commercial and Residential development space  is adoption of techniques for faster development, usage of low cost and efficient building materials, tighter project/monetory management and a nascent trend, just been adapted is Real estate VC’s and PE firms getting further involved in actual development or by forming a separate division comprising of construction veterans.

Multiproduct SEZ developments,logistic, industrial parks are always going to be safe bet for investors keen on long term investing in the India real estate scenario.Going forward i expect to see a lot of action in these areas.

Just got a heads up from some friends of mine from the I banking community in the UK, looks like HSBC is the only one who will outlast the others!!!!

What do u think???

India RE - Outsize or Outshine!!!!

So often being said that the best business story in India today arises from a place which has been away from limelight…now we realize why..

Amongst the top 10 most industrialized nations of the world, India - the nation having 7th largest land resource in its boundaries surely has got a lot to be said and discussed by the world’s business community in terms of its business potential. The entity comprising of 28 advanced states, a 14,500 km waterways and 340 airports, a high of almost all natural resources and presence of the world’s biggest businesses has been a plentiful of opportunities to support and flourish any productive activity. The availability of industrial infrastructure, manufacturing resources and productive minerals at all the commerce hubs has furthered its huge geographical advantages.

In today’s scenario, when corporates strive hard to achieve specialization, a quality superior to others and a competitive niche, it is imperative to get access to the best possible resources supportive to the business and also tap the geographical synergies offered by the business site. India’s business locations, therefore, has to be looked at more closely for their natural and infrastructural framework may offer specialized support to certain specific operations better than others. Thus, as a prudent business I may opt to develop capacity in a location that leverage the possibility of my success to best.

As a summary overview, every Indian state has its own success factors and story. Maharashtra is easily the most industrialized and urbanized state in India. With the state capital Mumbai as India’s biggest port city, the state has a fair regime of labor regulation and infrastructural obstacles and a potential intellect resource - resultantly the best FDI attractor for India. Considered a paradise for metals, automotive, large-scale heavy manufacturing, media & entertainment industries.

Karnataka is the country’s IT hub and a vital educational centre with the state capital Bangaluru termed as the ’silicon city’ of India. The state has a long coastline and modern ports, abundance of natural resources in industrially advanced cities like Mangalore, Hassan, Mysore, Gulbarga, Shimoga. Thus, the state offers a huge business potential for technology, engineering, textiles, power and agro-based industries.

Tamil Nadu is India’s third largest economy with a well developed manufacturing sector. The state has some industrially advanced cities viz. Chennai, Tiruchirapalli, Coimbatore and Madhurai and a well developed Tuticorn port that grants easy access and connectivity with east-Asia and Australia. The state has remained a preferred destination for chemicals, automotive, biotechnology and agro-based industries and despite of having remained unglamorous on a FDI map, the state has taken vital initiatives to promote the industrial culture in an organized and systematic manner, probably best in India.

Andhra Pradesh is one of the most interesting locations per se its inherent issues of low literacy rates and urbanization, naxalites etc. however, has remained an investment attractor for its easier labor regulations, fewer infra-constraints and lower corruption levels. The capital subsidies, tax holidays and a well developed port has made the state a preferred location for Mines and Minerals based industry, electronics, software, jewellary, food and marble industries. Apart from the capital cyber city Hyderabad, some of the best industrial belts are found in places like vishakhapatnam, kakinada, warangal, vijaywada and donakonda.

Likewise Gujarat (on India’s western coast) is an interesting location for chemicals, textiles & gems industries. Sharing borders with Pakistan & Maharashtra in south, Gujarat offers easy access to middle-east and western world through a well-developed Kandla port. Gujarat per se is a relatively wealthier state with comparative costs efficiency and scores exceedingly well over enterprise, infra and corruption issues. Somehow not been one of the better FDI locations, however, has one of the best leadership and administration system in India. Some well performing cities are Ahmedabad, Surat, Anand, Vadodara and adjoining union territory Daman.

Talking about North-India, Delhi, Punjab and Rajasthan are some of the industrially advanced locations. Whereas Rajasthan is relatively static, it has been picking up speed through its SEZs & industrial parks for cement, marbles, footwear and ceramics industries. Delhi is not a state but being National capital is given the separate status of being a union territory. As the political hub of India, Delhi attracts representative offices from a wide range of businesses, not to forget the KPOs & BPOs in adjoining Gurgaon & Noida. Delhi seeks to encourage more small – scale investments to the territory, and does not usually approve large – scale investments. Companies report that corruption and infrastuctural constraints are amongst the lowest in India, while labor regulation is considered amongst the toughest.

Other North-Indian states viz. Punjab, Haryana and Himachal Pradesh are primarily agro-based with a fair-position in the list of ‘high FDI’ states to its attractiveness to service companies, especially financial institutions. The local industrial policy focuses on attracting IT investment. Similarly, the communist state of India West Bengal at one time the best locations of India and still today with a high literacy rate offers some potential opportunities to IT-ITES, automotive, steel and textiles industries. The state offers a good connectivity with east and south-east asia through its bay, however has been facing many political and economic constraints. Orissa is one of the Indian states to watch out for future. With a decent infrastructure, plentiful of natural resources and a supportive administration, the state offers good synergies to metals, metallurgical and heavy industries.

Having seen the various locations closely in terms of their economic, commercial, infra and political standing, one needs to give a serious thought to an overall outlook while preferring a destination. For instance the mantra for automotive and engineering industries has been to get located as close as it could nearby OEMs and its potential clients to meet out time constrains and their requirements of huge customization. With the ever-changing needs, corporates do resort to mergers and amalgamations as inorganic way to get them located at the best possible site & tap huge location benefits. After all, the best business location for my product has to offer me potential time, geographical and economic viability to have me achieve the desired results. Therefore, the Matrix Approach to identify and locate the best possible site for my requirements:

Step 1: Need prioritization:

Based on the premise that I have to select the best of business location, I need to prioritize my precise requirements viz. – size of plant site, availability of raw materials, human capital & intellect, close vicinity to sea port, availability of manufacturing infrastructure, close by my customers/markets, urbanized & modern to support the civic activities etc. in an ascending order of my most urgent requirement - as I would like to get fulfilled from the location.

The above prioritization is business specific and essentially based on the business perception of the most urgent & vital needs as the location must essentially satisfy.

Step 2: Preliminary scanning & location identification:

Once having perused the basic details of business and identified all its critical elements, based on above state-specific information and step 1 exercise, we could identify some of the better locations for our analysis in different parts of India.

Step 3: Synergy score and final Analysis:

The locations shorlisted above would then be examined closely and based on how well do they satisfy the step 1 requirements and at what cost (i.e. how far are they from sea-port / markets, is raw material / labour / other resources available there, availability of land and cost thereof etc.), a synergy score shall be assigned to it & the structure would look like that of a matrix. Upon the final analysis of the synergy scores of various locations, the best one shall be finalized.

The criticality of a feasible location and plant cannot be undermined in any business. India can accommodate any business requirement, it’s up to us how do we identify and utilize it to our best.

- Yogesh Mittal

Though the spotlight has primarily been focussed on the IT Special Economic Zones (SEZs) coming up in and around the city, sector-specific SEZ projects are also emerging on the city’s landscape. Also known as non-IT SEZs, these multiproduct/multi-services SEZs though limited in number presently, are likely to create multifarious employment and business opportunities in the days to come.
Currently, these sector-specific product SEZs contribute Rs 1,824 crores to the State’s exports while hardware and biotechnology (BT) SEZs chip in with Rs 633 crores and Rs 750 crores respectively.

The government proposed setting up seven exclusive industrial zones to promote industries in steel, cement, food processing, IT/BT, petrochemicals, automobile and readymade garments, to create more employment opportunities in rural regions.

NON-IT SEZS

There are nine non-IT SEZs in Bangalore under different industry segments. These cater to biotech, textiles, hardware, infrastructure, logistics services and aerospace.Bangalore is estimated to witness approximately 6.5 million square feet of demand from the biotechnology sector alone upto 2010.

AEROSPACE

The airport-based aerospace SEZ at Devanahalli recently got a formal approval and the investment has been estimated at Rs 3,384 crores with 918 acres of land around the airport exclusively earmarked for this project.Projected to be the nucleus of all aerospace activities in the country, this airport SEZ is expected to attract manufacturing and engineering companies to the city.

BIOTECH
The biotechnology park near Electronic City (captive) in Anekal taluk spreads over 86 acres covering Hebbagodi village. Another biotech unit of Karnataka Biotechnology and Information Technology Services (KBITS) in Phase 3, Electronic City (non-captive) is put up across103 acres in Bommasandra village.

TEXTILES
A textile park at Ramanagaram spread over 240 acres covers Doddamannugudde village. Another textile and apparel park on Kanakapura Road which is spread across 400 acres.

SERVICES
The Gandhi City for Advanced Research and Development, a services park at Ramanagaram Taluk in Bangalore Rural district is spread across 971 acres. This sectorspecific park will cater to the services sector with focus on advanced R&D.

HARDWARE AND MULTI-PRODUCTS
A hardware and multi-product manufacturing park spread over 39 acres in Hoskote Taluk.A multi-product SEZ at Chikballapur near Devanahalli village is spread across 2,810 acres.

All these non-IT SEZs will have social infrastructure in keeping with the stipulated norms in the policy drawn up by the Central government. Developers at multi-product SEZs can build a maximum of 25,000 houses, a hotel with 250 rooms, a 100-bed hospital, office space, retail stores and multiplexes up to two lakh square metres and educational institutions upto 2.5 lakh square metres.
Sector-specific SEZ space can have 7,500 houses, a 100-room hotel, a 25-bed hospital, office space, retail stores and multiplexes up to 50,000 square metres, schools and other educational institutions upto 25,000 square metres.
All non-IT SEZs will have transport infrastructure, departmental stores, banks and basic necessities housed within the premises, along with power and water supply facilities put in place during the land development procedure.
The non-IT SEZ units are required to fulfill environmental and pollution control norms.
Though the biotechnology segment of the non-IT SEZs is not authorised to house hospitals, hotels and schools, priority is given to office space and residential complexes.

As the Reserve Bank of India has been tightening the lending screws on the real estate sector, special purpose vehicles have become a preferred route to raise money for real estate companies from private equity players. “Private equity players find it safer to invest in projects rather than a developer. A lot of developers are also finding easy that way. Once a private equity fund enters, the project suddenly becomes viable because it has the money to execute,” said Ashish Bhalla, Managing Director of Millennium Spire India Management, a real estate investment firm. In about 26 deals real estate deals in the first quarter of 2008, about 19 deals have been done via SPV’s.
Look at some of the recent SPV deals. Sun Apollo Ventures has closed a $76 million deal in the SPV of Amrapali Group, which is developing a 200-acre township in Jaipur, and a 15-acre high-end housing project in Noida. Similarly, TAIB Bank is investing $50.44 million for a 26 per cent stake in the SPV of Anant Raj Industries, while Lehman Brothers Real Estate Partners is acquiring a 50 per cent stake in Unitech’s Mumbai project. (See a list of major SPV deals).

Liquidity Pressures
Declining internal accruals and reduced funding options is putting pressure on the sector. Adding to the woes are the recent measures of Reserve Bank of India such as raising the repo rate and cash reserve ratio. Already banks have raised their prime lending rates, and the residential demand is likely to get hit, said industry observers. “Even if the developer now takes loan which is difficult to get anyways, where is the assurance that buyer is there,” Bhalla asked.
Real estate players are already grappling with dwindling sales, correction in land prices, tepid demand, and rising input costs, even as they face a liquidity squeeze. The developers are now looking at other sources of funds, and they find no other option than to raise money from PE players for particular projects, because the situation out there is extremely scary.
“Most mid size developers, be it at the regional levels have taken over a lot of load. All these people have got more projects than they can execute. They have more agreements to buy land than they have money for. They have applied for licenses but have no money for licensing fee and construction,” says Bhalla. And in a market where sales are being restricted to genuine investor and to some extent cautious investors, there isn’t much liquidity for the real estate which was getting all the investors’ attention earlier. Bhalla added that all those who banked on the land bank concept of investing in real estate are having very difficult times.
Not withstanding huge debt on its books, Parsvnath Developers, a mid-sized real estate developer is considering stake sale in individual projects. The company is currently carrying debt of about 17 billion rupees and is looking at equity dilution in its its SEZ (special economic zone) and hotel projects.
Also, Unitech is planning to raise $1bn from private equity investors for individual projects and will float SPV’s for its hotel and realty projects.
However, in the recent past, there have been a few investments where investors have picked up stakes in developers at entity level. India Bulls Real Estate owns 50 per cent shareholding in Kenneth Builders & Developers, a South Delhi based developr. It also acquired 100 percent in Noble Realtors. And about 90 per cent stake in Dev Property Developers (DPD), for about Rs 1,100 crore. DE Shaw made an equity investment of $250 million (Rs 1,000 crore) in Mack Star Marketing, a unit of Mumbai-based public listed real estate developer Housing Development & Infrastructure (HDIL). DLF Assets raised $450 million from Symphony Capital. ICICI Venture invested Rs 227 crore in Indore Entertainment World for picking up a 14 per cent stake in the, a wholly-owned arm of EWDPL . But the trend has been changing of late and the investors prefer to invest at the project level rather than entity level.
“We always invest at a project level as we see more value in it. Also, it is a higher return game investing at the project level because if I invest say in a developer, I pay a fee and my returns are reduced to that extent”, said Sanjeeva Shivesh, Executive Director, Fire Capital.
Bhalla also believes that although raising funds have become difficult now, this is the best time for investing in the sector as valuations have reached the rock bottom levels and there are lesser options available for financing now. “Now that the real estate pit has reached the bottom, we can definitely find a few hidden pearls,” said another investor.
Since it has opened its shop in India, Blackstone Real Estate Partners has only managed to make one investment (Synergy Properties). It appears that the investors are increasingly cautious to invest in real estate, finding it safe to invest in individual projects and keep scouting for the same. Now it’s time to build a real estate company SPV by SPV.

With health-care costs on the rise, more U.S. insurers ponder Asia’s hospitals and more patients may visit these popular sites for offshore operations

Medical tourism—people going overseas for all sort of operations—has typically been for America’s uninsured. Unable to pay the high cost of procedures in the U.S., they have been going to less expensive hospitals in Asia and Latin America for years. Now, with health-care costs continuing to rise at home, more U.S. insurers are starting to look into providing coverage for their members at overseas hospitals.

That means offshoring might be the next big thing in health care. “As the health-care crisis in the U.S. continues, people and corporations are going to start taking a look at other options,” says Ruben Toral, CEO of Mednet Asia, a consulting firm that advises hospitals in Thailand, the Philippines, and other countries. “Health care won’t be too much different than manufacturing; it’s going to start to move to lower-cost areas.”

Countries such as India, Singapore, and Thailand are some of the most popular destinations for medical tourists. Just how much cheaper are Asia’s hospitals? Here’s a look at some of the top hospitals, such as Bangkok Phuket Hospital (pictured), along with a comparison of the costs of checking in. With a growing number of U.S. insurance companies considering adding Asia’s hospitals to their coverage, in the next few years more patients from the U.S. might find themselves going to these centers for their next operation.

Data from Thailand Ministry of Public Health, KGI Securities

A recent CRISIL Research study on the Outsourcing industry has concluded that Engineering Services Outsourcing (ESO), an area that encompasses outsourcing of engineering services largely involved with operations linked to the pre-manufacturing stage (designing, prototyping etc.) and analysing data points for process improvement, is poised to be the next big opportunity in the Indian outsourcing services industry.

The Indian IT and ITeS sectors which are currently beset with challenges in the form of global economic uncertainty, rupee volatility, wage inflation, high attrition and commoditisation of services - all resulting in lower margins - need to move towards knowledge driven, value-added services such as ESO and analytics offering better billing rates and protecting margins. Mr. Manoj Mohta, Head, CRISIL Research, explained: “India’s strength in the engineering domain, adaptability to new emerging opportunities, and the advantage of India’s vast skilled talent pool considered on par with other competing nations such as China, Brazil, Mexico, Russia, Israel and Eastern Europe, augur well for Engineering Services which we estimate will grow at a compounded rate of 26 per cent and post revenues aggregating about USD 7.5 billion by 2012-13.

As a result, India’s share of the global offshore engineering spend is expected to increase to 25 per cent from the current 19 per cent.” With the IT-ITeS sectors witnessing a focus towards convergence and clients increasingly preferring to outsource multiple processes to a single vendor, Tier-1 Indian IT service players are now offering to be a single stop service provider of services ranging from IT services to ITeS and more recently, engineering services.

Commenting on the profitability of ESO, Mr. Mohta observed, “ESO is an attractive investment proposition as margins are significantly higher than those in traditional IT outsourcing services. This is despite the high cost associated with experienced engineering personnel possessing intricate knowledge of the domain and client’s processes. The complexities involved in the ESO business are an entry barrier for new entities ensuring higher client stickiness and ability to extract value pricing.”

With cost economics playing a major role in outsourcing of product designs and upgrades, and Indian ESO players favourably placed to take advantage of the same, CRISIL Research has concluded that the Indian ESO industry will be a highly cost effective, compelling reason for multinational companies to outsource their engineering services operations, making India the design services hub of the world.

Crisil Research 2008

Undaunted by the controversies that have enmeshed special economic zones (SEZs), car projects and chemical hubs, the Centre is working on proposals to establish mega manufacturing investment regions and textile enclaves modelled on those in China.

While the department of industrial policy is lobbying for giant manufacturing regions, the textile ministry wants the government to approve a policy to create textile investment regions.

A group of non-resident Indian CEOs had floated the concept of creating investment regions soon after the UPA government came to power, but the idea was cropped and moulded into a policy to establish a string of petrochemicals and chemical investment regions — or chemical hubs — in coastal states. This policy was embroiled in controversy after farmers battled a bid to take over land near Haldia in Bengal for the proposed chemical hub.

Another policy seeking to establish a series of special economic zones that came loaded with tax breaks and the promise of labour law relaxations also came under fire for creating tax havens to the detriment of other investors.

The new proposals for investment regions — which would be larger than the SEZs and in line with the size of the chemical hubs — are not laden with tax breaks and generous labour laws.

The idea is to create hubs that will house manufacturers who can feed off each other, share facilities and trim costs.

These investment regions, modelled on the lines of the Chinese concept of economic regions, will have full global connectivity in terms of international airports, sea and land ports, networked cities and high-speed data access, claim officials who support the concept.

However, the Planning Commission is less enthusiastic about the plan and has reservations about its ability to spur investment.

On the other hand, the proponents argue that the investments regions can spur development in the states that host them. There can be single window approval for companies in the investment region.

In 2004, Prime Minister Manmohan Singh had invited Victor Menezes, former CEO of Citibank and currently vice-chairman of Citigroup, Indra Nooyi, currently CEO of Pepsi, and multi-billionaire venture capital czar Vinod Khosla to suggest ways to ramp up foreign direct investment (FDI). It was this group that first floated the concept of large investment regions.

Infrastructure development in building world class townships, roads, malls, expressways and airports would make these areas attractive to investors, just as development of southern China has made the economic region the most sought after investment destination in the world.

Officials say that the investment regions in China helped create jobs for about some 9.8 million people in 2004 and re-employed 5.1 million workers who had been laid off earlier, reducing the unemployment rate to 4.2 per cent in urban areas.

August 27th , The Telegraph

Ever since been said that the Great Wall of China is the only part of earth that can be seen from Heaven,
Now that we realise that when the world looks for a best FDI destination, why China appears to be the only place on earth….

As a passionate Indian, certainly not a great thing to reckon & realise the fact of someone else’s economic power & superiority especially when that somebody has embibed a lot many common with us. Apart from Buddha, the Himalayas and a life long LoC, the 2 most populas nations of the world has had many alike features, ofcourse, with significant differences in their political & economic framework. But whereas, China has been a preferred Investment Destination for years, India has lagged behind for its reasons ( FDI inflows for China has been more than double than India’s for the year 2007-08) .

As an emerging Communist from a dying dictatorian monarchy, China opened up its doors for World in the year 1978 ( a much early mover advantage than the 1991 similar move of India) and in 3 decades has become the best FDI attractor spot of the world. Investment in righteous Infrastructure, promotion of strategic business locations ( can verify the popularity of Shenzhen, Shangai, Hongkong and Shantou among business circles), a system perfect labour policies and an established Industrial Promotion mechanism has been very substantiative in China’s development. Availability of a huge land resource & human capital, an easy proximity to the west (via. Yellow Sea) and substantial cost advantages to business forums has been evenly instrumental in thy achievement. As per a World Bank publication, it takes more than double the time to establish a business for a foreign corporation in India than the procedures take in China. Hence, the sparkling FDI figures for the nation.

But i often wonder at the pace of a communist nation with very limited exposure to english & foreign languages, with no free internet supply & fewer availability of inter-continental food. A nation which has for years survived a strong anti-japanese sentiment and whose states have lowest possible economic autonomy. I certainly dont believe in the security of my business in a state where any negative policy can be ruled out any moment and are seldom avenues available for redressal or replenishment. Still, thy advantages weigh huge against the negativities.

Most of us find the Chinese goods much cheaper than ours because as a general measure in China the raw materials cost weigh 20-30% cheaper than India and labour cost 30-40% lower than ours (Just to share Chinese labour cost in effect is only 5% of the labour cost of its adjoining Japan). Further, availability of best infrastructure at a substantially competitive prices (as against the Rs. 6/ unit of electricity that we pay, in China costs Rs. 1.5/unit), a 25% tax burden (against India’s 42% for foreign entities) and a stable Yuan can give any business a much desired lift.

Whereas, India’s main part of FDI inflows have been from BPO Industry and Services, we have lacked an organised set-up to attract the world’s best of manufacturing opportunities. Admist of a situation wherein we cannot create Infrastructure overnight on a national basis, we have proceeded to create specialised pockets of Special Economic Zones at various locations. However, the price that a business house has to pay to avail such creame facilities usually includes an extra premium that has ineffect, made India’s cost sheet as good as its Western Counterparts. Today, we are placed over a decade behind of China and other nations - Thailand (3rd best perfomer of FDI), Philipinnes, Hungary have been competing very strongly in India’s FDI domain.

Among the best FDI destinations of the world - BRIC Nations - India has been looked upon as one of the best destinations due to our cost and location benefits, however, till we dont organise our investment structure properly, India achieving viability on the world’s FDI map appears to be a distant dream.

- Yogesh Mittal

India will see the largest growth in its share of foreign investment and become the world leader for investment in manufacturing in five years.

As investments go global, the smart money is increasingly finding its way from the traditional investment destinations of US & Europe to the BRIC countries. The more recently recognized India opportunity is reflected in the fact that a significant amount of investment into India in the next five years is expected from first time investors. The expected increase of Indian investment in the Middle East reflects the proximity and the opportunity created from the oil price led wealth effect. India must continue to build on its investment climate to monetize this sentiment.

An increasing proportion of investments will flow into industrial products and manufacturing in India. Sixty four per cent of the investment into India is expected to come from new entrants to the country.

* Excerpt taken from recently concluded KPMG survey on FDI trends