Economic growth in China and India is slowing and is expected to slump to somewhere between 5% and 7.5% in 2009. So it comes as no surprise that many U.S. corporations, dealing with a recession at home, have put their emerging-markets strategies on hold. In his upcoming book, "Getting China and India Right" (Jossey-Bass, February 2009), Anil Gupta, a professor at the University of Maryland's Smith School of Business, says uncertainty amid global economic turmoil is understandable, but for companies with the resources -- and the nerve -- to invest, the opportunities in China and India have never been greater.
Movers: How large a role is fear playing in the lack of inbound investment to China and India?
Anil Gupta: I'll give you an example. I was talking to a senior executive at one of America's largest firms. This company has a solid presence in China and India. However, because the home base is hurting, the focus is on the U.S. and Europe rather than pushing the pedal in China and India, even though the company has the resources to do that. This executive said at the corporate headquarters, there's a bit of the deer-in-headlights syndrome.
Do you expect any action from the Chinese or Indian governments to encourage inbound investment?
China doesn't need foreign capital, so I don't see China doing anything to encourage or discourage inbound investment. India has a situation that's not a crisis, but its need for foreign investment is significantly greater than China because it's in the early stages of launching its infrastructure revolution -- roads, highways, airports and the like. But I don't see any government action to encourage investment.
Investment into China and India may have slowed, but it's not dead. For companies that are investing, what are the most common mistakes?
One is to bring a product-centric mentality rather than a market-centric mentality. When entering China and India, companies often try to adapt their U.S. or European products. Because the buying power on a per-capita basis in China and India is very low, you're only targeting the top end of the market when you do that.
The middle of the pyramid is where the growth is.
So companies need to adapt their products for the middle of the pyramid?
Not merely adapt. They may have to invent new products and services. It doesn't mean that the company is walking away from its core business, but underlying those core products is core competency.
Foreign investors moving into China and India often do so with a local partner. What risks are most significant?
The biggest problems are that companies do not think through what kind of partner is a good partner, what kind of agreement should be put in place and how much flexibility should be built into that agreement.
Can you offer an example?
A story that is playing out is Wal-Mart in India, which does not permit multibrand retailers to have equity ownership. Foreign retailers can go in by franchising, which is what Wal-Mart and [competitor] Carrefour Group have done.Wal-Mart has set up a partnership with one of India's largest retailers, which has its own national retailing ambitions. Carrefour is signing short-duration contracts with regional, less strong players. Now most people who follow retailing in India say foreign retailers will be able to operate more freely in the future, so this is a short-term issue. By signing up with a regional player, Carrefour may be better positioned [when that happens], because its regional partners may find it difficult to have national ambitions.