Category Archives: India

Want to Ride the Rails? Go East, Young Man, Go East!

Recently we pointed out that despite the fact that the US has a 100 year lead on China on the rails, China is kicking the USA’s @ss when it comes to rail. It just launched the world’s longest high-speed rail route from Beijing to Guangzhou.

Now, not to be left out, India is getting in on the action. As per this recent article over on The Financial, Tata Projects [has begun] work on [the] RS3300 crore Eastern Dedicated Freight Corridor project (EDFC), which it recently won in partnership with Aldesa of Spain. This particular project will lay 337 lines of track between Bhaupur and Khurja in Uttar Pradesh.

Eventually, the eastern dedicated freight corridor (EDFC) project will connect Ludhiana to Dankuni (in the eastern corridor), and Dadri to Jawaharlal Nehru Port, Mumbai (in the western corridor). In addition, the EDFC has been designed for 32.5 tonne axle load, which is at par with America and China, and will increase the speed of freight by up to 100 km per hour.

It’s amazing. North America used to own the rails, but now we’re falling behind the emerging markets, who understand that while a truck is good, a locomotive that can pull ten cars is ten times better. If we were smart, we’d be investing in high-speed rail across the US, instead of bickering about cost distribution between states/provinces and the federal government. A century ago, rails was the future, and it looks like it will be again. Will we realize that before its too late?

Some Legal Considerations When Outsourcing to India

A recent article over on Outsource Magazine had a good article on legal considerations when outsourcing to India that addressed core legal issues that should form the basis of your Master Services Agreement when outsourcing to India. The four issues addressed could be very problematic if not covered by your agreement.

Lex Contractus
This refers to the governing law, or proper law, of the contract. While the parties of a contract can choose the governing law, as the author notes, due to the fact that a major proportion of the services are to be rendered in India, consideration for services will be received in India and the Indian party may sign the contract in India, the applicability of Indian laws cannot be excluded by contract. So, even if the Indian party agrees to the governing law being a foreign law, it is possible that in case of any dispute, the Indian party could approach a court in India to seek appropriate relief and the court could also entertain the dispute on the basis of factors set out above. Keep this in mind when considering outsourcing to India. In addition, should you choose arbitration, Indian law mandates that for a foreign arbitral award to be directly enforceable in India, the award must meet the following conditions: the award must have attained finality in the country it has been passed; it must conform to and must not conflict with Indian law or public policy; both the parties and the arbitration venue should belong to a New York or Geneva Convention signatory country.

Data Protection and Privacy Laws
While India has been slow on the uptake with respect to data protection and privacy laws, compared to the US which has a number of industry specific federal laws and state laws (that also restrict cross-border transfer of personal and sensitive information) and the EU which has the European Data Protection Directive, it has moved quickly to catch up in an effort to insure it keeps the outsourced work that it has acquired. Since the Information Technology Act of 2000 didn’t have enough enforcement teeth in the eyes of the US or EU, the biggest outsourcers to India, it quickly passed the Information Technology Rules in 2011 that defined what would constitute “Sensitive Personal Data or Information”, laid down obligations for the data collector and data processor, and defined reasonable security practice and procedures. This may not be strong enough for extremely sensitive data, but is a great start. Just make sure you also insist on adherence to the IS/ISOIEC2700 as well.

Employment Issues
It’s important to explicitly state that the service provider complies with all the necessary laws and that the overseas outsourcing company may not be threatened by any kind of claim by employees of the Indian company.

Licensing, Copyright in Database and Infringement Issues
Remembering that the outsourcing company is creating, developing, and processing data for you, the client, it is essential that you state that all data, product, programme, software, designs, and compilations constitute IP and that all IP rights are protected and assigned back to you, the client. Note that, in Indian law, the supplier will hold the copyright interest in the software developed by it but Indian law also provides for the assignment of the copyright interest by the service provider in favour of the client, by entering into an separate assignment agreement.

If not properly handled in the agreement, each of these could come back to bite your organization in its organizational behind if something goes wrong. Think it through, and get some expert legal help.

A Great Piece on the Real Drivers of Corruption in India over at K@W

Knowledge @ Wharton recently published a piece on the Real Drivers of Corruption in India and the Rest of the World that is a great read and great food for thought. Corruption is definitely one of the most important and topical issues in India today, and while we might like to think that the Zero Rupee Note would fix the problem, that’s just another one of Mario’s pipe dreams.

But the real insight into the article is that there is no innate difference, just differences of scale between business ethics in America and India. The differences that exist, which can be generally attributed to differences in the development, institutionalization, and capital generation stages of the two countries, are relatively minor and there are significant similarities between business in India today and business in America during the “robber barrons” age (from 1890 to 1934).

And while India has a common practice of using the politico-business nexus of “getting policies fixed, obtaining clearances, and resolving irregularities”, America lobbying, and, more recently, Super PACs (Political Action Committees), which often pour money into the pockets of potential senators and congresspeople than bribery in India ever could. After all, almost all major businesses understand the need to engage lobbyists. That is the price they pay for access to the U.S. Congress to fix policy, obtain legislative clearances, and influence political decision making. When you get right down to it, lobbying is just civilized, legalized, bribery.

However, since India doesn’t have a semi-structured “lobbying” process, the absence of institutional safeguards ensures that the process of influence peddling is a free-for-all. The authors argue that this is why the level of corruption in India is much larger than in America, but if you take a step back, there is nothing innately or structurally different between the American and Indian processes. In both countries, companies give money to people and groups they believe can help advance their cause.

However, the situation in India is now similar to the situation in America a century ago because of the recent waves of foreign capital flooding into India and the creation of a new class of billionaires — overnight — with the granting of spectrum licenses that allowed a select few to offer spectrum (mobile) based telecommunications services to a country with over a Billion people. As a result, the politicians, who made the awardees rich with the license grants, created a render unto Caesar what is Caesar’s type of demand, which was met because of the flood of money these Billionaires had at their disposal. But the truth is that, relatively speaking, the level of corruption in India is not much more than in America, the difference is that India is still in the “Wild West” phase of economic develop, and America has civilized the process of bribing through lobbyist intermediaries who, because they don’t make the Congressional vote, can’t guarantee results — but considering that the reality is that lobbyists who don’t get results don’t keep their jobs …

The BRIC is Becoming Really Investment Critical

As per this recent article over on World Trade 100, it’s time to ask if your company [is] ready to export to BRIC, it’s time to start thinking about exporting to BRIC countries because:

  • 45% of global GDP is estimated to originate from seven emerging economies: Brazil, Russia, India, China, Mexico, Turkey, and Indonesia
  • it is estimated 55% to 60% of the nearly one billion households that will have incomes in excess of 20,000 will be from the developing world within a decade

However, one thing that needs to be noted is that many of these countries have sub-markets, and if the products aren’t localized to the sub-markets, it could be difficult to maximize your return. For example, China has 20 to 40 different sub-markets on its own. And some of these markets are only two hours apart. For example, Guangzhou and Shenzhen are both tier-one cities in China, located in the same province and just two hours apart but there is a marked cultural difference between the two. According to a study done by McKinsey, “Guangzhou’s people mainly speak Cantonese, are mostly locally born, and like to spend time at home with family and friends. In contrast, more than 80 percent of Shenzhen’s residents are young migrants, from all across the country, who mainly speak Mandarin and spend most of their time away from their homes”.

The article has some good thoughts to keep in mind when planning to expand into China, India, Brazil, and Russia. So ask yourself, Is Your Company Ready to Export to BRIC?.

Buy India, Sell China?

A recent article on Fortune on Another Global Recession? Buy India, Sell China caught my attention because, while I think China is over-hyped, I’m not sure India is ready for prime yet due to their infrastructure problems and the issues with getting freight from even a few hundred miles inland in many parts of the country. China still has problems, but they have been investing Billions to improve their infrastructure in recent years and making progress at a rapid rate whereas India, with twenty-eight states and seven union territories, and 22 languages of official status, has been slow to tackle their logistics challenges due to the very long timeframes it takes to get agreements on projects of a national scale. (It probably doesn’t help that the Republic of India is a federation with a parliamentary system that was based on that of Great Britain, where some projects take so long that they literally cross career life-spans!)

So why is the article recommending to Buy India, and Sell China? According to the authors, even though BRIC countries are growing at a rapid rate, countries like Brazil and China are doing so at the expense of other countries — primarily by supplying the global economy with raw materials and manufacturing. If major financial crises (continue to) materialize in the US and the EU, and global demand slumps significantly, these countries are going to get hit the hardest and the growth-rates of nearly 10% will be unsustainable. (And depending on which fear-monger you ask, growth could come to a screeching halt.) And this doesn’t even take into account the deep financial exposure China has to troubled regions through its massive foreign exchange reserves.

On the other hand, poorer, insulated economies like India are in much better shape to weather the storm and, in some economists’ views, even see a silver lining if major obstacles (such as nosebleed inflation rates) decline or disappear.

I have to agree, but only to a point. China is experiencing a rapid rise in its middle class at home and the local economy is booming as well. Plus it has a very aggressive five year plan, and a history of meeting those five year plans. While it will get hit hard, and probably drop down to a growth rate of 5% if a double-dip global recession hits us (just like its growth rate fell from 13% in 2007 to 6.8% in 2008), it will continue to grow and, more importantly, will likely be the first to recover when the double-dip recession ends (if it does hit us).

In other words, if you are one of the few investors left with the brains to take a long term view, don’t count China out yet. It may experience a few bumps, but it will figure out how to smooth them over as it builds its global highways. Moreover, if you’re looking to get rich quick, it will likely be another decade before India provides you with that opportunity. If you’re patient, I believe you can win with both economies.